What it is
Profit before tax is operating profit adjusted for anything unusual: gains on selling assets, non-operating expenses, share of profit from associates.
It is the base on which corporate income tax is charged. Banks in Nepal pay a higher corporate tax rate than ordinary companies.
How it is calculated
Profit before tax = Operating profit + Non-operating income − Non-operating expenses.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's profit before tax for FY 2082/83 was Rs 1,154.29 crore. Tax of Rs 363.71 crore left a net profit of Rs 790.58 crore.
Income tax expense, the sum of the two printed lines: current tax and deferred tax.
What good looks like
Close to operating profit. A large gap means big one-off items; read the notes.
Watch out
- One-off gains here will not repeat next year.
- The effective tax rate (tax ÷ PBT) should be roughly steady; a jump usually means a prior-year adjustment.
In Nepal
Banks and financial institutions in Nepal pay corporate income tax at 30%, higher than the 25% general rate, under the Income Tax Act 2058 schedule.
Questions
Nepal's Income Tax Act sets a 30% corporate rate for banks and financial institutions.
Not a problem, but not repeatable. Judge the business on operating profit and treat the gain separately.