Published in The Daily Star on Monday, 8 June 2015.
NBR to widen reach of withholding tax
The National Board of Revenue is set to expand its reach over half a dozen services sectors and impose up to 10 percent tax at source on their incomes.
The initiative seeks to properly define the sectors and specify the rate of tax that applies to them.
Also, the tax authority plans to impose specific at-source tax on foreigners based on their professions and types of services they provide. Employers will have to deduct 30 percent tax before making payments to foreign consultants, artists, singers and players.
For contractors, suppliers and companies engaged in oil and natural gas exploration, 5 percent and 5.25 percent tax rates have been proposed.
“We expect to log increased revenue after specifying the tax rates based on services provided by foreign individuals and firms,” said a senior official of the NBR, wishing to remain anonymous.
The imposition of source tax at certain rates on local services sectors will also ensure greater clarity for both service providers and recipients, he added.
Currently, the NBR collects source tax from 58 sectors, ranging from contractors, bank deposit holders, to exporters and importers of certain items.
Through the latest measure proposed by Finance Minister AMA Muhith for the next fiscal year, the tax authority expands its net of withholding tax, which accounts for more than half of total income tax collection.
Under the proposed plan, foreigners, who stay for a short period, will face 30 percent tax on their salaries or honorarium. The same tax rate will apply to acting artists, singers, players, consultants, and certification and pre-shipment inspection service providers.
Foreign shareholders of a company will also have to pay 30 percent source tax on dividend incomes, according to Finance Bill 2015.
Some 20 percent tax will be applicable to dividend incomes for companies. The same rate will apply to interest, royalty or commission.
Other services under the rate include legal and professional services, accountancy and tax consultancy, interior or landscape design, rent for satellite airtime or frequency, and advertisement broadcasting.
Machinery rental, courier service and advertisement making will be subject to deduction of 15 percent tax at source. The same rate of tax will also apply to capital gains on assets except shares of public companies.
Ten percent tax will apply to insurance premiums and capital gains for a company or firm’s investment in listed securities.
Apart from specifying tax rate for foreigners and foreign companies, tax rate at source of commission or gross receipts on various services provided by local companies has also been specified.
Companies offering services such as catering, cleaning, contract or toll manufacturing, credit rating, event management, security, product processing, stevedoring or berth operation will face 10 percent advance income tax on commission or charge. The same rate will be applicable for mobile banking service providers, including technical service providers or service delivery agents.
The tax on indenting commission has been proposed at 7.5 percent, while 5 percent tax would apply on motor garage or workshop earnings, private container or dockyard service providers, and shipping agency commissions. Printing service and transport service providers will face 3 percent tax at source on their incomes, according to the Finance Bill, which is likely to be passed in parliament by the end of the month.
A 10 percent tax at source was fixed for various services before, but the services were not defined individually, the tax official said. “It created ambiguity for both taxpayers and us. Now it becomes clear for all,” he said.
He said imposition of tax depending on professions and services provided by foreigners will also be helpful for both taxpayers and revenue officials.
“We expect to get more than Tk 100 crore through these measures,” he said.
Md Aminur Rahman, a former member of income tax at the NBR, said the measures will eliminate ambiguity for both service providers and service recipients.
“However, tax collection will depend largely on enforcement and monitoring by the NBR,” he said.
Rahman praised the initiative of specifying the tax rates for foreigners. “This will give a good signal to non-resident foreigners and encourage foreign investment,” he said.
Towfiqul Islam Khan, a research fellow at the Centre for Policy Dialogue, said an increase in areas of withholding tax will facilitate higher revenue collection.
Withholding tax accounts for a major portion of income tax in developed countries and it should also increase in Bangladesh, he said. “This is a positive step to bring more people under the tax net and curb the scope of tax evasion.”