The National Board of Revenue, in order to streamline Value-added Tax collection, eyes ensuring compliance with source tax deduction, sources said. The VAT wing of NBR has recently issued a Statutory Regulatory Order (SRO) mentioning specific rules and regulations with regard to source tax deduction by withholding authorities that will come into effect from the next fiscal (2019-20).
The withholding authorities, as per the SRO, will be liable to pay the tax at source to the government treasury on their own, if they fail to deduct this tax from goods or service they receive from providers. They will also have to pay 2 percent interest on a six-month basis over the total payable amount of tax they missed. According to the SRO, any government or private entity, including ministry, division, semi government or autonomous body, state-owned entities, and local government authority, will be considered as withholding authorities.
Besides, private entities approved by NGO bureau or social welfare department, bank, Insurance, intermediate or higher educational institution, limited company, or any private entity having an annual turnover more than Tk one crore will also be considered as VAT withholding entities. If any registered supplier through tender, work order, or contract, supplies goods or service and does not have an exemption more than Tk 10,000, or not enjoying cent percent rebate, the withholding authority concerned will have to deduct source tax on the transaction.
If any goods or service provider is imposed 15 percent VAT on his or her product and provides it issuing VAT-6.3 chalan form, the TDS authority will have to extract one-third of the total amount of payable tax this way. If the provider is imposed VAT at reduced rates on his or her product and provides it issuing the same VAT chalan form, the TDS authority will have to extract the total amount of payable tax on source tax basis.
If any foreign entity works as a service provider, the concern bank or financial institution will have to deduct source tax over the service. Governmental, semi-governmental or any autonomous entity in the case of providing business licenses must deduct source tax against the service, the SRO says. A senior VAT official with regard to the issue, told Bangladesh Post that source tax is a prominent source of total VAT collection, and that is why specific rules and regulations have been set to get best output from here.
“The withholding authorities, as per the law, must deduct the payable source tax while taking service from stakeholders. Otherwise they will be liable to pay it,” he said. “In the developed countries, the contribution of source tax is about 80 percent, whereas we lag behind. So we have to make sure of compliance here,” he added.
However, petroleum, gas, water (Wasa), power, telephone, and mobile phone service sectors will be out of the purview of source tax deduction. According to the SRO, if the goods or service provider does not issue integrated tax chalan and source tax deduction certificate, the concerned withholding authority will not receive any service from the provider and does not pay any amount on it.
The withholding authority must pay the deducted tax to the government treasury within 15 days and has to preserve the documents for the next five years.
Both the TDS authority and service provider in case of any irregularity with source tax deduction will be convicted as per the VAT law. According to the SRO, the withholding authority will have to pay the tax on their own if they fail to deduct source tax from the service providers.
They will also have to pay 2 percent interest on the amount of deducted tax on a six-month basis. As per the sub-section 1(Ka), under the section 85 of the Value-added Tax and Supplementary Duty Tax Act-2012, the exchequer may impose Tk 25,000 as a financial penalty on the concerned official of the TDS authority if he fails to submit the deducted tax to the government treasury within the time-frame.
According to the VAT law, the service providers while exchanging service must issue a tax chalan in the VAT-6.3 form and clearly mention the value of his goods and tax imposed on it in the part-3 of VAT return form-9.1. At the same time, he must receive tax payment certificate from the withholding authority to adjust the amount with total payable tax at the year-end.
The service provider, showing the certificate, will be allowed to adjust the deducted source-tax with the total payable tax within the certain fiscal or in the next six months. After the expiry of this period they will not be allowed to adjust this tax, the SRO reads.