Foreign contracting firms will have to pay tax at source at the rate of 5 per cent on their total receipts which they get for executing development projects in Bangladesh, officials of the National Board of Revenue said. The government’s development project implementing agencies will have to deduct the tax while making payment to any foreign contracting firms, they said.
The revenue board has already asked different project implementing agencies including Bangladesh Power Development Board for deducting the tax commonly known as tax deduction at source, officials of the income tax wing of the NBR said.
They said that the income tax wing might issue a general instruction to project implementing agencies for ensuring the deduction of the tax and submission of the same to the government exchequer as in most cases they do not deduct the tax.
They said that the government project implementing ministries or organisations must deduct the tax.
If the foreign contracting firms are exempted from paying any tax under the agreement, the government implementing agencies will have to pay the tax from its own fund.
Giving its opinion on the draft contract document on construction of Sikalbaha 225 MW Combined Cycle Power Plant Project, the revenue board has recently said that BPDB will have to deduct Tk 85.39 crore as tax while making the payment of contract money to the Indian Larsen & Toubro Limited for execution of the project worth Tk 1,707.75 crore.
The revenue board has also asked the BPDB for paying around Tk 500 crore as tax at source which was supposed to be deducted during payment to another international contractor.
The government every year implements many large development projects in electricity, gas, oil and other physical infrastructure sectors with its own fund or development partners’ loan and grants.
It hires foreign firms for execution of those large projects either as conditions of foreign loans and grants or it has no skills to carry out the projects.
Currently, there is a case under trial regarding deduction of tax for execution of a project of Bangladesh Telecommunication Company Limited from the Hyundai Technologies.
Usually, foreign firms decline to pay the tax showing different excuses.
The excuses include that the projects are being executed with foreign loans and grants or they are exempted from paying tax under the conditions of contracts rather the government implementing agencies are responsible to pay the tax.
Local contracting firms, however, usually pay the tax.
Officials said that in most cases, the government’s implementing agencies pay duties on import of machineries and other equipments sent by the contractors for execution of the projects.
Contractors usually execute the projects on turn-key basis and the government pays the contract money for execution of the project.
According to the Income Tax Ordinance-1984 and Income Tax Rules-1984, AIT at the rate of 5 per cent will be applicable on any payment to contractors or sub-contractors for execution of any contract or sub-contract.
The agencies responsible for making the payment will deduct the tax at the time of making the payment to the contractors.
NBR officials said that contracting firms would have to pay tax on income of consultants and employees involved in the firms.
Tax will also be applicable on the payment to sub-contractors if the principle contractor hires any sub-contractors for execution of the project, they said.
-With New Age input
