Govt lifts tax waiver ceiling for local LCs

Doulot Akter Mala | Wednesday, 13 June 2018

Traders may need to pay 3.0 per cent AIT on local letter of credit (L/C) from the next fiscal year (FY) without any exemption ceiling.
In the proposed Finance Bill-2018, the government has withdrawn the existing waiver limit of Tk 0.5 million (5.0 lakh) for local L/C or any other financing deal for the purchase of goods.
Industry insiders said the cost of production would go up with the proposed changes.
The bill, placed on June 07, has proposed amending the provision of the Income Tax Ordinace-1984 to scrap the existing exemption limit.
Officials at the National Board of Revenue (NBR) said the article 52U of the Income Tax Ordinance-1984 has been amended in the Finance Bill.
The income tax wing would be able to collect a significant amount of AIT from local L/C due to this amendment.
In the proposed bill, the rate of AIT has been brought down to 1.0 per cent from the current 3.0 per cent on sales of goods to distributor under a financial arrangement.
Banks and financial institutions will deduct the AIT while making payment to the sellers of goods.
According to the proposed amendment of the article 52U, the bank or any other financial institution (FIs) extending any credit facility shall deduct, at the time of paying or crediting to seller of goods, the tax at 3.0 per cent of the total amount.
The deduction of AIT will not be applicable to the payment against local LC, which is opened for purchasing goods for the execution of export orders.
Commercial banks and FIs will deduct AIT at the rate of 1.0 per cent while making payment to the sellers of goods in case of extending credit facility to a distributor under a financing arrangement.
The provision clarified the definition of distributor.
It means a person who performs the function of supply of finished goods produced by another person to the end customer directly or through any other intermediary.
The tax, however, will not be applicable to LCs or financing agreement made for the purchase or procurement of commodities such as rice, wheat, potato, onion, garlic, salt, edible oil, sugar, computer, jute, cotton, and yarn.
In FY 2014-15, the NBR first incorporated the provision into the tax ordinance-1984.