Govt ill-prepared to exact revenue gains

The revenue department looks ill-prepared to exact due gains from the merger, acquisition (M&A) and sale of shares by foreign companies.       

Senior tax officials admitted such a shortcoming and the urgency of equipping the tax department with adequate skilled manpower and amending the tax law.

Sources concerned said incapacity of the tax authority to deal with issues of M&A and transfers of stakes of foreign companies has given rise to worries among many experts as such actions do generate capital gains and tax revenue for the government.

The matter came to the fore with the merger of telecom companies Robi and Airtel and announcement of the US oil company Chevron's plan to sell off its stakes in Bangladesh.

According to the Income Tax Ordinance, capital-gains tax should be paid on gains generated through acquisition of company shares.

However, most taxmen have no clear idea about levying tax when share transfers take place overseas to outwit them.

"We don't have any clear idea on that issue. If shares of any company are handed over or transferred abroad, which country should deserve the tax on the capital gains?" said a senior income tax official.

It is not well-defined in the existing Income Tax Ordinance 1984, he said.

There is no specific regulator to look into the issue of merger-and- acquisition of non-listed firms in Bangladesh.

Also, there is no separate section in the Income Tax Ordinance focusing the merger-and-acquisition issue of companies. Indirect or overseas transfer of shares by a company is also not well-defined in the law.

Most of the taxmen have no clear idea as to how to monitor companies' M&A.

There is 15 per cent income tax on capital gains of companies under the income tax law.

Earlier, some of the MNCs had transferred their shares outside the country but none of the government agencies did bother about it, the tax official pointed out.

"We should develop our skill as well as related laws, including tax provisions, so that the country gets the revenues it deserves in the process," he said.

In a recent meeting, the NBR decided to form a committee to monitor the share-transfer processes of MNCs, including US oil- and-gas-company Chevron. Large Taxpayers Unit (LTU), income tax and VAT wings will take necessary steps through coordination among them.

"Chevron is leaving the country. An expert committee has to be formed to scrutinise whether any capital gain arising out of the process of handing over the ownership of the company," it is written in the minutes of the meeting.

Officials mentioned that Warid telecom had left the country by changing its ownership. The tax authority will investigate the makeover.

M Farhad Hussain, FCA, former president of the Institute Chartered Accountants of Bangladesh (ICAB), said many companies give up their plan to merge their subsidiary holdings due to double taxation.

He recommended simplifying the tax issues for creating smooth M&A of companies.

ICAB former vice-president Shahadat Hossain FCA suggested bringing consistency between company law and tax law to find common nature of share transfer and imposition of tax on its capital gains.

"The issue should be brought into serious consideration of the government immediately. With the changing global business trends M&A will be a common trend among the MNCs in Bangladesh," he said.

The government can either amend the company law or frame a new one clarifying the matters and coordinating with the tax law, he added.

Recently, mobile-operator Robi announced completion of proposed telecom merger with Airtel after getting approval from the Registrar of Joint Stock Companies (RJSC).

In completing the first telecom merger as well as the country's largest merger, Axiata now holds 68.7 percent controlling stake in the combined entity while Bharti holds 25 percent.

The remaining 6.3 percent will be held by the existing shareholder NTT DOCOMO of Japan.

Chevron, the second-largest US energy company, is also running its commercial discussions regarding its Bangladesh assets as it moves forward with plans to sell assets amid a prolonged slump in energy prices.

The California-based company disclosed in October last year plans to sell out about $10 billion worth of assets by 2017.

State-run Petrobangla recently assigned two of its subsidiaries - Bangladesh Gas Fields Company Ltd (BGFCL) and (Sylhet Gas Fields Ltd) SGFL - to assess the assets and liabilities of Chevron Bangladesh.

It may quote a price for the buyout of the US firm's local stake on the basis of a report to be filed by the subsidiaries.

    doulot_akter@yahoo.com