The revenue authority sticks to its decision to levy both VAT and income tax on banks' commission against sales of government savings tools despite the central bank's disagreement over such 'double taxation'.
Officials said the Value Added Tax (VAT) wing of the National Board of Revenue (NBR) recently clarified its stand following objection raised by the Bangladesh Bank.
The government's revenue board deducts 15 per cent VAT and 10 per cent income tax on the commission earned by the scheduled banks against the sale of prize bonds and different other savings tools issued by government for domestic borrowing.
The BB earlier in a letter sought NBR's opinion over the issue. It sought to know whether it is double taxation or double deduction of taxes on the commission.
In response, the VAT policy wing said income tax and VAT are two different types of taxes which are enforced under different laws.
In its reply, sent to the BB department concerned, the VAT wing said:
"VAT can be deducted on the same services where income tax, too, is applicable."
It seems not to be double taxation, but it would be considered double taxation in case of deduction of VAT twice on same services, the clarification letter added.
According to the Prize Bond encashment policy, section XVII, scheduled banks receive 1.0 per cent and 0.50 per cent commission on sales of prize bond and savings certificates respectively.
Talking to the FE Tuesday, a senior VAT official said income tax paid on the commission is adjustable with the actual payable tax.
"The 15 per cent VAT cannot be termed double taxation as there is no other form of VAT on the commission and the 10 per cent income tax is adjustable," he said.
Earlier, the central bank feared a negative impact on domestic borrowing by government due to existence of 25 per cent tax (VAT plus IT) on commission for the scheduled banks on sales of prize bond and different savings instruments.
It is not clear whether it is logical or legal to deduct 10 per cent tax at source and 15 per cent VAT on the commissions of banks on sales of savings tools and prize bonds, BB Director-General (DG) Md Awlad Hossain Chowdhury wrote in the letter to the NBR.
The scheduled banks pay corporate tax at 40 per cent on their annual income that also includes the earnings from the commission.
"With the deduction of 10 per cent tax at source and 15 per cent VAT the banks have to pay double tax on their commission incomes," he said in the letter.
The central bank requested the NBR to give clarification on logic of double taxation or double deduction of tax from prize bonds or savings instruments.
Sources concerned said the scheduled banks will be discouraged from selling prize bonds and saving tools if they have to pay double tax on the nominal commission income.
Although all of the banks are bound to sell saving instruments as per the existing policy, only a handful of them are doing so.
Currently, banks are offering only about 4.0 to 5.0 per cent interest on fixed-deposit schemes. But the rate of yield is maximum 11.76 per cent on savings certificates.
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