Contractors receiving higher payments have to pay tax at source at higher rates on their bills as per rules proposed for the upcoming fiscal year.Â
The National Board of Revenue (NBR) has proposed to raise the rate of tax at source on a contractor's bill above Tk 50 million in a bid to introduce progressive taxation in the highly potential sector of the direct tax collection.
The board has incorporated two new rates of tax at source in the income tax law for the contractors who will receive bills above the limit, official sources said.
At the time of making payment, deducting authorities will cut 6.0 per cent tax at source from a contractor's bill above Tk 50 million and up to 100 million as per provision incorporated into the income tax law.
Taxing the contractors will go up to 7.0 per cent in the second slab if the base amount of the bill exceeds Tk 100 million.
Official sources hoped the new taxation measure would bring the highest amount of revenue for the income tax wing in fiscal year 2016-17.
Currently, the highest rate of deduction of tax at source at the time of making payment to contractors is 5.0 per cent if it is above Tk 30 million.
In FY 2016-17, contractors will have to pay 5.0 per cent tax if base amount exceeds Tk 10 million to Tk 50 million.
In the new tax measure, the NBR, for the first time, has proposed differential tax rates for supply of goods, manufacture, process or conversion, printing, packaging or binding. Earlier, the tax at source rate was flat for all of the contractors.
For the category, tax rate will be 3.0 per cent if base amount does not exceed Tk 2.0 million. Tax at source will be deducted at 4.0 per cent in case of base amount being above Tk 2.0 million up to Tk 10 million while 5.0 per will be deducted if it exceeds Tk 10 million, as per proposals in the income tax law.Â
Talking to the FE, a senior tax official said in the finance bill the government mentioned the maximum rate of the at-source tax as 10 per cent but the rate will not exceed 7.0 per cent.
Some are confused over the maximum 10 per cent rate in the finance bill. The rate has been mentioned to make it clear that the tax at source on contractors' bill will not be above 10 per cent, he said.
"…the person responsible for making the payment shall, at the time of making such payment, deduct tax at such rate, not exceeding ten percent (10%) of the base amount, as may be prescribed," the finance bill reads.
In case of the payee not having 12-digit Taxpayer Identification Number (TIN), the rate of tax will be 50 per cent higher.
The deducting authorities of the tax from the contractors' bills are the government or any authority, corporation or body of the government, including its units, the activities of which are authorized by any act, ordinance, order or instrument having the force of law in Bangladesh, a project, programme or activity where the government has any financial or operational involvement, a joint venture or a consortium, a company, cooperative bank, co-operative society, financial institution, non-governmental organization registered with the NGO affairs bureau.Â
Also, school, college, institution, university, hospital, clinic, diagnostic centre, trust of fund, firm, public private partnership, foreign contractor, foreign enterprises or association, a body established outside Bangladesh, any artificial juridical person not mentioned above should hold the deducting authority. Â Â
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