Some banks evade local LC taxes

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Doulot Akter Mala The tax authorities have identified that some scheduled banks are allegedly evading payment of tax against opening of local letters of credit (LCs) in a bid to attract businesses. Field-level tax officials have recently expressed their concern in this regard to the National Board of Revenue (NBR) and the Bangladesh Bank (BB). The income tax authorities have decided to issue letters to all commercial banks and the central bank, clarifying the existing rules on payment of advance tax on opening of local LCs. The letters are set to be sent today (Wednesday) to make it clear that any service that matches with the nature of local LC is taxable, sources concerned said. A senior tax official said taxmen have identified that some scheduled banks are opening the local LCs under different names such as 'invoice financing' and 'suppliers financing' to avoid payment of advance tax. The banks also launched separate products to attract importers to open LCs by waiving tax, he said. In an intensive audit, the taxmen found these irregularities by some local banks. The tax office concerned, dealing with banks, recently informed the matter to the BB. "Any service that matches with the nature of local LC is taxable according to the income tax rules," the tax official also said. The NBR introduced the tax at source on local LCs in fiscal year 2012-13. Tax officials are yet to compile data on the amount of tax collected from the banks on local LC opening. "We estimated Tk 55 billion annual transactions through opening of local LCs. So, a significant amount of tax could be collected from this sector," he added. Talking to the FE, Association of Bankers Bangladesh (ABB) president and managing director (MD) of NCC Bank Ltd Nurul Amin said it is not expected that banks would adopt this kind of deceitful strategy to evade tax. "I am not yet aware of the allegation and launching of new products to avoid payment of tax," he said. Anis A Khan, MD and chief executive officer (CEO) of Mutual Trust Bank, however, said some new products that have been launched recently are named according to international banking terms. But those products are not similar in the nature of local LC. According to the income tax law, importers enjoy tax exemption on opening of local LCs up to Tk 200,000. One per cent tax is deducted for the LCs valued between Tk 200,000 and Tk 500,000. Tax rate is 2.5 per cent for local LCs worth between Tk 500,000 and Tk 1.5 million, 3.5 per cent for LCs between Tk 1.5 and Tk 30 million, and 4.0 per cent for LCs valued at Tk 30 million, and 5.0 per cent for LCs above Tk 30 million. Banks are one of the major revenue earning sources for the NBR. They contribute around 33 per cent of the total annual collection of income tax.