NBR set to waive IOCs\\\' service charges

The National Board of Revenue (NBR) is set to waive Value Added Tax (VAT) on international oil companies' (IOCs) service charges and their consultants' honorarium in a bid to facilitate exploration and production of gas.
The NBR is set to issue an order to this effect subject to approval of the finance ministry following a proposal of the Ministry of Energy and Mineral Resources.
Currently, the IOCs are enjoying duty exemption on import of all types of equipment and machinery under the Production Sharing Contract (PSC) except the service charges.
The VAT wing of the NBR is likely to place a proposal based on that of the energy ministry this week to the Finance Ministry for its approval of exemption of the existing 15 per cent VAT on service charges terming it 'import' by the IOCs.
In the proposal, NBR Chairman Ghulam Hussain sought permission of the Finance Minister to offer VAT exemption to the IOCs.
Officials said the NBR would issue a Statutory Regulatory Order (SRO) on consent of the Finance Minister. They said the government in principle decided to offer the exemption.
In 2010, the NBR imposed 15 per cent VAT on all types of services by amending the VAT law, 1991. With expansion of the VAT net on services, the IOCs' services came under the purview of it.
"There was no such provision in the VAT law when the PSC was signed between the government and the IOCs in 1995. So the authorities concerned cannot include the services in the list of tax exemption," said a senior tax official.
In the proposal, the NBR said imposition of 15 per cent VAT on the IOCs' services would be contradictory with the existing PSC conditions.
As per the PSC, the state-owned Pertobangla pays all types of taxes, mainly income tax, on behalf of the IOCs.
The IOCs have to bring technical know-how and consultants for helping their businesses.  
Energy ministry officials said a number of new projects on gas exploration were underway which needed assistance of foreign consultants.
As per VAT rules, consultants would have to pay 15 per cent VAT on their fees or honorariums which might discourage them to provide services here, officials said.
The US-based Chevron and the UK-based Tullow are the only two natural gas producing international oil companies in Bangladesh.