The government has extended the coverage of advance income tax on local letter of credit or any financing agreement for purchasing goods, imposing the AIT on small-scale businesses.
Finance minister on June 7 in his budget proposals proposed to amend a provision of the income tax law thoroughly for brining all local LCs under the AIT coverage scrapping the existing exemption up to Tk 5 lakh.
Officials of the National Board of Revenue said that AIT at the rate of 3 per cent on local LCs and other any financial agreement would be applicable once the proposed amendment was adopted in the parliament by the end of June.
Muhith incorporated the proposal in the Finance Bill-2018 for amending the article 52U of the Income Tax Ordinance-1984, they said.
Currently, local LCs and other financial arrangement worth over Tk 5 lakh are exempted from AIT.
He, however, proposed to bring down the rate of AIT to 1 per cent from current 3 per cent on sales of goods to distributor under a financial arrangement, they added.
Banks and financial institutions will deduct the AIT while making payment to sellers of goods.
According to the proposed amendment of the article 52U, the bank or any other financial institution extending any credit facility for purchasing any goods by a person from another person for the purpose of trading, or of reselling after process or conversion shall deduct, at the time of paying or crediting to seller of goods, the tax at 3 per cent of the total amount.
Deduction of AIT will not be applicable on the payment against local letter of credit which is opened to purchase goods for execution of export orders.
In case of extending credit facility to a distributor under a financing arrangement, banks and FIs will deduct AIT at the rate of 1 per cent while making payment to the seller of goods.
Distributor means a person who performs the function of supply of finished goods produced by another person to the end customer directly or through any other intermediary, the provision says.
The tax, however, will not be applicable to LCs or financing agreement made for the purchase or procurement of rice, wheat, potato, onion, garlic, peas, chickpeas, lentils, ginger, turmeric, dried chilies, pulses, maize, coarse flour, flour, salt, edible oil, sugar, black pepper, cinnamon, cardamom, clove, date, cassia leaf, computer or computer accessories, jute, cotton, yarn and all kinds of fruits.
The NBR first incorporated the provision in the tax law in the FY 2014-2015.
Since then trade bodies including the Federation of Bangladesh Chambers of Commerce and Industry have been demanding repeal of the provision.
FBCCI president Shafiul Islam Mohiuddin on Tuesday told New Age that withdrawal of the exemption would increase the cost of production.
The government should continue the exemption limit up to Tk 5 lakh to give relief to small producers, he said.
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