Tax burden of source tax deducting entities, including companies, banks, NGOs, government agencies and other employers, would increase significantly if they did not deduct source tax from applicable expenditures.
The organisations would have to pay tax at regular corporate rates on the expenditures irrespective of profit or loss of the companies as the National Board of Revenue would not accept the expenses as admissible costs for tax waiver in case of failure of tax deduction at source.
Finance minister AHM Mustafa Kamal has proposed an amendment in the Income Tax Ordinance-1984 in the budget through the proposed Finance Act-2019.
According to the existing income tax law, tax officials could disallow the expenditures on which TDS was not made, NBR officials said.
But, in many cases, tax officials could not collect the tax from disallowed expenditures as many tax deducting authorities pay minimum tax or show loss in tax returns, they said.
NBR proposed bringing the amendment to ensure compliance of source deducting authorities and collect proper tax, in case of non-compliance of the provision, they added.
According to the proposed amendment, the disallowances would be treated as income from businesses or profession and the tax should be payable thereon at the regular rate whatever contains in the provision related to minimum tax or any profit or loss.
Generally, the withholding authorities claim tax waiver on the expenditure against which tax deduction was made.
For example, the amount of salary paid to employees would be considered as allowable expenditure of the employer and there would be no tax on such expenditure.
According to income tax law, TDS entities deduct tax at source in 58 sectors including salary, supply of goods and execution of contracts, interest on securities, bank deposits, dividends, payment to non-residents, and export earnings.
Currently, there are several lakh public and private entities, known as the withholding authorities, were responsible for deducting the tax.
According to another amendment, tax officials would assess the price of stocks and shares purchased by a taxpayer from any company in line with the fair market value system to prevent tax evasion suspecting that the stocks and shares were being transacted at lower price.
The difference between the price paid and the fair market value would be treated as income from other sources and would be taxed.
A senior tax official said that the provision would be applicable for transactions of stocks and shares of private limited companies.
He said that many shareholders concealed the actual transaction prices declaring the originally acquisition prices of shares obtained long ago. For example, a share might be bought at Tk 100 ten years ago and the current market price of the share might go up to Tk 500.
A shareholder sells the share at market price but he or she declares the price at acquisition value to avoid tax, the official said.
He also proposed to bring banks and non-bank financial institution under regular audit procedures by withdrawing a special exemption facility for the sector.
Currently, taxpayers, both individual and corporate, could avoid audit by showing at least 15 per cent higher income in the tax returns than that of previous tax returns.
Kamal proposed to withdraw the benefit for financial institutions.
NBR officials said that large taxpayers unit of NBR could not conduct audit on most of banks and financial institutions after the provision included in the income tax law in 2016.
Following the request of LTU, NBR recommended withdrawal of the benefit for financial institutions, they said.
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