A large number of shareholders and owners of limited companies in the country are not paying value-added tax on remuneration which they receive as directors of the companies as they are showing their receipts as salary, officials of the National Board of Revenue said.
They said that many companies were showing directors’ remuneration as salary to enjoy VAT exemption.
VAT Audit, Intelligence and Investigation Directorate of the revenue board has brought the issue under its scanner after detecting a number of such cases during audit activities on annual audit reports of the companies.
The directorate took the move to ensure compliance with the VAT law and proper VAT collection from the sector.
Companies in their annual audit reports are showing a huge amount of expenditure as directors’ remuneration, the officials said.
VAT intelligence on January 15 also sought directives from the revenue board on the applicability of VAT to directors’ remuneration of the limited companies.
VAT officials said that VAT at the rate of 15 per cent would be applicable to remuneration which the directors received from the companies for attending board meetings.
They may also receive the remuneration on monthly basis as directors of a limited company.
The companies are showing the remuneration as salary, claiming that it is given to directors on monthly basis for regular activities.
VAT intelligence in its letter said that they had conducted audit activities on limited companies’ audit reports prepared by chartered accounting firm and found a huge amount of expenditure under the head.
Though there is no scope for showing the directors’ remuneration as salary expenditure as per the VAT law, some limited companies are requesting the directorate to exclude the expenditure from deduction of VAT at source considering the expenditure as salary, the letter, signed by VAT intelligence director general Syed Mushfequr Rahman, said.
Usually shareholding directors, managing director and members of the board of directors of a limited company are the owners of the company and they
also get profits and dividend from the company, it said.
According to the VAT law, 15 per cent VAT will be applicable to remuneration of persons who participate the board meeting or annual general meeting in exchange of fees or honorarium.
Participants of the board meeting or AGM of public, semi-government, autonomous bodies, bank, insurance, limited companies, non-government organisations and international agencies operating in
Bangladesh come under the purview of the provision.
There is also 10 per cent advance income tax on the remuneration of participants of the board meeting, according to the income tax law.
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