Banks in a fix over effective date of slashed source tax

The majority of the banks are in confusion over the effective date of reduced source tax on export proceeds as it remains unclear in the revenue board's order.

On January 01, the National Board of Revenue (NBR) slashed the source tax for all exporters including readymade garments and leather, except jute, to 0.25 per cent from 0.60 per cent by issuing a Statutory Regulatory Order (SRO).

It has been found that some banks have been deducting source tax at the new rate of 0.25 per cent from January 1, 2019 while others have started adjusting the deducted tax, considering the SRO effective from July, 1, 2018.

According to the SRO, officials of the income tax wing said, the reduced tax rate of 0.25 per cent would be considered effective from July 01, 2018 unless the NBR issues another SRO clarifying the date of effectiveness.

Talking to the FE, several bankers have raised the issue and sought immediate clarification from the board.

Talking to the FE on Wednesday, Safiqul Islam Zahid, head of financial operations and control of the Eastern Bank Limited (EBL), said his bank is deducting source tax at a rate of 0.25 per cent from January 1, 2019, the date on which the SRO was issued.

"We have verbally discussed the issue with the NBR and received its green signal to deduct source tax from January," he said.

Some other banks, including The City Bank, have also started deducting source tax at new rate from January, he added.

Officials of the finance department of Southeast Bank said the reduced rate of source tax has been effective since July 2018 and they are doing so as per the SRO.

Meanwhile, the Standard Charted Bank, in a letter to the NBR, sought clarification over the effective date of SRO.

In the letter, signed by Mohammad Syed Bashir Ali, head of taxation, and Mohammad Monowar Hossain, Financial controller, sought special guidance from the tax policy member to resolve the confusion.

"We would like to draw your kind attention that the new SRO just replaced the tax deduction rate of earlier SRO without indicating any implementation date of the new changes," said the letter.

The bank wanted to know whether it should consider the new tax rate effective from July 1, 2018.

In the budget for Fiscal Year (FY) 2018-19, the source tax for export proceeds was fixed at 1.0 per cent. Later, on September 5, 2018, the NBR reduced the rate to 0.60 per cent with retrospective effect from July 1.

On January 1, 2019, the NBR issued another SRO further reducing the rate to 0.25 per cent without mentioning when it would come into effect. Last year, source tax for exporters was 0.70 per cent.

Eastern Bank official said the several changes of the source tax rate have left the banks puzzled as they have to adjust the deducted source tax from export proceeds.

"In the current fiscal, we deducted source tax at a rate of 1.0 per cent until September, then after the first phase reduction of the taxes to 0.60 per cent, we adjusted the deducted tax with the payable taxes on export proceeds," he said.

Now, the banks will have to adjust the collected tax again at the new rate 0.25 per cent, he added.

Talking to the FE, a senior tax commissioner said the taxmen would not refund the deducted tax to the banks as there is a provision for deducting minimum tax, which is not refundable.Banks will have to adjust their collected taxes in the new rates, he said.

The taxmen would lose a significant amount of revenue in the current fiscal due to the two-phase reduction of the source tax for exporters, he said.

However, bankers said as per new rate, the source tax has been reduced to 58 per cent, which would be difficult to adjust in the next six months of the year if the new rate is considered effective from July 1, 2018.

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