Summit power co dodges Tk 11.12 billion in taxes

An investigation by the Central Intelligence Cell (CIC) in the revenue sector has uncovered that Summit Group has evaded payment of Tk 11.12 billion in taxes in the single-largest case of tax-dodging in Bangladesh, officials say.

The tax avoidance has occurred by way of not deducting withholding tax on dividend payments from two of its outfits, one opened in the trade entrepot of Singapore.

It is the largest private -sector participant in the power sector during the previous government's tenure, when quick-rental power deals offered a sort of indemnity to certain private power producers.

A CIC official described it as "the country's largest TDS (Tax Deducted at Source) scandal" discovered so far.

The tax demand has been unearthed by the CIC following cancellation of discriminatory tax privileges for the company not available for similar type of other power companies, officials said.

As per the CIC findings, Summit Corporation Limited failed to deduct 20-percent withholding tax while paying dividends to its shareholder Summit Power Limited.

Similarly, Summit Corporation Limited did not deduct 15-percent withholding tax while transferring dividends to Summit Power International, a Singapore-listed company.

Asked how this tax will be recovered or what actions the National Board of Revenue (NBR) will take, Dhaka Tax Zone-2 Commissioner Barrister Mutasim Billah Faruqui said, "We are now moving for collection from Summit. A demand notice might be issued in this regard this week."

He said the NBR chairman directed them to proceed with recovery.

The Summit management has limited scope to contradict the tax demand as it has been settled by the NBR as central authority.

However, the company can lodge appeal or go to tribunal paying 10-percent tax for lingering the process of tax recovery.

"It was a discriminatory tax privilege enjoyed by Summit as such benefits were not available for similar companies," he added.

"The revenue board is the central authority to interpret the tax evasion, so it's proved that the taxpayer has avoided or evaded payment of taxes, not an allegation," he notes about the status of the tax case.

The only way the conglomerate can now get away from the toils of tax law is to pay off the demanded taxes, the official categorically states.

Responding to FE's query, Summit Corporation Ltd has issued an official statement to clarify their position.

"We are yet to receive any information from NBR or any of tax authorities. Summit has never evaded any tax. Upon receipt of any letter from NBR or tax authorities, we will do whatever is required to be done as per the laws of Bangladesh. We always did and shall always abide by the laws."

The once-favoured corporate falls from grace after a change of guards on the corridors of power. After the interim government assumed responsibility following the August changeover, the NBR's CIC began investigating large industrial groups.

A single case from Summit Group revealed this massive tax evasion or avoidance, which taxmen describe as the tip of the iceberg in corporate cooking of books apparently to evade high-rated business taxes.

Findings from the investigation: Over a month and a half, the CIC had scrutinized all shareholder records, dividend declarations, and disbursement information of Summit Power Limited, leading to these findings.

On August 20, investigations were initiated into several major industrial groups, including Beximco, Bashundhara, Summit, Orion, and Nassa, seeking transaction details of their owners and family members. Letters were sent to banks and financial institutions to gather information.

Initially, the investigation targeted personal tax evasion. However, suspicions of higher evasion at the corporate level led to an expanded inquiry, including assigning investigation officers for each company. So far, this remains the largest instance of tax evasion uncovered.

Summit Power Limited's capital structure: Summit Power Limited has a paid-up capital of Tk 10.67 billion. Its shareholders include Summit Corporation Limited, holding 63.19 per cent, Eurohub Investments Limited (3.65 per cent), institutional investors (18.52 per cent), and general investors (14.64 per cent).

According to Section 117 of the Income Tax Act 2023, companies registered in Bangladesh are required to deduct withholding tax while paying dividends.

However, Summit Power failed to deduct 20-percent withholding tax on dividends paid to Summit Corporation. In contrast, other entities and investors were subject to deducting the taxes. From the financial years 2017-18 to 2023-24, Summit Power Limited had not deducted Tk 3.18 billion in withholding tax on dividends paid to Summit Corporation. Including penalties, this amount has now ballooned Tk 4.65 billion.

A similar aberration occurred when Summit Corporation transferred dividends to Summit Power International.

NBR decisions on tax recovery: The duo of Summit Power Limited and Summit Corporation Limited are taxpayers under the jurisdiction of NBR's Tax Zone-2, which is responsible for collecting the unpaid taxes.

Based on requests from this tax zone, the NBR revoked its previous clarification, which had exempted Summit Power from deducting withholding tax. A new clarification was issued stating that a 20-percent withholding tax must apply to dividends paid by Summit Power Limited to Summit Corporation Limited.

A 15-percent withholding tax must apply to dividends paid by Summit Corporation Limited to the non-resident company Summit Power International Limited under the Bangladesh-Singapore double-taxation -avoidance agreement.

Commissioner Mutasim Billah Faruqui explains, "When a clarification is invalidated, any benefits derived from it become void. The previously obtained exemption is now deemed unlawful, and taxes will be imposed accordingly."

Summit Power International's chairman, Aziz Khan, is adjudged as one of Singapore's wealthiest individuals. Bank accounts belonging to him and his 11 family members have been frozen by the Bangladesh Financial Intelligence Unit (BFIU), which issued directives to all banks and financial institutions to this effect.

Various agencies continue to investigate allegations against Summit Group and his family members. Economist Dr Zahid Hussain, former lead economist of the World Bank Bangladesh, says it might be legally ambiguous to claim as tax evasion as the privilege has been availed as per a government gazette issued by the NBR.

"It can be said as tax evasion. It is horizontally discriminatory but they have legalized it through clarification. Similar companies were not entitled for the benefit," he added.

"It is clear that the deal has been signed through corruption or underhand dealings and it must be investigated why such discriminatory clarification has been issued," he added.

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