Revenue authorities made a decisive move to realise Tk 1.1 billion in back taxes from eight large insurance companies who have defaulted on the payment for long, officials said.
The value-added tax (VAT) wing of the NBR demands the unpaid amount on account of at-source VAT on insurance agents' commission and re-insurance commission.
The large taxpayers unit (LTU) under the VAT wing claimed the tax arrears for the period from 2013 to 2016 of calendar year.
To push through this claim LTU commissioner Matiur Rahman issued letters to the eight insurance kingpins Monday, asking the insures to explain in next 15 days the reasons for non-payment of VAT.
The insurance companies are: Progoti, Green Delta, Sadharan Bima Corporation, Reliance, Pioneer, Phoenix, Eastland, and Pubali.
The government imposed VAT at a rate of 15 per cent on agent commission in fiscal year 2014-15.
The eight firms owe Tk 434.3 million as agent commission and Tk 667.3 million as re-insurance commission.
Out of Tk 667.3 million worth of re-insurance commissions, Green Delta defaults on Tk 175.9 million followed by Sadharan Bima Corporation Tk 174. 2 million, Reliance Insurance Tk 115.2 million, Progoti Insurance Tk 57.3 million, Eastland Tk 46.6 million, Phoenix Tk 41.7, Pioneer Tk 37 million and Rupali Tk 19.4 million.
As VAT at source on insurance commission, the LTU demanded Tk 132.9 million from Green Delta, Tk 105.3 million from Reliance, Tk 66.3 million from Progoti, Tk 53.2 million from Pioneer, Tk 36 million from Eastland, Tk 27.3 million from Phoenix and Tk 13.3 million from Rupali.
Talking to the FE, Bodruzzaman Munshi, assistant commissioner of the LTU, said the companies have to send a reply in writing or sit for hearing over the next 15 days to explain non-payment.
As per existing VAT law, they are bound to pay the amount as the NBR did not waive the VAT, he added.
"We have sent the preliminary demand to the eight large insurance companies that are under the jurisdiction of LTU," he said.
As per the law, the LTU demanded 2.0 per cent monthly interest with the actual amount of VAT back pay.
In the letter it is stated that after scrutinizing the annual report, the VAT officials found the insurance companies paying substantial amounts of commissions to the agents but not deducting VAT from it.
The officials also found that the insurance companies are receiving large amounts of commission on re-insurance fees sans paying VAT.
According to the VAT law, it is a punishable offence to incur VAT arrears and not to comply with the law.
Sheikh Kabir Hossain, president of the Bangladesh Insurance Association (BIA), said insurance companies have long been urging the government to withdraw VAT on insurance and re-insurance commissions.
"We offer 15 per cent commission to insurance agents. They will not be encouraged to work as agents for the insurance companies if VAT at a rate of 15 per cent is deducted at source from their commission," he said.
The insurance sector will face difficulties to survive if they have to pay the VAT, he noted in defence of the default.
He also has a suggestion as regards a way out from the tangle. The authority should impose VAT in a logical way in discussion with representatives of the insurance sectors, he said.