Small contractors struck by new source tax structure

Small contractors and suppliers will see a deduction of 2 percent from their payment as withholding tax from this fiscal year, thanks to a recent move of the National Board of Revenue. Previously, there was no source tax on payment of up to Tk 2 lakh to contractors and suppliers.

Now, the procurement authority will have to deduct advance income tax during any payment to contractors and suppliers, according to the notification issued recently.

The tax administration has brought revisions to the source tax structure by merging the first four slabs of payment to two: up to Tk 15 lakh, and between Tk 15 lakh and Tk 25 lakh.

Contractors who earlier paid 1 percent withholding tax upon receipt of payment from Tk 2 lakh to Tk 5 lakh will now have to pay 2 percent. But contractors who receive between Tk 5 lakh and Tk 10 lakh will continue to pay 2 percent withholding tax this fiscal year.

Those who receive more than Tk 10 lakh but less than Tk 15 lakh will see a 1 percentage point decrease in their source tax rate to 2 percent.

The withholding tax rate for payment of more than Tk 15 lakh to contractors remains the same, according to the NBR notification.

“More people will now come under the tax net,” said an NBR official. Withholding or source tax accounts for more than half of the total direct or income tax collection of the NBR.

Of the collection, tax deducted at source on payment to contractors accounts for nearly one-third.

The NBR is yet to release its detailed tax collection data for fiscals 2014-15 and 2015-16. 

Tax deducted at sources of income was Tk 24,893 crore in fiscal 2013-14, with Tk 7,231 crore coming from contractors, according to the NBR's annual report.