Separate tax zones in the offing

The National Board of Revenue plans to establish separate zones to properly monitor and collect source or withholding tax, which is now the biggest contributor to direct taxes.

"We are planning to establish five separate zones to ensure that source taxes come to the state exchequer properly," a senior official of NBR said yesterday. Of those, four are expected to be opened in Dhaka and one in Chittagong, according to taxmen.

A withholding tax, for example, is the tax that banks withhold from depositors' interest earnings and later pay to the government.

The proposal to establish such zones, to be named Tax Deduction at Source (TDS) Monitoring Zones, will be placed before the higher authorities after getting the green light from the NBR Board.

"We will try to set up the TDS Zones this fiscal year so that we can start proper monitoring from the next fiscal year."

The NBR move comes after Finance Minister AMA Muhith unveiled a plan in his budget speech for fiscal 2015-16, to accelerate collection of tax at source by streamlining the process and through intensive monitoring.

Taxmen said source taxes account for 57 percent of total direct tax collection, although it was less than 20 percent a decade ago.

The NBR collects source tax from 58 areas from the income of individuals and firms; 71 percent of this tax comes from payment by authorities to contractors, interest earnings of deposit holders, source tax on imports and exports, according to NBR.

However, taxmen say the actual amount of source tax does not go to the state coffers as source tax is collected by public and private organisations during or before realisation of income by the taxpayers.

As the number of areas under source tax has expanded over time, it has become difficult for field offices to monitor whether the money is properly being deducted or not.

In addition, taxmen also have to spend time in assessing and realising tax from individuals and firms. The expected amount of tax cannot be collected as field offices are short of adequate manpower and logistics.

"Separate TDS zones will allow field offices to pay more attention to collection and ensure better monitoring of the source tax flow. It will also allow us to collect more revenue and increase the tax base," the NBR official said.

Of the total tax collection of Tk 43,207 crore in fiscal 2013-14, the NBR recorded Tk 24,893 crore as source tax. The amount of withholding tax was Tk 20,078 crore, which was 54 percent of the total direct tax of Tk 37,120 crore collected in fiscal 2012-13, according to NBR.