Power sector incurs loss of Tk 2400 cr as tax in source

Zarif Mahmud : A power distribution company has to pay tax at source at the rate of 6 percent while paying for power purchase. The electricity department claims that they have to pay a loss of Tk 2,400 crore every year due to this tax. For this, the organization has written to the National Board of Revenue (NBR) to withdraw the tax deduction provision.
According to the letter, the amount of revenue received from tax at source is very little or less than 0.5 percent compared to the revenue target of the National Board of Revenue. As a result, if it is withdrawn, there will be no significant change in the revenue of the government. Withdrawal of tax at source will reduce subsidy in power sector. Dependence on loans or bonds to provide government subsidies will decrease.
Senior Secretary of Electricity DepartmentHabibur Rahman said in the letter, that according to the Income Tax Act, there is a provision of deduction of tax at source at the rate of 6 percent on the amount paid to the Electricity Development Board or any company engaged in electricity distribution. Bangladesh Energy Regulatory Commission (BERC) or Government Bangladesh Electricity Development Board (BABUBO) has not taken into account any tax and profit considering the welfare of consumers in determining the bulk electricity sale price. Besides, PDB incurs huge losses every year as PDB costs cannot be met by sales price. For 6 percent source tax, the loss is increasing from about Tk 2,000 crore to Tk 2,400 crore every year.
The letter said that despite the 6 per cent source tax deducted PDB is a loss-making company and there is no scope for reconciling it with the non-operating income, despite paying a huge amount of source tax, separate tax is being claimed for the non-operating sector income. The cost of electricity tariff of government power generation companies is fixed. 60-80 percent of this is the fuel bill. Of the remaining 20-80 percent fixed costs, 70-80 percent are loan and loan installments and 20-30 percent are operating expenses. As a result, companies are suffering from financial crunch to operate power plants due to huge amount of tax deducted at source as 6 percent on the total bill.
The letter also states that the 6 percent income tax deducted from the companies’ monthly electricity bills as per the agreement with PDB makes the annual corporate tax far less than the tax collected at source. Due to deduction of tax at source from the bills of the companies, the companies are likely to incur financial loss. Retaining the 6 percent withholding tax would require amending the company’s contract with PDB. A 6 percent tax would apply to PDB if the treaty is amended. This will result in financial losses to PDB which will need to be replenished through subsidies.