VAT intel team looking into 'director's remuneration'

The issue of 'director's remuneration' has come under the scanners of the VAT intelligence team as it found shareholders and owners of many companies are showing it as salary to enjoy VAT exemption.

As per VAT law, 15 per cent VAT rate is applicable to the fees that managing directors, shareholder-directors and the board of directors of limited companies receive for attending board meetings.

As many companies are not complying with the law in this regard, the VAT intelligence, audit and Investigation directorate has started looking into the issue.

The wing has scrutinised annual audit reports of some limited companies, prepared by chartered accountant firms, and found a large amount of expenses is shown as 'director's remuneration'.

Talking to the FE, director general of VAT intelligence team Syed Mushfequr Rahman said the wing is investigating the issue to ensure proper VAT collection from this sector as per VAT law.

"There are many such areas that could be brought under scrutiny to ensure proper VAT collection," he added.

As per income tax law, there is also a 10 per cent tax at source applicable to the meeting fees of the managing director (MD), shareholder-directors and the Board of Directors of limited companies.

However, the tax is adjustable with the actual payable taxes during the submission of income tax returns.

In a recent letter to the National Board of Revenue (NBR) high-ups, Mr Rahman also sought to know whether the monthly 'director's remuneration' can be considered as salary and eligible for VAT exemption, as claimed by the companies.

In the audit reports, the remunerations paid to the directors and shareholder-directors were shown as 'meeting fees' for joining the board meeting.

As per the VAT law, a person receives fees or honorarium for joining annual general meetings or board meetings of any government, semi-government, private, non-government organisation, international organisation located in Bangladesh, autonomous body, bank, insurance or limited companies.

In the letter, the VAT intelligence chief said shareholder-directors and MDs are owners of the limited companies and they do not have any employer. They are also receiving dividends from profit of the companies.

"Although there is no scope to consider the remuneration as salary, some limited companies are requesting the VAT authority to exempt the amount from deduction of VAT at sources claiming it salary," the letter reads.

Snehasish Barua, a member of the Institute of Chartered Accountants of Bangladesh (ICAB), said there is no scope for directors of the listed companies to evade VAT on 'board meeting fees'.

"We called it 'director or meeting fee'. Director's remuneration is exempted from VAT as it is paid as salary for daily task," he said.

For example, an MD of a company receives remuneration for his regular work on daily basis.

He said such a move of the VAT team is 'immaterial' as many large VAT-evading sectors remained unnoticed.

"Only a tiny amount of VAT could be realised from this move. So far, I have found most of the companies are compliant with VAT law with regard to payment of VAT on meeting fees," he added.

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