Taxman targets payment from foreign missionsThe Inland Revenue Department (IRD) has requested embassies, UN agencies, missions and donor organisations to provide details about tax deducted at source (TDS) on payments made to their consultants, vendors, suppliers and employees who do not enjoy diplomatic tax exemption.
The Inland Revenue Department (IRD) has requested embassies, UN agencies, missions and donor organisations to provide details about tax deducted at source (TDS) on payments made to their consultants, vendors, suppliers and employees who do not enjoy diplomatic tax exemption.
The department wrote to the foreign organisations saying that all incomes are taxable unless exempted by Clause 10 of the Income Tax Act 2002 or the Vienna Convention.
According to Clause 10 of the Income Tax, a person is entitled to tax exemption if allowed by bilateral and multilateral treaties between the government and the foreign country or international organisation. Also, income from employment in the service of a foreign government is exempt from tax if the employees are paid with government money.
“The incomes, apart from those listed in Clause 10 of the act and not mentioned in the Vienna Convention, are taxable,” the IRD said in its letter, a copy of which was obtained by the Post. “The organisations should make the applicable tax deduction as per Clauses 87, 88 and 89 and deposit it with the Inland Revenue Office along with the paperwork.”
The IRD has asked international organisations to submit TDS along with the details for the month within 25 days. “Records of TDS submitted to the Inland Revenue Office should be presented to the IRD while claiming value added tax (VAT) refunds.”
The IRD said the move was designed to widen the tax net and thereby increase government revenue.
“We have found that many people and firms providing various services to different international organisations are out of the tax net,” said a highly placed source at the IRD. “We found many instances where TDS was not deducted and they did not pay taxes on their incomes on their own.”
The IRD does not know the number of people that will be brought under the tax net by this measure. “We are not sure about the number of people or the amount by which government revenue will increase,” said the source. “Yet, it is a significant move to make the country’s citizens accountable.”