Firms urged to appeal for exemption from withholding tax
Thursday, June 19, 2008
Only applies for transactions from Jan 1 this year to first week of June
TAX collectors have advised corporate taxpayers to appeal for exemption from the newly expanded withholding tax for transactions that were made from Jan 1 to the first week of this month.
Officials from the Collector of Income Tax Department offered this option during a dialogue yesterday with representatives from private firms that have raised concerns over the implementation of an amended tax that was announced nearly half a year after it was supposed to go into effect.
The recently announced tax amendment expanded the scope of Brunei's withholding tax and is retroactive to Jan 1, 2008.
"There has been little awareness of the general public of the expansion of the scope of the withholding tax, and we were briefed by the Collective Income Tax department on the Income Tax Act where one of the major issues was that the tax would be better, effective from January 2009, rather than backdating it as we only became aware of it early (this month)," said Shazali Sulaiman, partner at auditing firm KPMG.
Backdating the law's implementation is not fair because there would have been a lot of transactions made in the first five months of the year by companies who were not even aware of these changes, argued Shazali who is also executive secretary of the Brunei Darussalam International Chamber of Commerce.
"The administration has said that during this period, we can write in an appeal for consideration of the withholding tax to be waived providing relevant documentation (are submitted).
"But any transaction after that, from June 1 onwards, then the withholding tax would have to be deducted and paid to the government at the respective percentage depending on the nature of the payment (to a foreign company)," he said.
In the recently released tax publication from the Ministry of Finance, the scope of the newly amended withholding tax has been expanded to include interest, commission, fees and other payments relating to loans, royalties or lump sum payments for the use of movable property, know-how payments for the use of scientific, technical, industrial or commercial knowledge or information, management fees, technical assistance or service fees, rent for the use of movable property, and any remuneration paid by a company to a director who is not a resident in Brunei Darussalam.
The withholding tax on these transactions will be from 10 to 20 per cent depending on the nature of the payment.
Shazali said the impact of this would be that some companies may have already gone into long-term contracts with the government or other countries where they have already locked in their price.
"If they are in a consortium where they have to make payments to non-resident companies, what would happen is that any payment that they make now to them would be subject to a withholding tax and, of course, the sub-contractor would have some sort of protective clause within its contract that states that any taxes borne by the payee would have to be borne by the payer," said Shazali.
"So if I have to bear the withholding tax of these companies, then my cost would increase because I cannot pass on the cost to the main contractor or to the government, because I'm already locked into the contract," he added. Shazali said corporate taxpayers would find this situation unfair, "but since the act has already been passed we have to respect that this is a law that has already been introduced and find ways to minimise disruption of doing business in Brunei with this withholding tax".
Moreover, a tax publication from the Ministry of Finance states that the penalty for any taxpayer who fails to deduct or pay the withholding tax to the Collector of Income Tax within the specified period, shall be chargeable with penalties of five per cent imposed, for any tax withheld within 14 days after the date of taxable payment, with an additional one per cent for each completed month that the tax withheld remains unpaid, up to a maximum of 15 per cent.
"Technically speaking, in my argument during the dialogue, if someone had made a (taxable) payment two months ago, and because if you follow the actual wording of the law, they now have to pay 35 per cent of the withholding tax, so the Ministry of Finance has, in a sense, mentioned that we can apply to them during this interim period because they have also realised that this is not fair for companies to pay for something that they did not know about," he said.
The Brunei Times
TAX collectors have advised corporate taxpayers to appeal for exemption from the newly expanded withholding tax for transactions that were made from Jan 1 to the first week of this month.
Officials from the Collector of Income Tax Department offered this option during a dialogue yesterday with representatives from private firms that have raised concerns over the implementation of an amended tax that was announced nearly half a year after it was supposed to go into effect.
The recently announced tax amendment expanded the scope of Brunei's withholding tax and is retroactive to Jan 1, 2008.
"There has been little awareness of the general public of the expansion of the scope of the withholding tax, and we were briefed by the Collective Income Tax department on the Income Tax Act where one of the major issues was that the tax would be better, effective from January 2009, rather than backdating it as we only became aware of it early (this month)," said Shazali Sulaiman, partner at auditing firm KPMG.
Backdating the law's implementation is not fair because there would have been a lot of transactions made in the first five months of the year by companies who were not even aware of these changes, argued Shazali who is also executive secretary of the Brunei Darussalam International Chamber of Commerce.
"The administration has said that during this period, we can write in an appeal for consideration of the withholding tax to be waived providing relevant documentation (are submitted).
"But any transaction after that, from June 1 onwards, then the withholding tax would have to be deducted and paid to the government at the respective percentage depending on the nature of the payment (to a foreign company)," he said.
In the recently released tax publication from the Ministry of Finance, the scope of the newly amended withholding tax has been expanded to include interest, commission, fees and other payments relating to loans, royalties or lump sum payments for the use of movable property, know-how payments for the use of scientific, technical, industrial or commercial knowledge or information, management fees, technical assistance or service fees, rent for the use of movable property, and any remuneration paid by a company to a director who is not a resident in Brunei Darussalam.
The withholding tax on these transactions will be from 10 to 20 per cent depending on the nature of the payment.
Shazali said the impact of this would be that some companies may have already gone into long-term contracts with the government or other countries where they have already locked in their price.
"If they are in a consortium where they have to make payments to non-resident companies, what would happen is that any payment that they make now to them would be subject to a withholding tax and, of course, the sub-contractor would have some sort of protective clause within its contract that states that any taxes borne by the payee would have to be borne by the payer," said Shazali.
"So if I have to bear the withholding tax of these companies, then my cost would increase because I cannot pass on the cost to the main contractor or to the government, because I'm already locked into the contract," he added. Shazali said corporate taxpayers would find this situation unfair, "but since the act has already been passed we have to respect that this is a law that has already been introduced and find ways to minimise disruption of doing business in Brunei with this withholding tax".
Moreover, a tax publication from the Ministry of Finance states that the penalty for any taxpayer who fails to deduct or pay the withholding tax to the Collector of Income Tax within the specified period, shall be chargeable with penalties of five per cent imposed, for any tax withheld within 14 days after the date of taxable payment, with an additional one per cent for each completed month that the tax withheld remains unpaid, up to a maximum of 15 per cent.
"Technically speaking, in my argument during the dialogue, if someone had made a (taxable) payment two months ago, and because if you follow the actual wording of the law, they now have to pay 35 per cent of the withholding tax, so the Ministry of Finance has, in a sense, mentioned that we can apply to them during this interim period because they have also realised that this is not fair for companies to pay for something that they did not know about," he said.
The Brunei Times
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