Two Summit companies evade Tk1,100cr in taxes, NBR alleges

The Central Intelligence Cell (CIC) of the National Board of Revenue (NBR) has alleged that two Summit companies evaded Tk1,112 crore in source taxes related to dividend transfers.

Summit Corporation Limited, which owns shares in Summit Power Limited, allegedly evaded 20% source tax on dividend payments. Besides, Summit Power International, a Singapore-listed entity holding shares in Summit Corporation, is alleged to have evaded 15% source tax on its dividends.

In a statement to The Business Standard, a Summit spokesperson said they had not yet received any communication from the revenue board.

"Summit has never evaded tax. Once we receive any notice, we will comply fully with the laws of Bangladesh, as we always have," added the spokesperson.

Summit Power and Summit Corporation are taxpayers under the jurisdiction of the NBR's Tax Zone-2.

Barrister Mutasim Billah Faruqui, commissioner of taxes, Taxes Zone 2, told The Business Standard that they had requested the NBR to review source tax exemptions provided to the two Summit companies.

"Upon taking charge of the tax zone, we noticed that these taxpayers were receiving special facilities, creating a sense of discrimination among others in the same sector," he said.

He further explained, "We found that Summit was benefiting from source tax exemptions – benefits that were not properly documented or maintained. This prompted us to request the NBR to review the matter."

These facilities were issued under circumstances that may have involved external pressure on NBR officials, Faruqui added.

How it came to light

The alleged tax evasion was unearthed by the Intelligence Cell during a wider investigation into major industrial groups following the interim government's assumption of office.

NBR sources said the cell's conclusions stem from a six-week examination of Summit Power's shareholdings, dividend declarations, and payments.

The investigation began on 20 August, focusing initially on the transactions of Summit Chairman Muhammad Aziz Khan and his family members. Letters were sent to banks and financial institutions requesting information on their financial activities.

As the investigation progressed, the cell expanded its scope to include the group's companies. Additional manpower was deployed, and investigation officers were assigned to each company.

Officials involved in the investigation suggested these findings might only be the "tip of the iceberg". They anticipate uncovering more irregularities involving other companies under the group.

One intelligence team member mentioned, "While this is the most significant evasion uncovered so far, we fear more cases of corruption will emerge as the investigation continues."

Exemption on dividend transfer

According to Section 117 of the Income Tax Law 2023, Summit Power was supposed to deduct 20% of source tax during the transfer of dividends to Summit Corporation.

Under Article 11, Para 2 of the Double Taxation Avoidance Agreement, Summit Corporation was required to deduct source tax at 15% during transfer of dividend to non-resident company Summit Power International.

However, the previous administration issued two separate clarifications to the conglomerate exempting Summit Power International and Summit Corporation from source tax on dividend transfers, according to NBR sources and documents obtained by TBS.

Now, the NBR investigation revealed that Summit Power did not deduct tax at source while transferring dividends to its investment company, Summit Corporation.

Summit Power's paid-up capital is Tk1,067.88 crore. The company's shareholding structure and breakdown includes 63.19% by Summit Corporation, 3.65% by Eurohub Investment Limited, 18.52% by institutional investors, and 14.64% by general investors.

An examination of Summit Power annual financial reports from FY19 to FY24 revealed that the company failed to deduct Tk318.34 crore in tax at source on dividends paid to Summit Corporation.

With the fine increasing daily, the total amount of tax evasion now stands at Tk465.07 crore, said the report.

The investigation also found a similar issue when Summit Corporation paid dividends to Summit Power International. Summit Power sought clarification from the NBR regarding the need for tax deduction at source on dividends sent to Summit Power International.

The NBR clarified at the beginning of 2023 that no tax deduction was required if the dividends were sent to a beneficiary company.

However, the investigation discovered that the dividends were not sent directly from Summit Power to Summit Power International. Instead, the dividends were first paid to Summit Corporation, which subsequently sent them to the Singapore-based Summit Power International.

This arrangement does not fall under the previous NBR clarification, and thus, tax should have been deducted at source, found the investigation.

As per the double taxation avoidance, the investigation found that from 2018-19 to 2022-23 tax years, Summit Corporation failed to deduct Tk437.65 crore in tax at source on dividends paid to Summit Power International.

Including fines, the total amount of tax evasion now stands at Tk647.73 crore, said the report.

NBR's decision regarding tax evasion

Following the investigation finding, the NBR has revoked the source tax exemption on dividend transfers for Summit Power International and Summit Corporation.

In a new directive, the NBR said, "A 20% source tax will be applicable on dividend payments by Summit Power Limited to Summit Corporation Limited."

Furthermore, under the existing double taxation avoidance agreement between Bangladesh and Singapore, a 15% source tax will now apply to dividend payments by Summit Corporation, a Bangladesh-based entity, to Summit Power International, a Singapore-based non-resident company.

Mutasim Billah Faruqui said the NBR has ultimately decided to revoke these exemptions, applying the decision retrospectively since the original exemption lacked a proper legal basis.

"When a clarification is deemed invalid, the benefits granted under it become illegal, and the new tax rules must apply," he said.

Faruqui outlined the next steps, saying, "We will now proceed to recover the taxes from the very beginning. Initially, demand notices will be issued, followed by legal procedures to ensure revenue collection. The NBR chairman has given clear instructions, and we will utilise all available methods for enforcement."

Aziz Khan, chairman of Summit Power International and one of Singapore's wealthiest individuals, has also come under scrutiny.

The Bangladesh Financial Intelligence Unit has ordered all banks and financial institutions to freeze the accounts of Khan and 11 members of his family. Investigations by multiple national agencies into the family's financial dealings are ongoing.

Summit on Thursday said 92% of its power production capacity is active now.

According to a company statement, of the group's 18 power plants having a total capacity of 2,225MW, only five with 168MW capacity are in shutdown mode due to gas shortage or no demand from the government or contract expiry.

Summit Power Limited, the publicly listed company owns 15 plants having a capacity of 976MW. Of them, 10 are in operation with a total capacity of 808MW.