17 RMG liaison offices dodge income tax: Report

About 17 foreign readymade garment companies' liaison offices in the country have evaded income tax by violating the conditions of liaison office registration rules, according to a recent report of the Special Branch (SB) of the Bangladesh Police.

The report mentions that all of these offices are doing business in Bangladesh as branch offices, but they are not paying any income tax to the government exchequer despite making good profits.

A liaison office cannot conduct any business or any income-earning activities in Bangladesh. But a branch office with proper permission can do so, according to the Bangladesh Investment Development Authority (Bida) rules.

The SB recently submitted the report to the secretary of security services at the home ministry, which mentioned that its field officials had collected this information through a long investigation.

The report mentions that these liaison offices are violating local and foreign employee appointment ratios. Most of them are making money through consultancy services and making profits like branch offices, the income of which is subject to 35% income tax.

The companies are KGS Sourcing Limited (France), Kleider Sourcing FZCO (Dubai), El Corte Ingles SA (South Asia), and Uniqlo Company Limited (Japan).

The list also includes the Hong Kong-based companies Poeticgem International Limited, Design Arc Asia Limited, Krayons Sourcing Limited, Tex-Ebo International Pte-Ltd, Clover Collection Limited, Beaumaneur Asia Sourcing Pte Limited, Plus Trading Far East Limited, Norwest Industries Limited, PVH Far East Limited, Zamira Fashion Limited, Otto International (HK) Limited, Fully Sun China, and Simple Approach Limited.

The Business Standard tried to communicate with the officials of the liaison offices for comments, but none of them responded.

Seeking anonymity, country managers of several foreign RMG companies operating in Bangladesh, which were not mentioned in the report, said most of the buying houses are operating in the name of liaison offices, but they are making 5%-6% profit from all apparel orders. In some cases, they impose discounts on their suppliers.

Some liaison offices deduce discounts from the suppliers during payment to bear their operational cost, they said.

They further mentioned that liaison offices are also violating foreign employees' job tenure terms, according to which no foreign employee can be appointed in the same position for more than five years in a row.

The special branch of police suggested that Bida cancel the registration of these liaison offices and enrol them as branch offices.

At the same, it has also requested the National Board of Revenue (NBR) to take necessary action to realise income tax from these offices, the report adds.

Shah Mohammad Mahboob, director general of International Investment Promotion at Bida, told TBS that if Bida gets any formal letter regarding the anomalies of the liaison offices, it will verify the issue in the interest of taking proper action.

According to Bida rules, if any organisation violates its terms and conditions, its registration will be suspended.

A total of 1,666 liaison offices of foreign companies are registered with the Registrar of Joint Stock Companies And Firms (RJSC) as of 30 May this year.

Of these, only 792 liaison offices and 365 branch offices are registered with the NBR. On the other hand, 274 liaison offices are not registered with the NBR and do not submit tax returns.

According to a 2021 report titled "The State of Tax Justice 2021" by the Tax Justice Network, Bangladesh is losing taxes equivalent to about $140 million annually due to tax evasion by multinational companies and ultra-rich individuals. Bangladesh ranks third in South Asia, after India and Pakistan, in terms of losing tax revenue.