The Contractor has contract for the construction of a hydropower project, which is totally tax-exempted under the terms of the Contract for the imported goods, material and services and personal income tax for the expatriate staff (clearly stated in the particular Conditions of Contract). However nothing clear is mentioned for the local workers earnings in the Contract (particular conditions of Contract).
My first question is related to the Contractors liability for the income tax of the local workers in the country of Works of the Project:
In the Contract documents, there is one page titled as Contract Value for Project which is summary of the BOQ items, mentioned in the form of a NOTE at the bottom of the page stating ALL THE PRICES MENTIONED ABOVE DO NOT INCLUDE ANY OF TAXES, DUTIES, LEVIES, FEES AND SURCHARGES IN THE COUNTRY OF WORKS. We understand as the local manpower is also the cost component of works and a part of each BoQ item (and all BoQ items collectively make the CONTRACT VALUE), therefore there shall be no personal income tax for the local workers and shall be exempted. AM I CORRECT?
Secondly we have acquired security services from a local security company, who are providing s only manpower and we have a Contract Agreement with that company (a certain rate per hour per security guard). Nothing is mentioned in that agreement about the taxes. However the Company with each invoice claim a certain %age of the invoice price as VAT. (please note that (i) security services is also a BoQ item in the Contract Value and as stated above that these BoQ items do not include any taxes and (ii) additionally there is a Sub-Clause in the Particular Conditions of Contract, mentioning that Exemption is not available for any element of duty or tax, inherent in the price of goods or material, equipment, plant or services procured in the country, which shall be deemed to be included in the Accepted Contract Amount, if not described otherwise.
My second question is that the Contractor is not liable to pay the VAT for the security services, based on the above two provisions (i & ii) of the Contract. AM I CORRECT.? In other case, If the concerned security company pays this VAT, should we ask them to provide us the receipts of these VAT amounts paid to the tax department , so as to ensure the payment and then we can claim this amount for the Employer of the project as mentioned in the Contract, if not exempted by the tax department?
Other supplementary and related question to the VAT for the security services, can this company claim VAT, whereas their scope of liability is only to provide manpower. I mean does the security services are also subject to VAT or these services are subject to personal income tax?.
Please advise me with your valuable opinion on all above queries separately and in detail.
This question was not replied by two other experts before. Regards.
Thanks for the questions and like to respond in general as follows
Q1) Normally personal taxes such as income taxes are not liability of contractors but also depend upon contract conditions
Q2)VAT is again payable seperately but is again subject to review as per condition of contract .You have not mentioned type of contract being followed.
Now please come up with your comments on above to enable me to asnswer your questions appropriately