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WELCOME

To The Presentation On
To The Presentation On

INDIRECT TAXES (VAT & CUSTOMS)

Academic Course under ― Course A 408 : Taxation ‖

for the BBA students of 19th Batch 8 th Semester IBA ,Dhaka University

WELCOME To The Presentation On INDIRECT TAXES (VAT & CUSTOMS) Academic Course under ― Course A

Organized by Institute of Business Administration ( IBA ) Dhaka University

WELCOME To The Presentation On INDIRECT TAXES (VAT & CUSTOMS) Academic Course under ― Course A
WELCOME To The Presentation On INDIRECT TAXES (VAT & CUSTOMS) Academic Course under ― Course A

August 2014 January 2015

INTRODUCTION TO THE COURSE TEACHER
INTRODUCTION TO THE COURSE TEACHER
MD. ABDUL KAFI COMMISSIONER LARGE TAXPAYERS UNIT, VAT
MD. ABDUL KAFI
COMMISSIONER
LARGE TAXPAYERS UNIT, VAT
Course Schedule (A) Value Added Tax System in Bangladesh Date & Time Course Contents (1) (2)
Course Schedule
(A) Value Added Tax System in Bangladesh
Date & Time
Course Contents
(1)
(2)
November 23,
Brief history on introduction of VAT system in Bangladesh.
26, 30 and
Organizational structure and manpower of Bangladesh VAT
December 03,
07, 10, 17, 21 &
24 ( 2014 )
Contribution of VAT in the NBR Revenue
Basic concepts & determination of VAT
The Act and the Rules
Rate of VAT
08.30 - 10.00 AM
Taxes under VAT system
Supplementary Duty
Turnover Tax
Applicable area of VAT
Exemption of VAT and SD.
Exemption benefits for Cottage Industries
Input tax credit mechanism.
How does the tax credit / rebate system work at different level of a business
supply chain under the VAT system
Importance and procedure of valuation under VAT system
2

Continued……

Date & Time

Course Contents

(1)

(2)

- Do -

  • Truncated base system for services and tariff value for goods

  • VAT at trade level and ATV

  • Business process under VAT system

  • (a) Responsibilities and duty-cycle of a taxable person

  • (b) VAT Registration

  • (c) When VAT is payable

  • (d) Who will pay VAT and other related taxes

  • (e) VAT payment procedure and time frame

  • (f) Procedure to be maintained for delivery of goods and services.

  • (g) Record Keeping by the Taxpayer (i) Tax invoice

(ii) Other documents

(iii) Submission of VAT Return

  • Deduction of VAT at source

  • Dispute resolution and Alternative Dispute Resolution (ADR)

  • Export incentives, duty drawback

  • Refund in VAT System

  • Enforcement and Audit management

  • Factors and constraints in VAT management of Bangladesh

3

Reference Books

  • evsjv‡`‡ki g~j¨ ms‡hvRb Ki e¨e¯’v, AvBb wewa I cÖÁvcbgv: Rûiæj nK

  • g~j¨ ms‡hvRb Ki AvBb wewa I e¨envi gyn: RvwKi †nv‡mb

  • g~j¨ ms‡hvRb Ki AvBb, weavb I Kg©c×wZ kvgQzj Bmjvg Lvb

  • g~j¨ ms‡hvRb Ki Ges AveMvix ïé- AvBb, wewagvjv, cÖ‡qvM c×wZ I wbix¶v

  • mnR fvlvq f¨vU W. †gvt Avãyi iDd

gvt gvndzRvi ingvb AvK›`

  • Tolley’s Value Added Tax Rhianon Davies & David Rudling

  • The Modern VAT International Monetary Fund (IMF)

  • Value Added Tax : Concept and Practice Alan A. Tait

  • Value Added Tax (VAT) in Bangladesh M. A. Baree

  • The VAT Guide (Notice 700 March 1996, HM Customs and Excise, U.K)

  • New Zealand Goods and Services Tax Legislation

  • Key issues in Tax Reform Edited by Cedric Sandford (Article: Issues in Adopting and Designing A Value Added Tax by Sijbren Cnossen)

  • Administrative and compliance costs of Taxation by Cedric Sandford and Michael Godwin

  • Value Added Tax System of Bangladesh : Act, Rules & Procedure Dr. Md. Abdur Rouf.

Continued… .. . (B) Customs Management and Formalities Date & Time Course Contents (1) (2) December
Continued…
..
.
(B) Customs Management and Formalities
Date & Time
Course Contents
(1)
(2)
December 28,
Organizational structure and manpower of Bangladesh Customs
31 (2014) &
January 04,
07 & 11
Revenue performance of customs
Duties and Taxes under Customs Management
Tariff regime in Bangladesh
( 2015 )
Prohibitions & Restrictions on Import & Export
08.30- 10.00 AM
Imposition of Duty
Exemptions
Valuation, Transaction value method, PSI system
Bill of Entry, Clearance procedure
Bill of Export, Export procedure
H. S. Code, Assessment of duty
Bonded warehouse
Auction
5

Reference Books

(B) Customs Management and Formalities :

The Customs Act, 1969

Customs Act, 1969 Najib A. Choudhry

Aspect of Customs Law Abdul Latif Sikder Valuation Considerations for Bangladesh Customs Abdul Latif Sikder The Customs Act Dhaka Law Report Bangladesh Customs- Act and Policy Mohammad Zakir Hossain

e‡ÐW Iq¨vinvDm e¨e¯’vcbv W. †gv: gwZDi ingvb

INDIRECT TAX

VALUE ADDED TAX (VAT) SYSTEM IN BANGLADESH

BRIEF HISTORY ON INTRODUCTION OF VAT

Background :

  • Just before the introduction of VAT the Excise Duty (as Indirect Tax) under the Excises and Salt Act, 1944 was the domestic source of revenue for the Govt. of Bangladesh

  • Business

Turnover

Tax

(BTT)

for

8

services

under

the

Business

Turnover

Tax

Ordinance,

1982.

The

revenue

from

BTT

was

very

insignificant.

  • Sales Tax on some selected goods at the import stage under the Sales Tax Ordinance, 1982.

  • Share of Direct tax (Income tax & others) was only about 12% and it was very difficult to raise the share shortly.

  • Taking the pressures for reducing the revenue dependence on customs duty into an account.

  • NBR used to increase the rate of taxes every year and the incidence of tax on tax (cascading effect) was hampering productions and trades.

  • With the narrow base and regressive nature, the major domestic revenue source Income tax and Excise system was unable to mobilize the increasing need of revenue for the Govt. and the development of the country.

Continued ……

  • Development budget was dependent on Paris Consortium meeting (Bangladesh Aid Gr. or Dev. Partners meeting).

  • World Bank and IMF suggested to introduce the VAT system as progressive and useful for Bangladesh to enhance

revenue and mitigate the crisis of dev. fund.

  • A joint delegation from Govt. Official and Trade bodies visited some of the countries, already implemented VAT or Sales Tax system.

  • Govt. lastly decided to leave

the

Excise

system

and

introduce the modern and progressive VAT system.

  • It was also decided to introduce the VAT system by replacing the Sales Tax (chargeable at a different rates at import stage), the Excise Duty (chargeable at different rates on locally produced goods and rendered services) and the Business Turnover Tax (chargeable at a rate of 2% on some local small units).

 France was the first country to introduce the modern VAT system in 1954. At present
 France was
the first country to introduce the
modern
VAT
system in 1954. At present about 144 countries are realizing
revenue under VAT system.
8

Continued …… ..

 With the recommendation and help of Intl. Monetary Fund (IMF) and World Bank (WB) VAT
With the recommendation and help of Intl. Monetary Fund (IMF)
and World Bank (WB) VAT Act and Rules were drafted.
The Customs and Excise Department was entrusted to implement
the VAT system in Bangladesh.
At the time of introduction, VAT system was introduced only at
the import stage, manufacturing stage and service rendering
stage
only, trade level was not covered. But now it is extended to all levels
with wholesale and retails.
VAT system was introduced on 2nd June, 1991 through promul-
gation of Value Added Tax Ordinance, 1991 (Ordi. 26 of 1991).
At the Budget time (FY 1991-92) the Value Added Tax Act, 1991
was passed by the Parliament and then signed by the Hon’ble
President
in due course. At the same time the Value Added Tax
Rules,1991 was also formulated by NBR under the VAT act.
Later on Electricity duty, Advertisement tax and Guest Control fee
were merged into VAT system for better service and revenue realization .
Continued…… .. Disadvantages of Excise System • • • • • Narrow tax base Different rates
Continued…… ..
Disadvantages of Excise System
Narrow tax base
Different rates with some higher rates
Rate of taxes was increased every year
Cascading effect of taxes were hampering production and trades
Unable to mobilize the increasing need of revenue
Foreign debt was increasing day by day and development program
was hampered
Advantages of VAT System:
Modern and progressive tax system with credit mechanism
Single standard rate of 15%
Audit and account based system minimizing harassment and
forcible enforcement
Broaden tax base and ensure proportionate low tax incidence
No cascading effect of taxes
Balanced tax system with equity
Minimizes tax evasion and cost of tax collection
Increases domestic revenue realization.

ORGANIZATIONAL STRUCTURE AND MANPOWER OF

BANGLADESH VAT

Ministry of Finance has four divisions :

  • Internal Resources Division (IRD)

  • Finance Division

  • Economic Relation Division (ERD)

  • Bank & Financial Institution

Each division is headed by a Secretary and each of them are separately reportable to Hon'ble Finance Minister.

National Board of Revenue (NBR) is working under Internal Resources Division (IRD). Secretary, IRD is the Ex- Officio Chairman of NBR . NBR has three functional wings.

  • Value Added Tax (VAT)

  • Customs

  • Income Tax Each wing of NBR has separate Members. Now VAT wing has three Members. All the twelve functional Commissionerates and two Directorates are functioning under these three Members. The function and organizational structure of NBR and Bangladesh VAT is given below :

Continued……

MAIN FUNCTIONS OF NBR

 FORMULATION OF TAX POLICY AND REVENUE BUDGET  FORMULATION OF TAX RULES AND REGULATION 
FORMULATION OF TAX POLICY AND REVENUE BUDGET
FORMULATION OF TAX RULES AND REGULATION
COLLECTION OF DIRECT AND INDIRECT TAXES
ADMINISTRATION OF —
Income Tax
 Value Added Tax

Travel Tax

Gift Tax

Customs duty

Supplementary Duty

Turnover Tax

Excise Duty

 Regulatory Duty  Surcharge  TO PROVIDE WAIVERS AND INCENTIVES UNDER DIFF. TAX LAWS 
Regulatory Duty
 Surcharge
TO PROVIDE WAIVERS AND INCENTIVES UNDER DIFF. TAX LAWS
TO GIVE SUGESSIONS AND OPINIONS TO GOVT. ON VARIOUS FISCAL
ISSUES

12

Continued ……

National Board of Revenue (NBR)

Administration of

Direct Taxes & Indirect Taxes

Ministry of Finance

Continued …… National Board of Revenue (NBR) Administration of Direct Taxes & Indirect Taxes Ministry of

Finance Division

Continued …… National Board of Revenue (NBR) Administration of Direct Taxes & Indirect Taxes Ministry of

Internal Resources

Division (IRD)

Continued …… National Board of Revenue (NBR) Administration of Direct Taxes & Indirect Taxes Ministry of

Economic Relation

Division (ERD)

Appellate Tribunal

Customs, Excise & VAT

Income

Tax

Continued …… National Board of Revenue (NBR) Administration of Direct Taxes & Indirect Taxes Ministry of

Bank & Financial Institution Div.

National Board of Revenue (NBR)

Functional Wings:

  • 1. VAT Wing

  • 2. Customs Wing

  • 3. Income Tax Wing

Supporting Wings:

1.

Administration

  • Research & Statistics

  • Information Technology

  • Central Intelligence Cell (CIC)

  • Law Officer

Continued ……

ORGANISATIONAL STRUCTURE OF BANGLADESH VAT

NATIONAL BOARD OF REVENUE WINGS OF NBR CUSTOMS RESEARCH & Income TAX VAT ADMINISTRATION STATISTICS CENTRAL
NATIONAL BOARD
OF REVENUE
WINGS OF NBR
CUSTOMS
RESEARCH &
Income TAX
VAT
ADMINISTRATION
STATISTICS
CENTRAL INTL.
CELL (C I C)
OFFICES UNDER
THE VAT WING
VAT
DUTY EXEMPTION &
DRAWBACK
DIRECTORATE
Audit, Intl. & Inv.
DIRECTORATE
DHAKA
DHAKA
CHITTAGONG
RAJSHAHI
KHULNA
JESSORE
SYLHET
(South)
(North)
Commissionerate
Commissionerate
Commissionerate
Commissionerate
Commissionerate
Commissionerate
Commissionerate
LTU,VAT,Dhaka
Dhaka (East)
Dhaka (West)
Rangpur
Comilla
Commissionerate
  • Under each Commissionerate Office there are some (5-11) Division Offices and under divisional offices there are some (2-5) Circle Offices. But LTU, VAT office don‘t have any outside Division or Circle offices.

Continued ……

ORGANISATIONAL STRUCTURE OF VAT FUNCTIONAL UNITS

[VAT Field Administration]

COMMISSIONERATE OFFICE CE&V CE&V CE&V CE&V CE&V DIVISION DIVISION DIVISION DIVISION DIVISION OFFICE OFFICE OFFICE OFFICE
COMMISSIONERATE
OFFICE
CE&V
CE&V
CE&V
CE&V
CE&V
DIVISION
DIVISION
DIVISION
DIVISION
DIVISION
OFFICE
OFFICE
OFFICE
OFFICE
OFFICE
CE&V CIRCLE
CE&V CIRCLE
CE&V CIRCLE
CE&V CIRCLE
OFFICE
OFFICE
OFFICE
OFFICE
RANGE/AREA
RANGE/AREA
RANGE/AREA
RANGE/AREA
RANGE/AREA
  • Each Commissionerate Office is headed by a Commissioner, Division Office is headed by a Deputy/Assistant Commissioner and Circle Office is headed by a Revenue Officer (RO). Circle Office is the grass root level office of VAT system in Bangladesh which directly deals with the tax payer and the Range Officer performs his duties from Circle Office.

Continued ……

Number of VAT Offices under VAT

VAT Commissionerates

12

Directorates

2

VAT Divisional Offices

84 (29)

VAT Circle Offices

254 (111)

VAT Ranges/ Areas

1270 (540)

Manpower under VAT

Continued ……

Member VAT

3

VAT Commissioners

12

Director Generals

2

Additional Commissioners

32

Joint Commissioners

30

System Analyst / Senior Programmer

2

Deputy/Assistant Commissioners

210

Programmer / Assistant Programmer

15

Revenue Officer

562

ARO

3125

Computer Personnel

68

Ministerial staff

1335

Motor Vehicle Driver

341

Sub-Inspectors

233

Sepoys

1981

MLSS

375

Total =

8324 (5084)

17

CONTRIBUTION OF VAT IN NBR REVENUE

  • Like other developing countries, trade-based taxes dominated the tax structure with Customs Duty alone accounting for more than 51% of total NBR revenue. After introducing VAT in Bangladesh tax system, gain from VAT revenue was quite impressive (55.63% of total tax revenue in 2011 - 2012), it recorded to 28.4% of total revenue during 1990-1991. Historically, revenue collection of NBR does not always reach the target but it recorded surplus in FY08-09, FY09-10, FY10-11, and FY11-12 and the collection of FY 12-13 & FY 13-14 was also satisfactory in the context of international and domestic reality.

  • This outcome of the recent VAT collections is quite impressive though VAT system is not fully modernized and exist a lot of exemptions and is suffering from acute manpower. A lot of scope still remains to boost up VAT revenue collections if a modern and efficient VAT system could be implemented through initiating different reform measures and adequate manpower and logistics are provided.

18

Continued …… ..

Twenty three year old Bangladesh VAT has contributed a very handsome

share in the NBR revenue which is shown below :

REVENUE PERFORMANCE OF VAT, CUSTOMS, INCOME TAX & NBR TOTAL

FY 2013-14

(Rev. Figure in Crore Tk.)

120512.83 140000 120000 100000 63389.74 80000 42915.5 60000 40000 13676.03 20000 0 Customs Income Tax VAT
120512.83
140000
120000
100000
63389.74
80000
42915.5
60000
40000
13676.03
20000
0
Customs
Income Tax
VAT
NBR
  • VAT Revenue (VAT+SD+Turnover Tax+ Excise Duty) includes

19

both Import & Local level. Only local level 43,726.41 Crore Tk.

Continued ……

REVENUE COLLECTION BY THE VAT WING IN COMPARISON TO TOTAL REVENUE COLLECTED BY NBR.

140000 VAT TOTAL 120512.83 120000 108618 100000 94754 78692 80000 63389.74 62103 58131 60000 52525 52711
140000
VAT
TOTAL
120512.83
120000
108618
100000
94754
78692
80000
63389.74
62103
58131
60000
52525
52711
47436
43922
40000
37219
35134
33961
29905
28900
26195
25646
23770
20224
20015
18774
18719
20000
12509 14107 16156
8996 10523 11370 12503 13802 14869 15123
9525
8769
7348 8638
6519
6793
7143
6152
6161
4986
5508
3876
4087
3165
1747
0
Continued …… REVENUE COLLECTION BY THE VAT WING IN COMPARISON TO TOTAL REVENUE COLLECTED BY NBR.

20

Continued……

Number of VAT Registered Units/ Taxpayers under VAT system of Bangladesh

( As on November, 2014 )

Manufacturing Units

54,371

Service rendering Units (excluding construction units)

1,78,130

Construction Units

2,51,888

Trader (local)

3,05,316

Trader (Commercial Importers)

58,450

Importers (excluding Comm. Imp.)

82,314

Exporters

43,740

Total

9,74,209

Total No. of VAT Registered Units

8,06,805

BASIC CONCEPTS AND ISSUES RELATED TO VAT Main Features of Bangladesh VAT  Self assessing, self
BASIC CONCEPTS AND ISSUES RELATED TO VAT
Main Features of Bangladesh VAT
Self assessing, self accounting, self depositing and self clearance system.
Advalorem tax system with invoice binding supply / delivery.

Uniform, single standard rate 15% .

Wide tax net ( Import stage, production stage, service rendering stage, wholesale and retail stage ) and limited exemption including exemption on primary and unprocessed agricultural goods .

Internal balance and equitable treatment .

Liberal treatment like turnover tax and cottage industries facilities for the small units.

Elimination of cascading effect ( No Tax on Tax).

Zero rate on all exports, deemed exports and outgoing ship stores.

On imports VAT is an addition to customs duties to initiate VAT system from the

import stage and to protect certain economic activities.

Supplementary Duty and Turnover Tax realized under VAT act .

Audit and account based system.

Positive and helpful for maximizing revenue realization.

Continued ……

The Concept and Determination of VAT Value Added Tax is a tax on consumer expenditure and
The Concept and Determination of VAT
Value Added Tax is a tax on consumer expenditure and is collected on
business transactions and imports.
The basic principle of VAT is to charge VAT at each stage in the supply
of goods and services (output tax). If the customer is registered for
VAT and uses the supplies for business purposes, he will receive credit
for this VAT (input tax). The broad effect is that businesses are not
affected and VAT is actually borne by the final consumer.
According to Carls. Shoup, “ VAT is a tax on the value added by a
business firm , through its activity, to the goods and services it buys
from other business firms”.
According to Bannock & Peacock, “ VAT is a tax on final consumption
which is collected at every stage of production and distribution rather
that at the retail stage alone”.
In other words, VAT is an expenditure tax or a transaction tax or a
consumption tax.
Continued …… The Concept and Determination of VAT Value Added Tax is a tax on consumer

23

Continued ……

The Concept and Determination of VAT Value: Here the Value means the Value on which the
The Concept and Determination of VAT
Value: Here the Value means the Value on which the VAT will
be calculated or assessed or imposed, but not the Value in
common sense or in Economics.
Value Added: Added Value is the value that a manufacturer or a

service renderer or a businessman add to his inputs or raw materials or other purchases by the time he sells the product or service. In other words, the added value is the differential amount between the sales

price and the input cost. And the Tax here is, the tax on that Added Value;
price and the input cost.
And the Tax here is, the tax on that Added Value; and that's the Value
Added Tax (VAT) stands for.
Continued …… The Concept and Determination of VAT Value: Here the Value means the Value on

So, Value Addition = Sales Price Input (raw mate.) cost And VAT = Output Price 15% Input price 15% (if any) [the rate of VAT in Bangladesh is uniformly 15%]

i,e VAT

= Tk. 150 15% 100 15% = Tk. 22.50 15.00 = 7.50 (Net VAT)

24

 The Act and the Rules : Value Added Tax (VAT) is administered under the Value
The Act and the Rules :
Value Added Tax (VAT) is administered under the Value Added Tax Act,
1991 and the Value Added Tax Rules, 1991 and the SRO’s and Order’s
made there-under.

The Act contains 73 sections, 3 Schedules and the Rules contain 42 rules and 27 Forms. Now the Act contains 101 sections, 3 Schedules and the Rules contain 52 rules and 37 Forms.

  • RATE OF VAT

Standard/uniform rate of 15% on all VAT applicable goods and services. Though there are some applicable net rates for services like, 2.25%, 3%, 4%, 4.5%, 5%, 5.5%, 6%, 7.5%, 9% etc. But practically these rates come from the

truncated base for assessable value for VAT of some specific service items. If

the truncated base value of an item is made tk. 30 over market price tk.100, then the amount of VAT at the rate of 15% on tk. 100 will be tk. 4.5, That it is generally, but unofficially known as 4.5% VAT on the total amount.

Zero rate on all exports, deemed exports and foods for consumption outside Bangladesh and other goods supplied to an out going conveyance. (Section-3 )

Continued……

Rate of VAT in different countries

Name of Countries

Yr. of intro

Standard rate (%)

Reduced rate (%)

Austria

1973

20

12,10

Argentina

 

21

10.5

Germany

1968

16

7

Denmark

1967

25

---

Thailand

1992

7

---

South Africa

 

14

---

South Korea

 

10

---

Nepal

 

13

---

New Zealand

1986

12.5

---

Canada

1991

7

---

Japan

1989

3

---

Italy

1973

19

4, 9

26

Continued ……

Name of

Yr. of

Standard rate

Reduced rate

Countries

introd.

(%)

(%)

Pakistan

1998

7.5

1

France

1968

19.6

5.5, 2.1

Bangladesh

1991

15

9,5,4.5,2.25,1.5

Belgium

1971

21

12,6

India

2007

12.5

4,1

UK

1973

17.5

5

Sweden

1969

25

12, 6

Spain

1986

16

7,4

Greece

1987

18

4, 8

Turkey

1985

12

8

TAXES UNDER VAT SYSTEM

The under mentioned taxes are administered and realized under VAT Act and Rules made there-under :

  • (a) Value Added Tax (VAT)

  • (b) Supplementary Duty (SD)

  • (c) Turnover Tax (TT)

  • (d) Advanced Trade VAT (ATV)

  • Duty Drawback or Export Rebate against the VAT, SD, Customs Duty (CD), Excise Duty and other duties & taxes paid on the inputs used at the time of manufacture of goods or rendering of services or paid at the production level are given under VAT Act.

SURCHARGE IMPOSED UNDER FINANCE ACT, 2014

  • (a) Health development Surcharge @ 1% on tobacco products

  • (b) Environment protection Surcharge @ 1% on all goods produced in an industry, pollutes environment

  • (c) Information and communication technology Development Surcharge @ 1% on Mobile phone set imported or produced

The above surcharge shall be levied and realized as and when VAT is levied and realized.

28

SUPPLEMENTARY DUTY ( SD ) :

Goods and services socially undesirable, luxurious and not

essential mentioned under the Third Schedule of the VAT Act are subject to SD under VAT Act [Section 7 and SRO] at a rate ranging from 5% to 500%, such as: 5%, 10%,

15%, 20%, 25%, 30%, 35%, 43%, 45% 60%, 61%,

93.24%, 100%, 150%, 200%, 250%, 350%, 500%.

The SD imposed major items are :

Goods : Import Stage

  • Fresh and Chilled Tomato, Fresh and dried Nut, Fresh and dried Fruits, Spices, Finished Chock let

  • Marble, Granite, Cement, Petroleum products

  • Detergent powder, Mosquito coil, Printed PVC Sheet

  • Toilet paper, Tissue paper, Oven fabrics, Carpet

  • Diamond, Imitation Jewellery

  • Explosive powder, Revolbar, Pistol and other fire Arms.

  • Liquor, Motor Vehicle

Continued ……

Goods : Production Level

Cigarettes, Cigarettes Paper, Biri, Zarda and Gool, Natural Gas in gaseous form Shampoo, Perfume, Cosmetics And other luxury goods Paints

Mosaic cube and similar goods, Ceramic Tiles, Bath tub, Jacuzzi, Sink, Basin, Commode and other bathroom fitting and fixtures.

Other Filament lamp, Excepting ultra violet/Infra-red lamp and float glass. Beverage and Energy drink, Fruit juice and Fruit drink Mineral water (up to 3 liter)

Services : Local Stage

Satellite channel distributor SIM Card supplier Hotel and Restaurant (Incase of liquor & Floor show bills).

TURNOVER TAX

Turnover Tax is administered under VAT Act and Rules. It is a liberal and easier tax treatment for the small enterprises (production and services).

[Sec. 8, 16 and rule 4]

Turnover means total money received or receivable in a certain period by a registered person against his goods manufactured, service rendered or goods supplied.

Turnover Tax means the tax payable on the said total money under section 8 of VAT Act,1991 and rule 4 of VAT Rules,1991.

Who is eligible to pay Turnover Tax

  • Yearly turnover not more than tk. 80 lac, ie upto 80 lac VAT is exempted and Turnover Tax is payable.

  • Rate of turnover tax to be applied @ 3%.

  • Not listed in the SRO No.183-law/2012/641-Mushak, dated:07

June,2012.

- 26 goods and 64 services

Continued ……

Procedure to be maintained for Turnover Tax

  • Application (Mushak- 6) to the Divisional Officer, VAT

  • Issuance of Enlistment certificate (Mushak- 8) by the Divisional Officer, VAT within 07 (seven) working days.

  • Two copies of annual turnover declaration (Mushak- 2Kha) to the Divisional Officer, VAT

  • Estimated annual turnover and turnover tax declaration to be submitted every year subsequently by the tax payer within 30 (thirty) days of the date of Enlistment.

  • After examining the declaration; the amount of annual turnover and Turnover tax ought to be approved by the Divisional Officer

  • Approval letter to be issued by the Divisional Officer within 30 (thirty) working days

  • Turnover tax is payable on the date of issuance of Enlistment certificate by the Divisional Officer

  • Deposit the amount of turnover tax to the Govt. treasury under the account code number 1/1133/0010/0313

  • Submission of turnover tax Return (Mushak- 4) along with treasury challan to the Divisional Officer of VAT for every tax period

Continued……

Responsibility of a person liable to pay Turnover Tax

Application to the concerned Divisional Officer of VAT with Form

Mushak-6

Enlistment by the concerned Divisional Officer of VAT with Form

Mushak-8

Issuing of cash memo with serial number at the time of supplying goods or rendering services using Enlistment number on it.

Payment of turnover tax monthly/quarterly/ yearly basis.

Submission of turnover tax Return (Mushak-4) in every tax period

Registers and documents to be maintained:

Purchase register (Mushak-16) Sales register (Mushak-17) Counter foil or copy of cash memo Copy of turnover tax Return (Mushak-4) Documents relating to import and export (if any) Relevant commercial documents

All the documents relating to turnover Tax to be maintained for 6 (six) years

Continued……

Penal provision [Rule 4 (13 Ka)]

Penalty of Five thousand taka in each case against failure to pay turnover tax in due time

Imposition of 2% interest against the unrealized turnover tax

Arrear turnover tax to be realized under section 56 of VAT Act and Rule 43 of VAT Rules

APPLICABLE AREA OF VAT

VAT Levi-able on -

  • From the very inception, VAT was applicable on most of the goods and a few number of services at the rate of 15%.

  • VAT was applicable on all goods under the H.S. Nomenclature except the following:

[Section3,8]

  • All exports, deemed exports and foods for consumption outside Bangladesh and other goods supplied to an out going conveyance.

  • Goods and services under the Turnover Tax.

  • All goods under Second Schedule of Narcotic Control Act, 1990, incase of manufacturing in Bangladesh. So, VAT is applicable at import level, service rendering level and trade level also.

  • Goods described under the First Schedule of the VAT Act, such as: live animals, meat, fish, fresh milk, unprocessed agricultural products, natural sands, rough timber, raw silk cocoon, raw wool, raw cotton, raw jute etc.,

Continued……

VAT is applicable on all services excepting the services described under the Second Schedule of the VAT Act, such as :

Basic services to live on, Personal Services, Social welfare services, Medical and Health services given by the private sector, Library,

Museum, Art gallery, Zoo, Botanical garden, Transmission of

Radio and TV (excepting other commercial activities), Taking deposit and savings by Bank and Financial Organization, Life insurance policy, Savings, SEC, Transportation of Passenger (without AC) and goods, Air lines (excepting the farm rents

Chartered plane and Helicopter), religious activities, Postal

service (excepting Courier and Express mail service), all charitable and scientific service activities provided for public interest, Stevedoring and Hand operated laundry and cleaning activities (except services provided in hotel and mechanized

laundry), etc.

Services under First Schedule (Part-2) of the Excises and Salt Act, such as :

Services rendered by Bank or Financial Institute and Services rendered by air line

36

EXEMPTIONS OF VAT & SD UNDER SRO’S: EXEMPTIONS [Section 14]  Govt. by notification in the
EXEMPTIONS OF VAT & SD UNDER SRO’S:
EXEMPTIONS
[Section 14]
Govt. by notification in the official gazette exempt VAT or SD on
importation or supply of any goods or class of goods or on
rendering of any services subject to some conditions and
limitations.
NBR may by special order exempt payable VAT or SD on any
importation of goods, receive of supplies or receive of services
subject to some limitations and conditions in view of
enforcement of any international or bi-lateral agreement on
reciprocal basis.
NBR may by special order exempt VAT or SD on importation or
supplies of any taxable goods or on services rendered
mentioning the reason in each case.

Goods :

Continued……

Live saving drugs, Plastic kitchen items, Water bottle, basket and Tiffin carrier used by the school children, Plastic hanger, hand fan and some other plastic items, Kitchen and household utensils made

of aluminum, MS sheet, Tin or steel (enameled or otherwise

colored), Some medical instruments/ apparatus, Agricultural machinery and instruments, Some scientific instruments, Books, booklet, news paper, periodicals and journals, Computer software, computer and accessories, computer ribbon and modem, Aircraft‘s and parts thereof, Chem. fertilizer, insecticides, fungicides,

herbicides, Copra waste, mustard oil, full fat soybean, Contraceptives, Sugar and molasses, loaves and bread, Biscuit (hundred taka per kg) cake (hundred taka per kg-except party cake) Jute goods, electricity, power generator, Hard board, newsprint (in roll or sheet form) Handloom fabrics of synthetic

fiber and cotton, Silk yarn, plastic or rubber sandal (up to

Tk.100/pair), Ball pen, wood pencils, type writer, Spares of textile and jute mills, Packed liquid milk, ghee, butter, curd (excepting sweet curd), Hurricane light, kerosene burner, Tractor, power tiller (excepting prime mover) etc.

Continued……

Tax exemptions for Cottage industries:

Goods produced by the cottage industries exempted from VAT and SD under some conditions mentioned below as

per the SRO No-172-Law/2013/676-VAT, Dated 06 June,

2013 issued under section 14(1) of VAT Act.

Conditions :

For the purpose of the SRO, Cottage Industries means

  • (i) It should not be a joint stock company

(ii)

Its Invested capital for plant, machinery and equipment at

any time in the year should not over

taka 40 lacs

(iii) Its Annual Turnover not more than taka 60 lacs

  • This Cottage benefit procedure :

may

be

taken

through

  • There is a negative list of items for cottage benefit

certain

39

Continued……

Negative List for cottage benefits:

  • Palm oil (all sorts), Coconut oil (all sorts),

  • CDSO, Soya bean oil,

  • Tea, Lozenge, Biscuit, Chanachur,

  • Juice, Energy drink, Mineral water,

  • All types of Cigarette and Biri, Zarda, Gul,

  • Antiseptic, Disinfectant, Medicine,

  • Paints, Pigments, Varnishes, Polishes,

  • Perfume, Water used in cosmetics, Cosmetics,

  • Tooth paste and like items,

  • Shave and after shave items,

  • Deodorant, Air freshener,

  • Soap ( all sorts with Liquid),

  • PVC pipe, Bricks (all sorts),

Continued……

  • M.S. Products, Metal container,

  • Super enameled copper wire,

  • House hold fan (fitted with electric motor of production capacity not over 125 watt)

  • Dry cell battery, Storage battery,

  • VCR, VCP,

  • Television (all sorts),

  • Electric bulb, Wires and cables,

  • Cruise Ships (all sorts), Excursion Boats, Ferry boats,

  • Cargo Ships, Berge and Similar ships for carrying passenger and goods,

  • Fishing Boats Factory Ships and Other ships, Used for preparing and preserving goods like fish,

  • Yates and other boats, Rowing boats and canoes for games or entertainments,

    • Tugs and Pusher craft, Rubber and Plastic foam.

Procedure:

Continued……

Fulfilling the above SRO conditions the manufacturer of VAT payable goods except the goods under the negative list will apply to the

Divisional officer of VAT in form mushak-6 with a declaration in ‗form-ka‘. After enquiring into the matter, if the Divisional officer is confirmed that the applicant has fulfilled the conditions as per the

SRO, then he will enlist the applicant as a cottage

industry in form mushak-8. The enlisted person will maintain an accounts of transaction in ‗form-kha

and at the time of supplying the goods, he will

always issue a cash memo mentioning the

enlistment number.

Continued……

VAT Exemption on Services:

Temporary Hotel and Restaurant; cold storage; Classified Advertisement in the News paper; Printing charges on books, Periodicals and Educational materials for the students; Binders, Internet (in case of rendering service to educational Institution only), VAT payable on Insurance premium by Private Sector Power Generation Company, VAT payable on Premium of co-insurance for Aviation Insurance in Foreign Currency . Specialist Doctor, Travel agency, Indenting Farm Supply of School Tiffin, Organizer of

Cultural Function performed by foreign artist [ less than Tk.100 per single

entry ], Specialist Doctor, Transportation of food grain, Land seller, Power used for irrigation, Small Tailoring shop for Dhaka & Chittagong city and non-AC Tailoring Shop for other part of the country, Tourist place or installation (including historical place), Man power exporter, Stock broker and other broker, Tour operator, Meditation Services, Purchase of rubber as industrial raw material through auction by an industry, Private Medical College & Engineering College, Private University etc.

Continued……

Exemption at Trade level

Maize seeds (in package form), Rice all sorts Protein premix of animal feed All Contraceptives Insulin, Vaccination for human medicine, Vaccination for veterinary medicine, Homeopathic, Aurvedic, Unani and Kidney dialysis solution, Anti-cancer medicine

All fertilizer

Insecticides, Fungicides, Pesticides, Anti sprouting products, Plant growth regulator and Disinfectants used in agricultural activities.

Streptokinase Sheath contraceptives Mobile phone set, Insulin pen/ Insulin cartridge.

INPUT TAX CREDIT MECHANISM : [Section 9, Rule 19 ]

Taxpayers are entitled to get input tax credit (rebate) on the VAT paid inputs (goods and services) used for producing/ supplying the taxable goods or rendering the taxable services whether imported or locally procured. As a result the incidences of taxes are

distributed among the all taxpayer in a same chain and the

individual incidence becomes low. Input tax credit is an incentive to the tax payer. It is the engine of VAT system. It is a progressive tax system because of input tax credit facility.

INPUT TAX CREDIT MECHANISM : [ Section 9, Rule 19 ] Taxpayers are entitled to get

INPUT TAX CREDIT :

Input means

[ Section 2(ga) ]

(a) All raw material, Laboratory re-agent, Laboratory equipment, Laboratory accessories any Gas, any material used as fuel, packaging material, services and machinery and spares excepting labor, land, building, office equipment and conveyance.

(b) Incase

of

trading,

goods

imported,

purchased,

achieved,

or

otherwise procured in view of sale, exchange or in other

words handing over.

Input tax means

Continued… ..

[Section 2(gha)]

Value Added Tax paid on imported inputs or purchased

inputs by a registered person from other registered person and VAT realized in advance (ATV) on imported inputs at the import stage shall also be included. Output tax means Levi-able tax under Value Added Tax Act, 1991

What is Tax Credit or Rebate

In accordance with the provision of section-9 of VAT Act and rule-19 of VAT Rules any registered manufacturer, service renderer, importer or trader of taxable goods or services may

adjust the amount of input VAT paid earlier on his inputs

against output VAT payable on goods or services. The scope or facilities provided here is called Input Tax Credit/Rebate.

Credit/ Rebate Mechanism:

Continued……

[Section 9, Rule 19 ]

Input tax credit facility is a right for the tax payer. But it is not free to exercise. This rebate can only be taken under certain conditions. Tax credit is not permissible in the following cases :

  • Input tax mentioned in the Bill of Entry or Tax invoice (VAT- 11) in which the Registration No. does not belong to the Registration No. of the supplier of goods, trader or service renderer.

  • VAT paid against the goods kept under others possession, right or supervision.

  • The amount of SD or Turnover Tax paid earlier.

  • The raw materials used in the production of goods or services exempted from VAT.

  • VAT paid against reusable packaging material, excepting the first time use.

  • VAT paid on Goods and Services which are related to the construction. Modernization, expansion, renovation and repair of any building or establishment and also purchase or repair of any kind of furniture, stationeries, air conditioner, fan, lighting equipment, generator etc.

47

Continued……

VAT

paid

on

rent

or

conveyances etc.

lease

of

Architectural

Plan and Design,

  • VAT paid against expenditure of travel, entertainment, staff welfare and development activities.

  • VAT paid against such inputs which is not entered in the book of purchase (Mushak-16) prescribed by rules.

  • VAT paid against inputs which is not included in the base value of the taxable goods.

  • Input tax on increased price of inputs purchased or procured when amended value declaration is not submitted after increase of total input price exceeding 7.5%.

  • The amount of VAT concerned with bank guarantee under which the input is released, till the bank guarantee finally disposed of .

  • If the NBR by notification in the official gazette fix the

rate and

amount of value addition for the purpose of assessment of VAT

incase of supply of goods or class of goods by a trader.

  • If the NBR by order determine VAT on the basis of real value addition or by notification in the official gazette determine VAT on the basis of fixed rate of value addition on some certain services ,VAT paid against that inputs purchased.

Continued……

If the total value received or receivable by a trader against his supplies is determined by rule for the purpose of payment of VAT.

  • VAT paid on inputs purchased where tariff value is fixed u/s 5(7).

  • If the amount of payable VAT is not included in the supply price

or

price declaration of goods and if there is no proof of payment in the Govt. treasury, incase when services supplied from outside Bangladesh.

  • If the value of inputs of goods or services worth Tk. one lac or more and

if the purchase price does not paid fully or partially through banking or

electronic channel

  • Credit is to be taken within the same tax period, in case of failure it must

be taken within next 2 tax period provided the total inputs entered into the

production, supply or service rendering place

Continued……

Exceptions and other relevant issues

Partial Rebate : As per rule 19 of VAT Rules 1991 the following percentages of rebate may be taken in respect of place,

installation or premises used in connection with production or

supply of goods or rendering of services :

(a) VAT paid on insurance, gas and power distribution:

80%.

(b) VAT paid on telephone, tele-printer, fax, internet, freight forwarders, C & F agent, WASA, audit and accounting firm, procurement provider, security service, legal advisor, transport

contractor and banking service (LC) :

80%

Adjustment of Rebate: Any taxpayer may adjust the amount of VAT shown in the Bill of Entry (B/E) or VAT Challanpatra (Mushak- 11) on the rebate column of Account Current Register (Mushak-18)

after the goods entered into the factory or business place.

Continued……… .. How does the tax credit / Rebate system work at different levels of a
Continued……… ..
How does the tax credit / Rebate system work at
different levels of a business supply chain ?
[ Flow Chart for Credit / Rebate Mechanism ]

China

Exporting

Country

   

Distribution level

Value for VAT 180 Tk.

Rate of VAT = 15% Total VAT= 27.00 tk.

VAT Rebate= 22.50 tk.

 

Net VAT = 4.50 tk.

VAT paid value = 207 tk.

 
 

Whole Sale Level

Value for VAT 210 tk.

Rate of VAT = 15%

Total VAT= 31.50 tk.

VAT Rebate= 27.00 tk.

Net VAT = 4.50 tk.

VAT paid value

= 241.50 tk.

51

Import level

 

Industry level

 

Value for VAT 100 tk.

Value for VAT 150 tk.

Rate of VAT = 15% Total VAT= 15 tk.

Rate of VAT = 15% Total VAT= 22.50 tk.

VAT paid value

VAT Rebate= 15 tk.

= 115 tk.

Net VAT = 7.50 tk.

 

VAT paid value = 172.50 tk.

Consumer level

Total value=

250+37.50

=287.50 tk. (VAT inclusive)

 

Retail Level

Value for VAT 250 tk.

Rate of VAT = 15%

Total VAT= 37.50 tk.

VAT Rebate= 31.50 tk.

Net VAT = 6.00 tk.

VAT paid value = 287.50 tk.

Continued……

Cancellation of Rebate and Executive Appeal : [ Section-(2),2ka,2kha ]

If any taxpayer without having legal right of taking rebate avails tax rebate, the concern officer cancelling the taken

rebate may order for adjustment with the account current register or tax return(Mushak-19).

The

person aggrieved by the order may submit a

written objection to a VAT officer senior to the officer

passing the order within 15 working days.

The officer shall give an opportunity of being heard to dispose of the issue within 15 working days and the

order issued by the said officer shall be final.

52

IMPORTANCE AND PROCEDURE OF VALUATION

UNDER VAT SYSTEM

  • As the realization of VAT in Bangladesh is still dependent on manufacturing level and the VAT is realizable on ad valorem basis, so if the correct value is not determined, the actual revenue could not be realized. But whenever the real VAT system will be implemented at all stages of goods and services the question of value for VAT in Bangladesh may be dealt with relaxed approach.

  • Value for VAT does not mean the actual value or sale value of a commodity or service. Actual value or sale value is determined by the manufacturer or trader or market. Here the value stands for the purpose of assessment of VAT at different stages only. So the question of value for VAT in Bangladesh is very important, though it is not important for the countries where the ideal VAT system is introduced at all stages like: import, manufacturing, trading and service rendering.

  • Provisions regarding determination of value for VAT and SD are contained in section 5 and 7 of VAT Act and rule 3, 3ka, 3kaka, 3kha of VAT Rules. As per the current position of law the assessable value for VAT at different stages are to be calculated as mentioned below :

Import stage:

Continued……

  • Assessable value for VAT : Assessable value for Customs Duty under section-25 or 25A of Customs Act + Customs Duty + Regulatory Duty (if any) + Supplementary Duty (if any) with other Duties and Taxes (if any), except AIT.

Other duties and taxes means : Safe Guard Duty (SGD), Counter-veiling Duty (CVD), Anti Dumping Duty (ADD) etc.

Calculation of taxes is given below:

Customs Duty (CD) and Regulatory Duty (RD)

Flat on Value:

If assessable value

is

100.00

if rate of CD

is

25%,

then amount of CD

is

25.00

if rate of RD

is

05%

then amount of RD

is

05.00

Continued……

[Assessable value for SD: Assessable value for Customs Duty + Customs Duty + Regulatory Duty (if any)].

  • Supplementary Duty (SD):

Based on :

If assessable value

is

100.00

Value+ CD

If rate of CD

is

25%

If rate of RD

is

5%

and if rate of SD

is

20%

Then amount of SD

is = (100+25+5) X 20%

= 26.00

[ i.e, Assessable value for SD = 130.00 ]

Continued……

Calculation of Taxes

  • Value Added Tax (VAT) at Import stage :

Based on :

If assessable value

is

100.00

Value+CD+RD+SD

If rate of CD

is

25%

If rate of RD

is

5%

If rate of SD

is

20%

& rate of VAT

is

15%

Then amount of VAT

is

= (100+25+5+26) X rate of VAT 15% = 23.40

[i.e, Assessable value for VAT=156.00]

  • Local stage:

Continued……

Value of goods is determined by aggregating the cost of inputs, other costs & charges, profit and commissions.

Goods (Manufacturing): [{Value of Inputs + Total Expenses + Commission, Charge, Fee (if any) + all Duties and Taxes (if any), Excepting VAT + Profit} + Supplementary Duty (if any)].

Calculation of Taxes :

Value of Inputs =

156.00

Total Expenses =

+30.00

Commission =

+4.00

Profit =

+20.00

Total Cost =

210.00

Supplementary Duty @20% =

42.00

Value for VAT = 210.00+42.00 =

252.00

So the amount of VAT=(252x 15%)= 37.80

[Assessable value for SD: The amount or consideration received or receivable from the buyer excluding the amount of SD and VAT.]

  • Value for Services :

Continued……

Services

Total receipts excluding VAT, but including supplementary duty (if any) ]

Total

receipt

means--

Total

money

received

or receivable

including commission or charge, excepting VAT by the taxable

service renderer in exchange of his services.

[Section 2(bha)]

[Assessable value for SD: Total receipt excluding the amount of SD and VAT.]

Calculation of Taxes :

Value of services =

138.00

Value for VAT =

120.00

Value for SD =

100.00

So Total Money received or receivable = 100.00

[Amount of SD @ 20% =

20.00

Continued……

Trade ( Whole sale and retail level ):

Local Trader :

  • Base value for VAT : [{Purchase value + 26.67% (value addition)] x 4%, ie,15% on 26.67 (amount of value addition).

  • Value to be declared under section 5(2) with the ―form-1kha‖ (rule 3) to the divisional Officer of VAT for supply of goods and taxes to be paid

@ 15%.

  • The rate of value addition for pharmaceutical and petroleum substances will be counted as 13.33% and 2% VAT will be calculated on the total value of the supplies.

  • In case of payment on the basis of truncated base, no rebate can be claimed.

  • The small retail traders whose annual turnover is not over tk. 70 lac they can pay fixed amount of VAT region wise on the basis of certain amount of value addition determined by NBR .

Rate of value addition is determined to be 26.67%, i.e. net 4% on the sale

amount is payable. But one can pay VAT at the rate of 15% on actual basis

declaring value and maintaining required Registers and formalities [according to ideal VAT system]. In that case,

[VAT = Sale value × 15% Purchase value × 15%]

Commercial Trader :

  • Advanced Trade VAT (ATV)

Continued……

  • [{(Customs assessable value + Customs duty) + Regulatory Duty (if any) + SD (if any)}+ 26.67% (Value Addition)] × 4%.

  • Value to be declared under section 5(2) with the form-1kha(rule 3) to the divisional Officer of VAT for the next supply and taxes to be paid @ 15%.

Calculation of Taxes

Based on Value

If assessable value

is

100.00

+ CD+ RD +SD + 26.67%

CD

is

25%

(Value addition)

RD

IS

5%

SD

is

20%

VAT

is

15%

AIT

is

5%

ATV

is

4%

The amount of ATV is = (100+25+5+26+41.60) x rate of ATV 4% = 197.60x rate of ATV 4%

= 7.90

60

EXCEPTIONS :

Continued……

  • Production on contractual basis

[Section5(2ka)]

NBR may by rule ascertain the procedure of valuation incase of manufacturing the brand goods of a registered manufacturer on contract basis by another registered manufacturer.

  • The manufacturer of the goods (sub-contractor) will submit a value declaration in form Mushak-1to the Divisional Officer of VAT on the basis of the consideration/charges against each unit of goods he will receive from the owner of the brand goods.

  • The owner of the brand goods will also submit a value declaration in form Mushak-1to the Divisional Officer of VAT as per normal procedure laid down in rule 3(1) of VAT rule.

  • The manufacturer of the goods (sub-contractor) shall only be entitled to supply the manufactured goods to the registered premise of the owner of that brand goods. At the time of supply he will issue a Mushak-11using double sided carbon destined to the premise of the owner.

Continued……

Supply against in-different value

[Section 5(2kha ), rule 3kha]

Both the Manufacturer and Importer can opt for supply against in-different value.

  • Option to sale with printed in-different value through out the country

  • Manufacturer will have to pay in total at the factory level and importer will have to pay in total at his supply level.

  • Prior approval from NBR is to be taken.

  • Back Calculation Method

[Section 5(2ga

Whatever the provisions prevail in section 5(2), in view of maintaining stable price for goods and services if the Government through any Govt. office or other organization determine unit price of such goods or services then at the level of production or service rendering the

payable total SD and VAT shall be realizable on the basis of back

calculation from the determined price.

In the above case Govt. may by notification in the official gazette exempt from the responsibility of value declaration under some terms

and condition mentioned in the gazette.

(Rule 3kaka)

Continued……

For Retail Price at Production Level

[Section 5(3)]

Govt. may by notification in the official gazette determine the goods on which VAT will be applicable on the basis of retail price.

The retail price of the goods shall be the price determined by the manufacture on approval from the

concerned officer in which all expenses, commission, charges, duties and taxes are included. and

The goods with special brand and marks sold at the price to the general consumer and the price is clearly,

remarkably and indelibly printed on to the goods or its package, bag or cell.

Continued……

  • Trade (Whole sale and retail) level:

[Section 5(2)]

NBR by notification in the official gazette may fix the rate and amount of value additionof any goods or class of goods at trade level.

For Services

[Section 5(4)]

NBR may by order fix the actual value addition of any services or by notification in the official gazette fix the value added tax on the basis of determined value addition.

Govt. may by notification in the official gazette fix a minimum value added tax on any service, in spite the service renderer provides that service free of cost.

TRUNCATED BASE SYSTEM FOR SERVICES

Truncated base value for services were introduced to ––

protect the interest of govt. revenue,

protect the interest of the taxpayers who add low value to their services,

the items for which input credit system does not work properly and exist major evasion risks,

the items for which easier and simple documentation and tax payment system is essential.

  • NBR may by order fix VAT on the basis of real value addition or by SRO in the official gazette fix VAT on the basis of determined rate of value addition of certain services. [Section 5(4) ]

Continued……

Truncated base and net VAT rate of some service items

  • National Board Revenue SRO No. 108-Law/2014/703-VAT, Dated: 05 June, 2014. Determination of tax on the basis of value addition at certain rate in case of specific services rules, 2012.

Service Provider

Base of Particular Rate of Value Addition

Net VAT

 

Rate

(1)

(2)

(3)

Restaurant

100% of the amount received against the Service provided by air conditioned restaurants

15%

50% of the amount received against the service

7.5%

provided by ordinary (non air conditioned) restaurants

Motor Car Garage & Workshop

50% of the total amount received against servicing and repairing of a motor vehicle along with the value of the machinery and machinery parts used by the service provider

7.5%

66

Service Provider

Base of Particular Rate of Value Addition

Net VAT

Rate

(1)

(2)

(3)

Dockyard

50% of the total amount received instead of servicing and

7.5%

repairing of a marine vehicle along with the value of the

machinery and machinery parts added to that vehicle by the service provider

Construction

36.67% of the value mentioned in the tender for any

5.5%

Firm

particular construction work

Land Developer

  • (a) 20% of the total amount received instead of sales or

3%

Building

handover of developed land

Construction

  • (b) 20% of the total amount received instead of sales or

Firm

handover of building

3%

Photo Maker

50% 0f the total amount received by the photo maker

7.5%

Furniture Sales

(a)40% of the total amount received at production stage

6%

Centre

  • (b) 26.67% of the total amount received, at sales stage (on

the condition of having the payment receipt of VAT at the

4%

rate of 6%, at production stage)

Service Provider

Base of Particular Rate of Value Addition

Net VAT

Rate

(1)

(2)

(3)

Goldsmith,

20% of the total amount received instead of

3%

Silversmith,

sales of gold, gold jewellery, silver or silver

Jewelers & Guilders

jewellery

Procurement

26.67% of the total value of the product or

4%

Provider

service supplied by the procurement provider

or of the value mentioned in the tender

Transport

  • (a) 15% of the total amount of value (in

2.25%

Contractor

applicable cases, the value mentioned in the tender) received by the service provider engaged in transporting petroleum products

  • (b) 50% of the total amount of value (in applicable cases, the value mentioned in the tender) received by the service provider

7.5%

engaged in transporting other products

Service Provider

Base of Particular Rate of Value Addition

Net VAT

Rate

(1)

(2)

(3)

Power Suppliers

33.34% of the total electricity bill received against the

5%

usage of electricity

Buyer of Auctioned goods

26.67% of the sales value of the auctioned goods

4%

Immigration

50% of the total amount received instead of the service

7.5%

Consultant

provided by the service provider

English Medium School

50% of the total amount received instead of the service provided by the service provider

7.5%

Space or Installation Rent taker

60% of the total amount of rent, in case of space and structure rent

9%

Sales Centre of RMG with Own Brand

33.34% of the total amount received at sales stage

5%

Information Technology Enabled Services

30% of the total amount received by the service provider

4.5%

Sponsorship Services

50% of the total amount received by the service provider

7.5%

Continued……

  • VAT will be applicable at the rate of 15% in the cases of those taxable services which are not mentioned in this aforesaid table.

  • The VAT determined in the column (3) of the aforesaid table will be paid by the service providers.

  • In case of the aforesaid service providers shown in column (1), no input tax credit will be allowed.

  • If any service provider wants to pay VAT at the rate of 15% on the total received amount, taking credit, s/he will be entitled to do that complying with the applicable terms and conditions of VAT Act and VAT Rules.

TARIFF VALUE FOR GOODS

  • Tariff Value

[Section 5(7)]

NBR by notifications in the official gazette may fix the Tariff Value for SD and VAT in case of goods or services considering the importance of public interest and being satisfied after due enquiry.

Tariff Value for goods were introduced to ––

[Section 5(7), 5(4) ]

  • protect the interest of govt. revenue,

  • protect the interest of the taxpayers who add low value to their goods/services,

  • the items for which input credit system does not work properly and exist major evasion risks,

  • the items for which easier and simple documentation and tax payment system is essential.

Continued……

National Board of Revenue General Order No.-02/Mushak/2014, Dated: 05 June, 2014. Some examples of tariff value:

Purified Soya bin oil Purified Palm oil Pickle (Bottled) Pickle (Packed) Tomato Paste Mango Juice Newsprint

Tk. 4110/MT Tk. 3700/MT Tk. 50/KG Tk. 60/KG Tk. 15/KG Tk. 15/KG pack Tk. 10000/MT

The tariff value is fixed only for the purpose of assessment and realization of VAT, it is not a market price or real price or total cost of the goods. It may be the value or amount equal or nearer to the

amount of value addition or how much relax treatment the policy

maker wants to consider for a certain sector or item. It is a

distortion to the VAT system, but the government of Bangladesh has under taken this system on interim basis to address the trade reality.

Value declaration and approval procedure

[Rule 3]

Value declaration with input output co-efficient in Form ―Mushak-1‖ to the Divisional Officer of VAT

  • Goods may be supplied from that day on the declared value

  • In case of any change in value, it is to be noticed to the Divisional Officer before seven working days of its execution

  • If any anomalies are found in the value declaration after investigation, Divisional Officer may by giving an opportunity of hearing can review the value and execute it from the date of declaration

  • The decision of the Divisional Officer regarding the value within 15 working days

  • On request of registered person or Divisional Officer or of his own initiative, Commissioner can fix the assessable value due to increase or decrease of market price or of other reason.

  • A registered person may apply to the Commissioner to review the value assessed/imposed by the Divisional Officer at a higher level and Commissioner will solve the same within 15 working days.

  • A declaration regarding input-output co-efficient of every goods in form Mushak-1kato be submitted to the Divisional Officer of VAT in case of goods under Tariff Value and in form Mushak-1khain case of

Continued……

Role of value review committeeformed by NBR

[Rule 3(7)]

Committee: Director General VAT Audit, Intelligence and Investigation is the President and a member (Additional Commissioner/Joint Commissioner) from every VAT Commissionerate and VAT Wing (First Secretary).

NBR, any VAT Commissioner or registered taxpayer may proceed to

the committee and committee may give suggestions after review.

Practical Problem in Value declaration

  • Fluctuation of value of inputs and currency rate

  • Complication in actual distribution of input-output co-efficient

  • Problem of adjustment with the market price and instability in business system

  • Inadequate skilled and efficient person power

  • May create inconsistency between business flow and system

  • Less accommodative approach towards reverse interest

VAT AT TRADE LEVEL AND ATV

  • At the time of inception of VAT in Bangladesh it was not applicable at the trade level. It was applicable at the import level, production level and service level only. Later on in 1996 only 12 luxury items at the trade level were brought under VAT. After words the items were increased to 60 within some years. But the result was not satisfactory. In 2001 all the items are brought under VAT at the Trade level. To impose and realize VAT from trade sector of Bangladesh the traders was defined in a different way.

  • Trader means a person who sales or otherwise handover the goods to other person in exchange of consideration without changing any shape, nature, characteristics or quality of goods imported, purchased, achieved or otherwise collected by him.

[Section 2(tha tha tha tha)]

  • Commercial Importer means a person who sales or otherwise handover the goods to other person in exchange of consideration without changing any shape, nature, characteristics or quality of goods imported by him excepting the goods described in the First Schedule.

[Section2(thatha)]

  • NBR by notification in the official gazette may fix the ―rate and amount of value addition‖ of any goods or class of goods at trade level.

[Section 5(2)]

Continued……

Realization

of

VAT

payable

on

the

supply

of

goods

by

the

Commercial Importer, Trader and Retail small trader Rules, 2012.

  • Commercial Importer :

    • ATV to be paid at the importing customs station through Bill of Entry at the time the import level duties are paid.

    • Base value for

ATV : [{Approved assessable value + Customs Duty (CD) +

Supplementary Duty (SD, if any) + Other Duties & Taxes (except VAT & AIT)}

+26.67% (value addition)] x 4%.

  • Value to be declared under section 5(2) with the ―form-1kha‖ (rule 3) to the divisional Officer of VAT for the next supply and taxes to be paid @ 15%.

  • Goods to be supplied subject to payment of taxes and issuance of ―Mushak-11and ―Mushak-11ka‖ challanpatra.

  • VAT paid at the import level and as ATV may be taken as Credit/Rebate against payable taxes subject to the provision of section 9.

  • Commercial importer should maintain accounts under rule 22, but ―form-ka‖ may be maintained instead of Books of accounts for purchase (Mushak-16) and Books of accounts for sale (Mushak-17).

  • Payable tax to be paid with the head of accounts 1/1133/concerned Commissionerate code/0311and VAT return (Mushak-19) to be submitted to the local VAT office by 15 th of the next month.

  • There is a negative list for ATV.

76

  • Local Trader :

Continued……

  • Base value for VAT : [{Purchase value + 26.67% (value addition)] x 4%, ie,15% on 26.67 (amount of value addition).

  • Value to be declared under section 5(2) with the ―form-1kha‖ (rule 3) to the divisional Officer of VAT for supply of goods and taxes to be paid @ 15%.

  • Goods to be supplied subject to payment of taxes and issuance of ―Mushak-11and ―Mushak-11ka‖ challanpatra.

  • VAT paid at the earlier stage may be taken as Credit/Rebate against payable taxes subject to the provision of section 9.

  • Local trader should maintain accounts under rule 22, but ―form-ka‖ may be maintained instead of Books of accounts for purchase (Mushak-16) and Books of accounts for sale (Mushak-17).

  • Payable tax to be paid with the head of accounts 1/1133/concerned Commissionerate code/0311and VAT return (Mushak-19) to be submitted to the local VAT office by 15 th of the next month.

  • The rate of value addition for pharmaceutical and petroleum substances will be counted as 13.33% and 2% VAT will be calculated on the total value of the supplies.

  • of

In case

payment on the

basis of truncated base,

no rebate can

be

claimed.

 
  • But one can pay VAT at the rate of 15% on actual basis declaring value and maintaining required Registers and formalities [according to ideal VAT system]. In that case, [VAT = Sale value × 15% Purchase value × 15%].

77

Continued … ..

Trade VAT for Small Retail Traders :

The small retail trader whose annual turnover is not over tk. 70 lac he can pay VAT as per the amount mentioned in the table below :

Sl.

Applicable Area

Max. Value Addition

Rate of VAT

Mini. Payable

No.

per year

VAT per year

(1)

(2)

(3)

(4)

(5)

1.

Dhaka & Chittagong City Corporation

73,334.00

15%

11,000.00

2.

Other City Corporation

53,334.00

15%

8,000.00

3.

Municipal Area of District Town

40,000.00

15%

6,000.00

4.

Other Area of the Country

20,000.00

15%

3,000.00

  • VAT may paid annually or monthly basis.

 
  • The small retail trader will have to maintain purchase documents, cash memo and ―books of accounts for sales‖

78

BUSINESS PROCESS UNDER VAT SYSTEM

A taxable person should run his business activities through certain procedure prescribed by act and rules. He has to know and abide by the rules and regulation relevant to his business. The responsibilities and activities to be observed by him are mentioned below :

(a) The activities to be carried out by a Taxpayer

Taxpayers duty cycle :

Registration to be taken from the Divisional Officer of VAT

Declaration of Value to the Divisional Officer of VAT before the supply of goods.

Assessment of Duties & Taxes before the supply of goods.

Payment of Duties & Taxes before the supply of goods (in case of service, payment

of duties to be made within 15th of the next month).

Delivery of Goods or rendering of Services

Submission of Monthly Return (Mushak-19) to the Circle Superintendent of VAT

Continued……

VAT MANAGEMENT IN BANGLADESH
VAT MANAGEMENT IN BANGLADESH

VAT payment and record keeping process by the taxpayers

Registration Submission of Monthly Return Record Keeping Declaration of Value Registration documents Valuation Documents Delivery of
Registration
Submission of
Monthly Return
Record Keeping
Declaration
of Value
Registration documents
Valuation Documents
Delivery of
Goods & Services
Purchase Records
Invoice Book
Sales Records
Account Current
Copy of VAT return
Commercial doc. (if any)
Assessment of
Duty & Taxes
Payment of
Duty & Taxes

80

VAT REGISTRATION To be Registered — [Section 15, Rule 9]  Supplier of taxable Goods 
VAT REGISTRATION
To be Registered —
[Section 15, Rule 9]
Supplier of taxable Goods
Provider of taxable Services
Importer of any Goods or Services
Exporter of any Goods or Services
Whole sale or Retail Trader
Waiver from Registration —
[Section 3 & 14]
Govt.s power for any person or class of persons
on the basis of annual Turn Over
NBR’s power for any Importer or Exporter
Whose annual Turnover is not over Tk. 80 lakh
(They have to be enlisted under Turnover Tax)
Obligatory Registration.
Voluntary Registration.
[ Section 15(4) ]
[ Section 17, Rule 10 ]
81
VAT REGISTRATION REGISTRATION PROCEDURE  Submission of Application Form (Mushak-6) along with the required documents to

VAT REGISTRATION

REGISTRATION PROCEDURE

 Submission of Application Form (Mushak-6) along with the required documents to the Divisional Officer of
Submission of Application Form (Mushak-6)
along with the required documents to the
Divisional Officer of VAT or an Officer not
below the rank of Assistant Commissioner as
directed by NBR. [Rule 9 (1)]
Issuance of Registration Certificate (Mushak-
8) within two working days by the Divisional
Officer/AC.
[Rule 11 (1)]
Online Registration is possible
selected VAT Division. [Rule 9 (1)]
for some
82

Documents to be submitted for Registration

Application to be filled with prescribed form mushak-6

Managing director or Proprietors and authorized signatory’s two copies of

pp size photograph Trade license of the particular business

Tax identification number (TIN)

Import registration certificate (for Commercial/Industrial importer)

Export registration certificate (for exporter)

National ID or photocopy of passport of the proprietor/managing director

Plant machinery and raw materials (If any) declaration (Mushak-7)

Blue print or sketch map (where applicable)

Bank certificate

Certification of incorporation (for limited company)

Copy of rent agreement with the space owner or deed for ownership

VAT REGISTRATION LOCATION AND OTHER ISSUES

VAT REGISTRATION

LOCATION AND OTHER ISSUES

VAT REGISTRATION LOCATION AND OTHER ISSUES  One Registration — [ Rule 9 ( 4 )
 One Registration — [ Rule 9 ( 4 ) ] Production and supply of more
One Registration —
[ Rule 9 ( 4 ) ]
Production and supply of more than one goods from one
production place or rendering of more than one services
from one place or maintaining of import or export of more
than one goods or services from one place
Separate Registration — [ Section 15 (2), Rule 9 ( 1 ) ]
Goods supplied or Services rendered or performing of
Imports or Exports or Trading from two or more places.
Central Registration —
[ Section 15 ( 2 ) ]
One can opt for central registration in the following case
under prescribed rules :
84

Continued……

Central Registration & Tax Payment Procedure

Rule ,2012 under Value Added Tax

[ NBR SRO No. 186-Law/2012/644- Mushak, Date : 7 June 2012 ]

  • Applicability :

    • a) Where a Manufacturer manufactured goods from one place but supplies goods from different sales centre.

    • b) When a commercial Importer imports under his registered address and supplies through different sales centre.

    • c) When a Service renderer renders his Service through different branches.

  • Registration :

    • The suppliers of goods or renderer of Services shall apply in Form Mushak-6 along with required documents to concerned Divisional officer of VAT where it tends to get Central Registration.

    • Getting application and papers Okay and NOC from the concerned Commissioner of VAT, the Divisional officer shall issue Central registration in Form Mushak-8 and send attested copies to the concern Divisional officer & NBR.

Continued……

  • Tax Payment Procedure :

(1) In case of Manufacturer & Commercial Importer :

Centrally Registered office shall

pay

the taxes due in advance

in

a

coordinated way and perform different activities against tax ability.

  • a. Centrically Registered office shall pay the Taxes due in advance in a coordinated way and perform different activities against Taxability.

  • b. Centrally Registered Office shall declare the price of goods in Form Mushak-1 or Mushak-1 Kha to the concerned divisional officer as per section-5 of VAT Act and Rule-3 of VAT Rules.

  • c. As the VAT of Trade level is being paid in advance at the Centrally registered office the amount of Value addition of trade level is to be included in the declared price.

  • d. The amount of VAT is to be paid through adjustment in the account current register at the time of supplying the goods from Centrally registered office to branch office or consumer.

Continued……

2. In case of Service Rendering :

Centrally registered office shall pay the taxes aggregating the taxes of all service rendering unit through VAT return within the 15 th of next Tax period.

  • Centrally registered person shall purchase or import the inputs in the name of centrally registered office.

  • VAT Challanpatra :

    • a. Mushak-11 challanpatra is to be issued at the time of supplying goods from centrally registered office to warehouse or sales unit.

    • b. Centrally registered office shall supply Mushak-11 or Mushak-11kha challan book to sales unit and accounts of the challan book supplied to be maintained in a register with the centrally registered office

    • c. Sales unit shall issue challanpatra in form Mushak-11 or Mushak-11kha in favor of each sales and the required information is to be written on the chllanpatra.

    • d. Address of sales unit is to be written on Mushak-11 or Mushak-11kha issued from sales unit and VAT shall not be payable insprite of Mushak-11 or Mushak- 11kha challanpatra issued from sales unit.

Continued……

  • Sales information :

    • Centrally registered office shall submit to the concerned local VAT office the statement of sales and supplies of each sales unit in Form prescribed by the divisional officer with VAT return within the 15 th of next month.

  • Maintaining of Accounts:

    • Centrally registered office shall maintain all accounts as per section-31of VAT act rule 22 of VAT rules.

Amendment, Exhibition and Cancellation of Registration VAT REGISTRATION
Amendment, Exhibition and Cancellation of Registration
VAT REGISTRATION
 Change of address or other informations regarding Registration (Application Form Mushak-9 to the Circle Office)
Change of address or other informations regarding Registration
(Application Form Mushak-9 to the Circle Office) [Section 18, Rule 12 ]
Power of Commissioner regarding amendment of Registration
[ Rule 14 ]
Exhibition of Registration Certificate and Registration Number on
to the Signboard
[ Rule 13 ]
Cancellation of Registration (Application Form Mushak-10 to the
Circle Office)
[ Section 19, Rule 15 ]
Issuance of duplicate registration certificate

Continued……

(b) When VAT is payable?

  • In case of supply of goods, at the time the activity which occurs first amongst the following four activities:

    • (a) When goods are delivered or supplied,

    • (b) When the invoice (Mushak-11) regarding supply of goods is issued,

    • (c) When the goods are consumed/used personally or given for others consumption/use,

    • (d) When partial or full value is received.

(c) Who will pay VAT and related taxes ?

The section 3 of VAT Act fixed the liability of payment of VAT through treasury challan as follows:

At the import stage

Incase of imported goods, Importer At the manufacturing stage

Incase of manufactured goods, Supplier Incase of service providing, Service provider

Incase of services supplied from outside Bangladesh territory, Service recipient

In other cases, Supplier.

90

Continued……

In case of service rendering, at the time the activity which occurs first amongst the following three activities:

(a) When the service is rendered or provided, (b) When the invoice (Mushak-11) regarding rendering

of service is

issued,

(c) When partial or full value is received.

(d) When partial or full value is paid incase of services received from outside Bangladesh territory.

Continued……

(d) VAT PAYMENT PROCEDURE AND TIME FRAME

The tax should

be paid

prescribed by rule :

in the following

cases

as per the procedure

[section 6(5) ]

(1) At the import stage, with import duty; (2) At the Manufacturing stage and in some cases at the trade

level, through Account current register and Return

(Mushak-19); and (3) Incase of other goods or services supplied, through Return

(Mushak-19).

  • The amount of payable taxes should be deposited to the government treasury through TR-7 mentioning the head of accounts before supplying the goods incase of goods and 15th of the next month ( before submission of Return Mushak-19 ) incase of rendering the services

In case of VAT In case of SD on goods In case of SD on services In case of Turnover Tax

. . . . . . . . . . . . .

.

. . . . . . . .

. . . . . .

. . . . . . .

1 / 1133 / 0006 / 0311

1 / 1133 / 0006/ 0711 1 / 1133 / 0006/ 0721 1 / 1133 / 0006 / 0921

92

Continued……

(e) Procedure to be maintained for delivery of goods and rendering of services.

  • Incase of goods :

    • Value of goods is to be declared and approval is to be taken from divisional officer

    • Assessment of duties is to be made as per the indent of the purchaser

    • Payable duties is to be paid to the Govt. treasury

    • Tax invoice (Challanpatra) is to be issued properly

    • Sales register (Mushak-17) is to be filled up as per the indent of the purchaser

    • Amount of payable taxes is to be adjusted in the Account Current Register (Mushak-18)

Incase of Trading, payable duties is to be paid to the Govt. treasury within 15th of the next month and before submission of VAT return to the Circle office.

Continued……

  • Incase of services :

    • Value of some services (selected by NBR) is to be declared and approval is to be taken from Divisional officer

    • Assessment of duties is to be made as per the indent of the purchaser

    • Tax invoice (Challanpatra) is to be issued

    • Sales register (Mushak-17) is to be filled up as per the indent of the purchaser

    • Payable duties is to be paid to the Govt. treasury within 15th of the next month and before submission of VAT return to the Circle office.

(f) Record Keeping by a taxpayer:

Records to be maintained and kept by the taxpayer for the next 6 years at his concerned factory/business premise. The records are mentioned below:

[Section 31, 32, 33 Rule 22]