BANGLADESH VALUE ADDED TAX (VAT)

(Covering Finance Act 2020)

THEORY AND MATHEMATICAL PRACTICE

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Table of Contents
1. Historical Background of VAT .............................................................................................. 5
2. Definition of VAT.................................................................................................................. 6
3. Basic characteristics of VAT ................................................................................................. 6
4. The economic perspective of VAT ........................................................................................ 6
5. Important features of VAT..................................................................................................... 6
6. Advantages & Disadvantages of VAT ................................................................................... 7
7. The rationale for introducing VAT in Bangladesh ................................................................ 8
8. The scope of VAT in Bangladesh .......................................................................................... 8
9. Types of Value Added Tax .................................................................................................... 8
10. VAT administration ............................................................................................................. 9
11. Difference between VAT and Sales Tax.............................................................................. 9
12. Important Definitions: ........................................................................................................ 10
13. Goods and Services chargeable under VAT Act 2012 ...................................................... 14
14. Difference between zero-rated VAT and exemption from VAT ....................................... 15
15. Service providers and suppliers of goods are required to be registered for VAT
irrespective of the turnover/ Ineligible for Turnover Tax ........................................................ 15
16. List of goods exempted from VAT .................................................................................... 17
17. List of services exempted from VAT................................................................................. 18
18. Persons required to register for VAT ................................................................................. 18
19. Process and Required documents for VAT registration .................................................... 18
20. Central Registration ........................................................................................................... 19
21. Is central registration a legal right? What conditions are generally attached with central
registration?.............................................................................................................................. 19
22. Self-registration.................................................................................................................. 20
23. Transfer of goods from central godown or from one center to another ............................. 20
24. Cancellation of registration ................................................................................................ 20
25. Changes of information or address relating to registration ................................................ 21
26. Use of Business Identification Number ............................................................................. 21
27. The consequence of failure to pay VAT ............................................................................ 21
28. Mention the provision when submission carried on without VAT .................................... 21
29. The VAT mechanism/ Value addition mechanism ............................................................ 21
30. Formula Alternative of VAT calculation ........................................................................... 21
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31. Input VAT Credit ............................................................................................................... 22

32. Partial Input VAT Credit ................................................................................................... 22
33. Consideration to be fulfilled for Input VAT credit ............................................................ 22
34. In-eligibility for Input Tax Credit ...................................................................................... 23
35. The penalty for False Declaration of Input Tax ................................................................. 23
36. Is Import Duty, Supplementary Duty and Advance Income Tax rebatable as VAT?........ 23
37. Advantages of Input VAT Credit ....................................................................................... 23
38. Input-Output Coefficient Declaration ................................................................................ 24
39. Contractual manufacturing................................................................................................. 24
40. Carry Forward and Refund of VAT and Advance Tax ...................................................... 24
41. VAT Agent......................................................................................................................... 25
42. Determination of value and VAT at import stage .............................................................. 25
43. Tax base/value of goods and services for the imposition of VAT ..................................... 25
44. Documents to be maintained for VAT purpose ................................................................. 26
45. Tax Invoice ........................................................................................................................ 26
46. Reverse Charge of VAT ..................................................................................................... 27
47. Time and mode of payments of VAT ................................................................................ 27
48. Submission of VAT return and its necessity...................................................................... 28
49. Amendment of return ......................................................................................................... 28
50. Tax period .......................................................................................................................... 28
51. VAT Software .................................................................................................................... 29
52. Offenses and Penalties ....................................................................................................... 29
53. Adjudication authority limits of VAT officials.................................................................. 30
54. VAT Deducted at Source (VDS) ....................................................................................... 30
55. Payment of VAT deducted at source by the unregistered recipient of supply ................... 31
56. Consequences of failure to deduct/collect VAT? .............................................................. 31
57. Appeal procedures and requirements under VAT regulation ............................................ 31
58. Persons authorized to collect/deduct VAT Deducted at Source (VDS) ............................. 32
59. List of sources on which specific VAT rate is applicable as per third schedule/ Truncated
VAT/ Trade VAT ..................................................................................................................... 32
60. Turnover tax enlistment, period and return ........................................................................ 35
61. Books and Records to be maintained by the Turnover Taxpayer ...................................... 35
62. Restrictions relevant to entities enlisted for Turnover Tax ................................................ 35
63. Whether turnover tax (TOT) can be deducted at source? .................................................. 35
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64. Difference between VAT & Turnover Tax ........................................................................ 36

65. Supplementary Duty .......................................................................................................... 36
66. Value of goods or services for the purpose of imposing Supplementary Duty ................. 36
67. Tariff value......................................................................................................................... 37
68. Sale of business or disposal of assets ................................................................................. 37
69. VAT assessments/duties and responsibilities of VAT assesse .......................................... 38
70. List of major VAT forms ................................................................................................... 38
71. Difference between VAT Act 1991 and VAT & SD Act 2012 ......................................... 39
72. Mention five deficiencies of the current VAT system of Bangladesh. .............................. 40
73. VAT advice considering the conflict ................................................................................. 40
74. Advise letter relating to VAT issues .................................................................................. 41
75. Advise on VAT issues ....................................................................................................... 43
76. Evaluate professional and ethical issues ............................................................................ 44
Example of VAT Math ............................................................................................................ 45
1. Net VAT payable ................................................................................................................. 45
2. Total tax and charges ........................................................................................................... 45
3. Partial tax credit ................................................................................................................... 46
4. Each stage VAT ................................................................................................................... 46
5. VAT on Supplies.................................................................................................................. 47
6. Cost sheet ............................................................................................................................. 47
7. Selling price determination .................................................................................................. 48
8. Journal entries ...................................................................................................................... 49
9. Net VAT determination ....................................................................................................... 51
10. VAT on different stages ..................................................................................................... 51
11. Advise on VAT invoice and credit .................................................................................... 53
12. VAT compliance ................................................................................................................ 55
13. VAT impact in different stages .......................................................................................... 58
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1. Historical Background of VAT

Value Added Tax is an indirect and consumption tax that is placed on a product or service when
the value is added at each stage of production and final sale. The Value Added Tax and
Supplementary Duty Act, 2012 was introduced in Bangladesh in July 2019 after a long effort.
The act is accompanied by the Value Added Tax and Supplementary Duty Rules, 2016 and
VAT Deduction at Sources Rules, 2019. Before that Value Added Tax Act, 1991 was in vogue
in Bangladesh for the last 28 years. In this short period, lots of changes have been brought into
the act considering the demands of different stakeholders. During the period of enforcing the
act, a number of distortions gradually have crept into the system; namely: cascading effect,
tariff value, truncated value base, Advance Tax (AT) at import stage, the definition of services,
deduction of VAT at source, etc. Therefore, we compiled this manual based on Value Added
Tax and Supplementary Duty Act, 2012.

Major change in features between VAT act 1991 and VAT act 2012:
VAT Act 1991 VAT Act 2012
Registration threshold was two layered: Registration threshold is three layered:
turnover tax and VAT. exempted, turnover tax and VAT.
Scope for central registration is clearly
Scope for central registration was limited.
specified.
Input Output Coefficient requires no
Price declaration required to be approved.
approval.
No concept of progressive or periodic Progressive or periodic supply mechanism
supply. is clearly stated.
VAT registration was based on visible VAT registration is based on economic
turnover. activity.
Liaison office was out of VAT scope. Resident is clearly defined.
Advance Trade VAT (ATV) paid at import Advance Tax (AT) paid at import can also
was adjustable only. be refunded.
Only net tax payable at the time of filing
VAT current account was mandatory.
VAT return.
Input credit for utilities 80% and no credit Input credit available in full for all
for capital expenditures. expenses.
No provision for late filing or amendment of Concept of late filing and amendment of
VAT return. VAT return are inserted.
No specific rule for carry forward or refund Rule for carry forward or refund of VAT is
of VAT. specified.
No VDS in case of proper invoice at
VDS was applicable at mass stage. standard rate leaving less scope for
withholding.
Package VAT was rampant. No provision for package VAT.
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2. Definition of VAT
Value Fraction = VAT Rate / (100 + VAT Rate)
VAT = Consideration * VAT Fraction

Value Added Tax or VAT is such an indirect tax which is paid by the consumer through a
registered person. VAT on particular goods or service is determined on the basis of adding
actual level of value of the said goods or service adjusting input tax payable against the supplied
goods or service. From the perspective of
 buyer, VAT is a tax on the purchase price;
 seller, VAT is a tax only on the value added to a product, material or service.

3. Basic characteristics of VAT

Basic characteristics of VAT are given below:
 VAT is indirect in nature as levied on expenditure, not on income as done under the
direct tax system.
 VAT is a general tax which is applied to both goods and services.
 VAT is collected at every point of sale.
 VAT is a consumption tax as it borne by the ultimate final consumer. It is not charged
on businesses.
 VAT is charged as a percentage of the price, which makes it easier to identify the actual
tax burden at each stage of production and circulation.

4. The economic perspective of VAT

VAT has been spreading rapidly since the 1960s. It is the youngest member of sales tax family.
Some economic perspectives of VAT are given below:
 VAT plays a pivotal component of the tax systems of both developing and transition
economies.
 VAT has been spreading all over the world because it is less distortive and more
revenue productive.

5. Important features of VAT

Some important features of VAT are given in the following:
 VAT is imposed on goods and services at import stage, production or manufacturing
stage, wholesale levels and retail levels;
 VAT system follows the lowest possible single rate and widest possible coverage;
 VAT is mandatory for supply of selected item;
 VAT is applicable for almost all goods and services at a standard rate of 15% (except
some goods and services listed on the first schedule of VAT act);
 Micro enterprises having turnover not more than Tk 50 lac will remain outside of the
purview of VAT;
 Exports are zero (0%) rated;
 VAT becomes payable at the time of supply of goods and services;
 Turnover Tax @ 4% is leviable where turnover is within Tk 50 lac to Tk 3 crore;
 Some industries like agro-based and cottage are exempted from VAT;
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 Tax paid on input stage (input tax) is creditable against the output stage (output tax)
except turnover tax, truncated value, tariff value, package VAT;
 VAT and turnover tax returns are to be submitted monthly and quarterly respectively;
 Luxurious and socially undesirable goods and services are subject to supplementary
duties at different rates listed on the second schedule of VAT act.

6. Advantages & Disadvantages of VAT

Advantages of VAT:
a) VAT is known for investment-friendly taxation system.
b) Amongst all other indirect taxes, VAT has the most revenue potential.
c) The VAT system has a broader base and consists of multiple invoice checking, which
helps to improve tax compliance and enforcement. Hence VAT system acts as a
supplementary tax that can help make up for revenue loss due to income tax evasion
d) VAT allows the government to obtain VAT from entities which were previously
allowed some forms of tax exemptions. Thus, VAT widens the tax base by bringing all
transactions into the tax system.
e) VAT may be applied strategically, selectively and effectively to control the
consumption of specific undesirable goods and services.
f) In order to protect local industries from uneven competition or foreign competition, the
government may design VAT system accordingly.
g) VAT eliminates tax cascading due to the practice of tax credit. The tax credit is when
tax paid by the dealer at the time of purchase of goods or services (input tax), is
deducted from the amount of tax paid at the next sale (output tax).
[Tax liability = Output tax - Input tax]
h) VAT encourages personal and national savings, export and investment- principle
elements of a healthy economy- by taxing only consumption.
i) VAT can be selectively applied to specific goods or business entities as a control
mechanism and protect local industries.

Disadvantages of VAT:
a. VAT is criticized for being regressive in nature. VAT is charged on consumption, and
the burden of VAT relies on the ultimate final consumers - no matter what their financial
status. Hence, VAT is characterized as being regressive since the burden falls heavier
on the poor in comparison to the rich.
b. VAT contributes to inflation by raising the prices of goods and services.
c. The ratio of value added to the selling price is greater in labor-intensive industries.
Hence, VAT is said to fall heavier on labor-intensive industries in comparison to
capital-intensive industries.
d. VAT collection is costlier and more cumbersome than a collection of other taxes.
e. Standard VAT system does not allow benefit for small enterprise.
f. VAT is relatively complex to understand as the calculation of value added is not an
easy task.
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7. The rationale for introducing VAT in Bangladesh

In countries like Bangladesh, where resource mobilization is a top priority and tax avoidance
rate is high; an indirect taxation system is required to reduce the deficit between public revenue
and public expenditure. Hence, Value Added Tax (VAT) is required for the economic
development of Bangladesh. In such a context, reasons for introducing VAT in Bangladesh are
as follows-
i. To provide greater simplicity, transparency, and authenticity in the current taxation
system;
ii. To increase the competitiveness of Bangladeshi industries by removing the cascading
effect of traditional sales tax;
iii. To activate the overall economy through internal resource mobilization;
iv. To reduce tax evasion through better administration;
v. To avoid the problem of undervaluing, as all stages of production and distribution are
subject to tax;
vi. To bring the consistency in Tax to GDP ratio;
vii. To help in fiscal consolidation for the country in bringing a steady source of revenue
reducing the debt burden.

8. The scope of VAT in Bangladesh

The scope of VAT is as follows:

 Value Added Tax and Supplementary Duty Act, 2012;

 Value Added Tax and Supplementary Duty Rules, 2016;
 VAT Deduction at Sources Rules, 2019
 Finance Act;
 SRO (Statutory Regulatory Orders);
 VAT case jurisdictions/law.

9. Types of Value Added Tax

According to the provision of VAT Act 2012, three different types of tax are charged which
are as follows:
a) Value Added Tax: Importers, manufacturers, and service providers have to pay VAT
on value addition in each stage under section 15 of VAT Act 2012.
b) Turnover Tax: Turnover Tax is a tax as an alternative to full VAT on the turnover of
enlisted manufacturer or producer of taxable goods or provider of taxable services
under section 63 of VAT Act 2012. Turnover Tax has been included to allow small
traders, businessmen, manufacturer to pay tax @ 4% on turnover, provided it does not
exceed annual turnover Tk 3 crore.
c) Supplementary Duty: Supplementary duty is an output tax. In addition to VAT, SD is
imposed on luxuries, not essential and not socially desirable goods and services on
which imposition of the SD is justified in the public interest, as specified in the Second
Schedule of VAT Act 2012.
10. VAT administration
Like all other taxes, the apex body of VAT administration is the National Board of Revenue
(NBR). It appoints the following required VAT officers for a specified jurisdiction through
official Gazette Notification.
VAT ADMINISTRATION

Administrative Authority Judicial Authority

1. NBR
2. Commissioner VAT
3. Commissioner large unit – VAT.
4. Director General-Audit & Inspection;
1. Appellate Tribunal
5. Director Duty Rebate;
6. Additional Commissioner, VAT 2. Commissioner (Appeal), VAT
7. Joint Commissioner, VAT
8. Deputy Commissioner, VAT
9. Assistant Commissioner, VAT
10. Revenue Officer, VAT
11. Assistant Revenue Officer VAT
12. Other VAT officer with any designation,
which include inspections.

11. Difference between VAT and Sales Tax

Differences between VAT and Sales Tax are given below:

VAT Sales Tax

VAT is a multi-point levy. Sales tax is generally a single point levy.

Full set-off of the tax paid at earlier stage is No tax is being levied on the value addition
granted, that is, there is an input VAT credit. of subsequent sales.

VAT eliminates tax cascading. Sales tax does not eliminate tax cascading.

Different Tax rate exist. Different tax slabs exist.

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12. Important Definitions:

i. Economic activity means any activity carried on regularly or continuously for making
supply of any goods, services or immovable property, and
(a) also includes the following activities, namely–
(i) business, profession, vocation, means of earning livelihood, manufacture or
undertaking of any kind, whether or not for profit;
(ii) Supply of any goods, service or property made under any lease, license, or a
similar arrangement,
(iii) one-off initiative in the nature of a commercial activity or enterprise;
(iv) activity carried out at the beginning or at the end of such an activity;
(b) shall not include the following activities, namely-
(i) service rendered by an employee to his employer;
(ii) service rendered by any director of a company:
Provided that the services rendered by a director, who holds the office of the
directorship for the purposes of the business of the company, shall be regarded as an
economic activity;
(iii) recreational pursuit or hobby carried on a non-commercial basis; or
(iv) any prescribed activity carried on by Government without commercial motive.
ii. Progressive or periodic supply means any supply made under the condition of
progressive or periodic payment of money under any agreement or lease (including
finance lease) or hire of license.
iii. International transport means, except the ancillary transport services, any of the
flowing services of transportation of any passenger or goods by road, water or air from
one place to another, namely–
(a) from a place outside Bangladesh to another place outside Bangladesh;
(b) from a place outside Bangladesh to a place within Bangladesh; or
(c) from a place within Bangladesh to a place outside Bangladesh.
iv. Resident means an individual who–
(a) normally lives in Bangladesh; or
(b) stays in Bangladesh for more than 182 (one hundred and eighty-two) days in a
current calendar year; or
(c) stays in Bangladesh for more than 90 (ninety) days in a calendar year and stayed in
Bangladesh for more than 365 (three hundred and sixty-five) days during the four
immediately preceding calendar years; and also includes the following entity, namely–
(i) company, if it is incorporated under the prevalent laws of Bangladesh or its centre
of control and management is in Bangladesh;
(ii) Trust , if a Trustee thereof is a resident of Bangladesh or the centre of control
and management of the Trust is in Bangladesh;
(iii) association of persons other than a Trust , if it is formed in Bangladesh or its
center of control and management is in Bangladesh;
(iv) all government entities; or
(v) property development joint venture.
v. Imported service means supply of any service made from outside Bangladesh to a
person registered or required to be registered.
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vi. Input means all raw materials, laboratory reagent, laboratory equipment, laboratory
accessories, any particular used as fuel, packing materials, services, machines and parts
of machines. Following goods and services are excluded:
 Land, labour, building, office equipment and fixtures, buildings/ infrastructures
construction, maintenance, repair, renovation
 All furniture, office supplies, stationary materials, refrigerator, air conditioner,
fan, lighting materials, generator purchase and repair
 Interior design, architecture planning & design
 Lease and rental payments for transportation
 Travelling, entertainment, goods and services related to employee welfare
related activities
 Rentals for office premises, showrooms
However, the above items can be considered as input for a trader who purchase those
items for its trading business.
vii. Input tax means the value added tax (except Advance Tax) paid by any registered
person at import stage against imported goods or services as inputs and value added tax
paid against purchase of goods or services or immovable property from local sources.
viii. Output tax means the value added tax payable by any registered person for the
following activities, namely–
(a) supply of any taxable goods, service or property by such person; or
(b) import of any taxable service by such person.
ix. Tax means VAT, turnover tax, SD, and shall, in relation to realization of arrears, also
include any interest, monetary penalty or fine.
x. Tax fraction means the amount of money arrived at in accordance with the following
formula: R/ (100+R), where R is the VAT rate specified in section 15(3).
xi. Tax period means-
(a) in relation to VAT and SD, one month of the Christian Calendar;
(b) in relation to turnover tax, every three- month-period ending on 31 March, 30 June,
30 September or 31 December.
xii. Lay-by agreement means an agreement in respect of a sale or purchase, under which
consideration of any supply is paid by more than one installment.
xiii. Central unit means where all the accounts and records are administered and preserved
centrally relating to the supply of economic activities of identical or similar goods or
any service or both.
xiv. Credit note means document issued by taxpayer in support of decreasing adjustment.
xv. Turnover means, in relation to a person, all the money received or receivable by such
person within a prescribed time or tax period against the supply of taxable goods or the
rendering of taxable services manufactured, imported or purchased by means of his
economic activities.
xvi. Debit note means document issued by taxpayer in support of increasing adjustment.
xvii. Enlistment threshold means the limit of Taka 30 lakh as turnover of an economic
activity of any person in a 12 (twelve)- month- period, but does not include the
following, namely–
(a) value of an exempted supply;
(b) value of sale of a capital asset;
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(c) value of sale of an organization of economic activities or any portion thereof;

(d) value of supply in consequence of permanently closing down an economic activity.
xviii. Fixed place means any of the following places at or through which economic activities
inside or outside Bangladesh are carried on, namely–
(a) place of management;
(b) branch, an office, a factory, or a workshop;
(c) mine, gas well, quarry for extraction of stones or any other similar mineral resource;
(d) location of any construction or installation project.
xix. Registration threshold means the limit of Taka 80 (eighty) lakh as turnover of an
economic activity of any person in a 12 (twelve)-month period, but does not include the
following, namely–
(a) value of an exempted supply;
(b) value of sale of a capital asset;
(c) value of sale of an organization of economic activities or any portion;
(d) value of supply in consequence of permanently closing down an economic activity.
xx. Fair market price means–
(a) the consideration for a supply arrived at on the basis of a normal relation between a
buyer and a seller, who are not associated with each other;
(b) if it is not possible to arrive at a fair market price as prescribed in clause (a) above,
it would then be the consideration of a similar supply made previously under similar
circumstances;
(c) if it is not possible to arrive at a fair market price by the above means, it may be
determined by the Board on the basis of an impersonal average of considerations arrived
at in the course of normal business relations among buyers and sellers, who are not
associated with one another.
xxi. Consideration means the money paid or payable, whether directly or indirectly, in
consequence of, or as an inducement to, a supply, or the fair market price of a thing
paid or payable in lieu of cash and also includes the money realized or realizable on the
following accounts, namely–
(a) any tax imposed under this or any other Act that is–
(i) payable by the supplier on, or by reason of, a supply; and
(ii) included in, or added to, the price charged to the recipient ;
(b) any money realized as service charge; or
(c) any money payable in relation to a loan agreement under finance lease or hire
purchase and included in the consideration for supply of goods under hire purchase or
finance lease; but does not include any discount in price given at the time of a supply.
xxii. Goods means, other than share, stock, security, or money, all kinds of tangible movable
property.
xxiii. Supply of goods means–
(a) the transfer of the right, as an owner, to sell, exchange, or otherwise dispose of a
goods, including a sale under hire purchase agreement; or
(b) giving the right to use the goods on lease, rent or otherwise, and it also includes the
supply of goods under finance lease.
xxiv. Export means a supply of any goods from inside to outside the geographical limits of
Bangladesh, and also includes a deemed export.
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xxv. Deemed export would mean to include one or more of the following supplies-
(a) supply of any ingredient of goods or service in a prescribed manner against foreign
exchange and destined for consumption outside Bangladesh;
(b) supply of any goods or service within the territory of Bangladesh against foreign
exchange through an international tender; or
(c) supply of any goods or service within the territory of Bangladesh against foreign
under cover of a local letter of credit.
xxvi. Increasing adjustment means any of the following adjustments, namely–
(a) increasing adjustment in respect of withholding tax;
(b) increasing adjustment required for an annual re-calculation;
(c) increasing adjustment if a payment is not made through banking channels;
(d) increasing adjustment for goods put to a private use;
(e) increasing adjustment on being registered;
(f) increasing adjustment on cancellation of registration;
(g) increasing adjustment for a change in the VAT rate;
(h) increasing adjustment for paying interest, monetary penalty, fine, fee, etc.; or
(i) any other prescribed increasing adjustment.
xxvii. Person means any natural person , and also includes the following entities-
(a) company;
(b) association of persons;
(c) government entity;
(d) foreign government or a department designated, or any official appointed;
(e) inter-state or international organization; or
(f) joint venture for property development or any other similar initiative.
(g) any other business organization.
xxviii. Adjustment event means any of the following events, namely–
(a) cancellation of any supply;
(b) alteration of the consideration for any supply;
(c) return of any supplied goods, in part or in full, to the supplier;
(d) conversion of a supply into a zero-rated or an exempted one as a result of an
alteration in the nature of such supply; or
(e) any other prescribed event.
xxix. Supply means any supply, and it also includes the following namely–
(a) supply of goods;
(b) supply of immoveable property;
(c) supply of services; or
(d) combination of the supplies of the above clauses (a) (b) and (c).
xxx. Time of supply means–
(a) in relation to supply of goods, the time when the possession of the goods are
conferred or they are removed;
(b) in relation to supply of services, the time when the services are rendered, generated,
transferred or assigned; or
(c) in relation to supply of any immovable property, the time when the property is
delivered or created or transferred or assigned.
xxxi. Associated entities mean two persons with such a relation between them that it would
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make one act or reasonably expect to act in accordance with the intention of the other,
or make both act or reasonably expect to act in accordance with the intention of a third
person. Associated entities also include the following persons, namely–
 partner of a partnership
 shareholder of a company
 Trust and a beneficiary of such Trust
 joint venture for property development and the landowner as a partner of that joint
venture, builder, or other related person;
 representative, VAT Agent, distributor, licensee or persons with similar relationship;
but do not include persons with employment relations.
xxxii. Supply of service means such a supply as is not a supply of goods, money, or
immoveable property, which, without prejudice to the generality, shall include the
following, namely–
(a) grant, assignment, termination, or conferment of a right;
(b) making a facility, an opportunity, or an advantage available;
(c) agreement to perform an act, to refrain from performing an act or accepting a
situation or to tolerate an act or a situation; and
(d) issuance, transfer or conferment of a license, permit, certificate, concession,
authorization, or a similar right.
xxxiii. Supply of immovable property means to include the following supplies–
(a) interest in, or right over, land;
(b) personal right consisting of an invitation to confer a bright or interest on land;
(c) issuance of a license to occupy land including supply of residential accommodation
or contractual right exercisable over, or in relation to, land;,
(d) right to acquire anything mentioned in clauses (a) (b) and (c) or the option to
exercise that right in future.
xxxiv. Decreasing adjustment means any of the following adjustments, namely–
(a) a decreasing adjustment for the money paid as advance tax;
(b) a decreasing adjustment in respect of withholding taxes;
(c) a decreasing adjustment applicable as a result of an annual re-calculation or as a result
of audit;
(d) a decreasing adjustment because of issuing a credit note;
(e) a decreasing adjustment of input tax paid in case of export;
(f) a decreasing adjustment where there is a decrease in the VAT rate;
(g) a decreasing adjustment claimed for a negative net amount carried forward from a
previous tax period;
(h) a decreasing adjustment allowed for VAT overpaid in a previous tax period; or
(i) any other prescribed decreasing adjustment.

(b) decreasing adjustment allowed to supplier of telecommunications goods or services;

(e) decreasing adjustment on being registered;
(f) decreasing adjustment in relation to second-hand goods purchased for re-sale;
(g) decreasing adjustment for an indemnity payment under a policy of insurance;
(h) decreasing adjustment in relation to a monetary prize paid for a lottery, lucky draw,
raffle, or similar undertaking;
(j) decreasing adjustment allowed to refund of SD;
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13. Goods and Services chargeable under VAT Act 2012

a. Value Added Tax will be levied and payable at 15% on all goods imported into
Bangladesh or produced in Bangladesh except the goods and services except those
listed on First Schedule.
b. Zero rate tax will be imposed on the following goods or services;
i. Any goods or services exported or deemed to be exported from Bangladesh.
ii. Supply of immoveable property related to outside Bangladesh.
iii. Supply of service to non-resident outside Bangladesh.
c. Supply of zero-rated services
i. Services given physically on goods situated outside Bangladesh at the time of
supply of the service
ii. Services given relating to temporarily imported goods under the Customs Act
iii. Services given to a recipient situated outside Bangladesh at the time of supply
iv. Supply of telecommunication services by a telco supplier to a non-resident telco
supplier
14. Difference between zero-rated VAT and exemption from VAT
Zero-rated goods mean the particular of supplies of goods and services are treated as taxable,
but the tax rate is zero. On the other hand, exempted goods mean that particular goods and
services are not taxable.

There is a significant difference between zero rate and exemption. Exempted goods and
services are those that are listed on the first schedule of the VAT act. Zero rate is applicable
for those goods and services which are exported or deemed to be exported from Bangladesh.

While supplying exempted goods, entities are not required to fulfill any VAT formalities. On
their output, they neither charge VAT nor can they claim any input tax credit. On the other
hand, for supplying zero-rated goods and services, entities are required to have VAT
registration and fulfill all VAT formalities.
In addition, exempted goods and service providers are not allowed to get a tax credit on inputs.
But zero-rated goods and service providers can take the related input tax credits.
Generally, the exemption is given on goods and services which are essentials where zero rate
is allowed to give an incentive for export.

15. Service providers and suppliers of goods are required to be registered for VAT
irrespective of the turnover/ Ineligible for Turnover Tax
Following total 160 service providers and suppliers of goods are required to be registered for
VAT even when annual turnover is less than Tk 50 lacs. (General Order No. 17/VAT/2019).

Supplier of goods:
Milk product Foam Scrap
Starch PVC pipe/Plastic All kind of M S product
container
Gum Plastic goods Leaf Springs
Glucose Dextrose Tyre tube Sanitary ware
Molasses Rubber products Steel ingot
Chewing gum/Lozenge Leather goods Nails
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Chocolate Wooden goods Wire of Copper and Aluminum

Pasta and other food Particle board Aluminum fittings
Products
Sweet biscuits, rusks Insolation board Aluminum foil
and other food products
Jams, Fruit Jellies Hard board Lead ingot
Sauce, mustard flour and Plywood Blades
meal, food supplement
China clay Pulp Electrode weld
Limestone Toilet paper/tissue Electric fan and parts of fan
paper/sanitary napkin
Marble stone Packaging materials Gas burners
Lead monoxide Woolen fabrics Electric transformer
Oleum Cotton yarn Dry cell battery and storage
battery
Sodium silicate Cotton fabrics Battery separator
Glycerol Synthetic fiber Television
Acetic acid Nylon cord Electric bulb
Melamine Fishing net Bi-cycle parts
Antiseptic, disinfectant Knitted and crocheted Cement
and medicine fabrics/socks/readymade
garments
Pigments, varnishes and Sand paper All kind of ceramic and porcelain
polishes products
All kind of ink Asbestos G.P sheet/C.I sheet
All kind of soaps All kind of bricks M.S product
including liquid soaps
Detergents Carbon rod Sanitary ware
Matches All kind of ceramic and Aluminum fittings
porcelain articles
Mosquito coil Glassware All kinds of electric and electronic
goods including air condition,
refrigerator, televisions

Supplier of services:
Hotel Courier and express mail Organization renting out
service chartered aircraft or helicopter
Restaurant Beauty parlor Glass sheet coating
organization
Decorators and caterers Consultancy firm and Purchaser of auctioned goods
supervisory firm
Motor garage and Awarder of lease (Izaradar) Credit card provider
workshop
Dockyard Audit and accounting firm Money changer organization

Construction Firm Shipping agent
Warehouse AC bus service
Port AC launch service
Advertising Agency AC railway service
Printing press Procurement provider
Auctioneer Cultural and entertainment
program by foreigner artist
Land developer Satellite cable operator
Flat seller Satellite channel distributor
Telephone, tele printer, Security service
telex, fax or internet
SIM Card Supplier Television and online
program distributor
Automated laundry Health club & fitness center
Indenting agency Sports organizer
Freight forwarders Transport contractor(except
food grain)
Clearing and forwarding Rent-a-car
agent
Community center Architect, interior designer or
interior decorator
Film studio Graphic designer
Survey agency Engineering firm
Organization renting out Renter of sound and lighting
plant and capital instruments
machinery
Manufacturer of furniture Board meeting attendee
Seller of furniture Advertiser through satellite
channel
Goldsmith and Banking and non-banking
Silversmith service provider
Insurance company Electricity provider(except
irrigation and cold storage)
P a g e | 17
Amusement park and theme
park
Picnic spot, shooting spot
AC tailoring shop
Organization performing the
works of cleansing and
maintenance of building and
floor
Seller of lottery ticket
Immigration adviser
Coaching center
Event organizer
Organization supplying and
managing human resources
Human resource management
agency
Social and sports club
Readymade garments seller
Ride sharing
Information Technology
Sponsorship Services
Online sales
Credit Rating Agency
Cinema hall
Film producer
Sweet shop
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16. List of goods exempted from VAT

On VAT Act 2012, the following goods have been exempted from VAT:

 Goods and services under the Turnover Tax.

 All Goods as listed in the Second Schedule of the Narcotics Control Act, 1990 (Act No.
20 of 1990), in case of production and manufacturing thereof in Bangladesh. Some of
the examples are native liquor, methane alcohol, rectified spirit, foreign liquor produced
in Bangladesh, denatured spirit, etc.
 Goods listed against some specific Headings in the First Schedule of the Customs Act,
1969 under Harmonized Commodity Description and Coding System. Some of the
examples are live animals and meats thereof, Live fish (excluding ornamental fishes),
natural honey, live tree plants and seeds, vegetables, fruits, Ivory, tortoise shell,
whalebone and whalebone hair, horns, antlers, hooves, nails, claws, and beaks etc.
subject to certain conditions.
Besides this, different circulars and SROs are issued from time to time declaring names of new
goods exempted from VAT and SD.

17. List of services exempted from VAT

According to the first schedule of VAT Act 2012, certain services classified under 7 heads have
been exempted from VAT under categories:
1. Basic necessities;
2. Agriculture, horticulture, pisciculture, and veterinaries;
3. Immovable property;
4. Special situations (pays input tax but not entitled to tax credits);
5. Non-commercial activities of approved charitable institutions;
6. Culture (includes the supply of newspaper);
7. Intermediation (supply of financial services).
The details list is updated year to year through Finance Act and different SROs.

18. Persons required to register for VAT

The following persons are required to be registered for the purpose of VAT:
 a person whose turnover exceeds the registration threshold within a 12 (twelve)-month
period closing at the end of the month preceding that month; or
 a person whose estimated turnover exceeds the registration threshold within the
succeeding 12 (twelve)- month period beginning at the start of the preceding month
Every person carrying on the following economic activities has to be registered for VAT, if he:
 Supplies, manufactures or imports goods or services subject to SD in Bangladesh;
 Supplies goods or service or both by participating in any tender or against any
agreement or work order;
 Engaged in the business of import-export;
 Engaged in the economic activity relating to supply, manufacture or import of any
specific goods or service or in any geographical are prescribed by the Board.

If any person who ought to register for the purposes of VAT fails to do so, VAT Commissioner
registers or enlists the person under section 12 of the Act effective from the date the person
ought to have registered and issued the appropriate certificate.
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19. Process and Required documents for VAT registration

No documents shall be required to be submitted during registration or enlistment. Each
person who has the obligation to take registration, prior to the passage of 15 (fifteen) days
from the day on which obligation for registration has been transpired-

 In case of central registration shall submit an application for VAT registration to the
concerned Commissioner in VAT 2.1 Form.
 In case of branch registration, submit an application for VAT registration to the
concerned Commissioner in VAT 2.2 Form following registration of the central unit.

Application for registration or enlistment shall have to be submitted at the following places:
 Web Portal of Online Board.
 Central Information Processing Centre run by the Board.
 Any Customs, Excise and VAT Commissionerate or Departmental Office, which may be
convenient for the applicant.
 Any service center specified by the Board or the concerned Commissioner.
 Any fair conducted by the Board or the concerned Commissioner.
 Any other place ordered by the Board or the concerned Commissioner.

20. Central Registration

If any person preserves in the central unit all accounts, tax deposit, and records of economic
activity relating to the supply of identical or similar goods or services or both from two or more
places, then, he may take one VAT registration in the above address of accounts maintenance.
If the application is complete, the concerned officer shall issue the Certificate of Registration
in Form VAT 2.3 within 3 days of the application. No fee is applicable for the registration.

If a person carries out business from various premises, he may obtain central registration to
pay VAT; and complies with the requirements of VAT laws centrally. In spite of the supply of
identical or similar goods or services, if accounts, tax deposit and records of economic activities
of a unit is maintained separately, then it has to take separate registration.

21. Is central registration a legal right? What conditions are generally attached with
central registration?
No. Central registration is not a legal right of VAT payer. The board can issue an order to
concerned VAT division to register centrally any importer, exporter or supplier of taxable
goods or provider of taxable services or exporter when such activities are performed from more
than one place but application subject to the compliance to certain conditions.

Through this privilege, the hassle of registration of each and every branch, sales or trading
center can be avoided and goods can be transferred from one branch/ center to another without
payment of VAT. The board by different general orders allow central registration to insurance
companies, land development organizations and some other business houses selling goods
imported or otherwise bought locally.
 P a g e | 20

Conditions attached to central registration are:

a) Goods shall not be stored, supplied or transferred other than to a centrally registered
place. Similarly, no input credit tax can be obtained therefrom.
b) Sales centers, when run by a third party other than own employees, shall not be
considered for central registration. In that case, they have to be registered separately
and also have to pay tax individually.
c) Transfer the goods related economic activity in the form VAT 6.5 from one branch to
another branch (including warehouse).
d) Invoice for transfer of goods would have to be issued minimum in 2 (two) copies of
which the original shall have to be sent to the branch (including warehouse) receiving
the goods and the duplicate has to be preserved in the branch issuing the invoice.
e) Central unit shall pay all the combined tax liability of all the centers including its own
and shall complete all other related functions.
f) The centrally registered unit only shall import or purchase tradable goods individually
other than those received from the central unit.
22. Self-registration
For producers or suppliers of VATable goods and services with annual turnover below Tk 3
crore, registration is not a lawful requirement. Even then if some of them want to register, they
can and this is called self-registration.
Advantage: The only advantage of registration, whether self or legally imposed, is that the
registered producer, supplier or trader can adjust input tax against output tax which can have a
significant role in pricing and selling the goods or services. The concerned officer shall, after
registering such person within such time, on such terms and in such manner as may be
prescribed, issue a VAT registration certificate containing a business identification number.
The voluntarily registered person shall be obliged to comply with all obligations under this act
like any other registered person and a voluntarily registered person shall not be entitled to apply
for cancellation of registration prior to expiration of one year from the date of registration.

23. Transfer of goods from central godown or from one center to another
Transfer of goods or services between one unit to another unit by a centrally registered person
will not be considered as supplies. As a result, this internal transaction will not result in output
VAT liability and input VAT credit. A registered person shall have to issue an invoice in the
following manner for transfer of goods, viz:
 Transfer the goods in the form VAT 6.5 from his one branch to another branch
(including warehouse);
 Invoices for transfer of goods shall be serially numbered as per fiscal year;
 If the registered person makes supply from more than one places, invoice for transfer
of goods with separate serial numbers may be issued from each place on which the
name of the place, address and the serial number of the invoice shall remain included;
 Invoice for transfer of goods would have to be issued minimum in 2 (two) copies of
which the original shall have to be sent to the branch (including warehouse) receiving
the goods and the duplicate has to be preserved in the branch issuing the invoice.
Copies of the invoice must be retained for 5 years and any lawfully authorized VAT officer
shall have access to this for any examination. However, such invoice cannot be used for transfer
of goods to the buyer.
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24. Cancellation of registration

The registration may be canceled for the purposes of VAT if:-
 The registered person refrains from carrying on economic activities;
 The registered person’s businesses are exempted for the purposes of VAT;
 Does not require to remain registered anymore;
 Turnover of the registered person is below Tk 3 crore for two consecutive tax periods;
 Registered person fails to commence business after obtaining certificate of registration;

The registered person shall apply to the Commissioner in form VAT 2.4 for cancellation of the
registration.

25. Changes of information or address relating to registration

If a registered person intends to change the name, address or any information given in the
application for registration. The registered or enlisted person shall inform the Commissioner
about the changed information in form VAT 2.5 within 15 days of change in the information.

26. Use of Business Identification Number

Business Identification Number shall be used in the following cases–
 All other imports-exports except baggage imports
 Registration of land or building in the name of registered or enlisted person
 Obtaining Import Registration Certificate and Export Registration Certificate
 Making any supply to an withholding entity
 Participation in any tender
 Enlistment in any organization
 Approval of Bond License
 Approval of bank loan in favor of registered or enlisted person
 In any other case determined by an order of the Board.

27. The consequence of failure to pay VAT

In order to recover arrear VAT, the authorities can –
a. Take steps to deduct the amount from any other Customs, Excise, VAT or income tax
owing money to the defaulter;
b. Freeze bank accounts by serving notice;
c. Stop business transactions and seize vehicles until arrear is realized;
d. Take steps to realize the arrear by the seizure of other goods of the person in default;
e. File case.

28. Mention the provision when submission carried on without VAT

As per VAT Act 2012, if any business is carried on disrespecting the registration requirement
then the consequences are as follows:
 Registration can be made compulsory;
 Place of business can be sealed off;
 Goods produced can be forfeited;
 Penalty may be imposed Tk 10,000 as per section 85.
 P a g e | 22

29. The VAT mechanism/ Value addition mechanism

The value addition can be defined in two alternative ways:
 First, value added is equivalent to the sum of wages to labor and profits to owners of
the production factors including land and capital.
 Second, value-added is simply measured as the difference between the value of output
and the cost of inputs.

30. Formula Alternative of VAT calculation

There are three major alternatives for computing VAT liability as described below:
I. The Addition Method: The value added is computed by adding all the payments that
are payable to the factors of production (wages, salaries, interest payment, etc.);
II. The Subtraction Method: The tax liability at any stage is equal to the tax rate
multiplied by the tax base or value-added measured as the difference between the values
of outputs and inputs;
III. Tax Credit Method: Under the tax credit method, a firm at any stage of the production-
distribution chain charges its customers VAT on its output, submit the tax to the
treasury, and then claims for VAT already paid on its input stage. This is the most
common method of VAT computation.

The result of determining VAT liability will be all the same whatever the computing method
is used from the above-mentioned alternatives.

31. Input VAT Credit

The registered entity has to pay VAT on input at the time of acquisition and has to realize VAT
from the customers against output/sales. In this case, the entity has the right to deduct input
VAT from output VAT and is required to pay the excess amount of output VAT over input.
This deduction procedure is called credit of input VAT.

32. Partial Input VAT Credit

If any individual is not entitled to avail Input Tax Credit in full against import or accrual during
a Tax Period, the portion he will be entitled to avail as credit according to law, that portion may
be termed as partial Input Tax Credit. If partial consideration is paid up without paying the
consideration in full for taxable supply, or if the entire supply is raised by accrued input does
not become taxable, partial Input Tax Credit may be availed. Partial Input Tax Credit shall be
applicable when exempt goods and taxable goods both are produced using imported or accrued
raw materials. Partial Input VAT Credit shall be calculated according to the following formula:

I × T/A

where—
I is the total amount of input tax originating from imports or acquisitions to which this sub-
section relates and for which a credit is sought in such tax period;
T is the value paid by the person mentioned below of all taxable supplies during the tax period;
A is the value paid by the registered person of all the supplies during a tax period.
 P a g e | 23

33. Conditions to be fulfilled for Input VAT credit

To take credit under this section the following conditions are to be fulfilled:
 The person must be registered under VAT Act and follow the standard VAT rate.
 The credit is to be taken against output tax.
 Valid papers are to be submitted for the input tax credit.
 Valid papers and the input must be in the possession of credit taker. The name, address
and registration number must be mentioned in the input tax-related papers.
 Credit is to be taken within four two succeeding tax periods.
 In the input-output coefficient, the analysis of the cost of input must be shown.

34. Non-eligibility for Input Tax Credit

As per section 46 of VAT Act 2012, the supplier and traders of taxable goods or services shall
get a credit of input tax against payable of output tax except in the following cases:
 Expenses for exempted goods or services,
 Expenses which are not mentioned in the Input-Output Coefficient Declaration,
 Expenses related to supply of goods and services which are subject to Turnover Tax
(VAT), VAT at a specified rate or VAT at a rate less than 15%,
 Expenses over Tk 100,000 for which payment is made without banking channel,
 Imported services for which output VAT has not been shown in the VAT Return,
 The claim of input VAT credits which have not been made either in the VAT period in
which VAT is paid or within the four two succeeding VAT periods,
 Expenses for which the VAT invoice (VAT 6.3) does not mention the name, address,
and BIN of both the purchaser and seller,
 purchase of passenger vehicle or entertainment services provided that, input VAT credit
may be allowed when such purchases are part of normal course of the economic
activities of the person (e.g. dealer or charterer of vehicles);
 Purchase of transportation services if the ;
 VAT paid on goods under the custody or possession or occupancy of another person;
 VAT paid on inputs that have not been entered into the Purchase Book (Mushak-6.1)
or Purchase-Sales Book (Mushak-6.2.1) prescribed by the Rules.
 if new input-out coefficient [“Mushak-4.3”] not submitted, in case of changes in value
of inputs by more than 7.5%
 Against an acquisition or import.
 Against an acquisition, if the acquisition exceeds 80% of costs in relation to transport
service of goods.

35. The penalty for False Declaration of Input Tax

If a taxpayer makes a false declaration relating to the credit of input tax, he may be penalized
under section 85 of VAT Act 2012 to the extent of twice the amount of input tax irregularly
taken and the credit of the input tax shall be canceled.

36. Is Import Duty, Supplementary Duty and Advance Income Tax rebatable as VAT?
Import duty, SD, and AIT cannot be obtained as a credit where VAT can be. However,
drawback on import duty and SD can be obtained against output tax through adjustment subject
to the provisions of section 62.
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37. Advantages of Input VAT Credit

The benefits of input tax credit are as follows:

 Credit system removes the cascading effect of the tax on tax, as was the situation under
the earlier sales tax regime. Theoretically, it is the ultimate consumers bearing the
incidence of VAT and at each stage before that, the producers or sellers can adjust the
input tax against output tax and thereby transfer the incidence of the tax to next stage
or person until the goods or services are finally bought for consumption;
 Without the provision for the input tax credit, tax paid thereon would form part of the
cost of goods or services and in that case, the producers or service providers cannot
compete locally and internationally;
 Credit process ensures a kind of indirect check and balance between the input-output
coefficients and can be a protective drive to check tax evasion.
38. Input-Output Coefficient Declaration
Price Declarations are not required to be filed under VAT Act 2012. Registered and enlisted
persons are required to file Input-Output Coefficient Declaration in VAT 4.3. For first supply
of goods and services (i.e. first supply of a new good or service or first supply after change in
input-output coefficient), Input-Output Coefficient Declaration should be filed with the VAT
Authority’s online system or concerning divisional VAT official 7 days 15 days prior to the
date of supply. No approval is required from the VAT Authority.
No requirement for 100% export-oriented industrial undertaking in cases of exportable or
exported goods.

The following information is required in an Input-Output Coefficient:

 Description of goods
 Value of inputs & where applicable duties and VAT
 All direct and indirect expenses in supplying the good or service
 Item wise value addition

39. Contractual manufacturing

A registered person shall have to issue invoice for contractual manufacturing in the following
procedure–
 Manufacturing contractual goods, inputs of the goods related to economic activity and
goods manufactured shall have to be reciprocally transferred in form Mushak-6.4
between the contractually bound registered persons;
 Invoice for contractual manufacturing would have to be issued minimum in 2 (two)
copies of which the original shall have to be given to the recipient of inputs or goods
manufactured and the duplicate shall have to be preserved by the registered supplier;
 In the contractual manufacturing process, a tax invoice has to be issued in form
Mushak-6.3 following supply of the manufactured goods to the actual owner of the
goods for the consideration received or to be received against contractual
manufacturing.
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40. Carry Forward and Refund of VAT and Advance Tax

The VAT Act 2012 makes the refund process easier compared to the previous VAT law.
Refund provisions have been segregated for:

I. Construction, house building, land development or property development activities

Negative Net Tax Payable in a tax period can be carried forward indefinitely. Cash
refund is not possible for building, construction and property development entities.
II. Other economic activities Negative Net Tax Payable for a tax period can be carried
forward for 6 tax periods. Afterward, if the Negative Net Tax Payable is not fully
adjusted and the remaining amount is greater than Tk 50,000, it can be claimed as cash
refund within 3 months from the date of application. If the remaining Negative Net Tax
Payable is less than Tk 50,000, it can be carried forward indefinitely. The refund can
be claimed only after submission of all VAT Returns up to current tax period.
Adjustment and refund of Advance Tax paid at import stage
Advance tax is tax paid by registered, on registered and enlisted person on the imported
merchandise at the time of import. Advance tax is adjustable in the Return (It will be decreasing
adjustment). If the unregistered importer happens to be the last consumer of the imported
goods, he will be entitled to have the paid Advance Tax reimbursed.

The importer, within 60 120 days of paying Advance Tax (AT), shall apply online in VAT-
4.1 before any Commissioner nearby, for such reimbursement. If the application is found
correct, the Commissioner, within 15 days, shall reimburse and arrange reimbursement to the
applicant through cheque or transferring money to his bank account. Application for
reimbursement of Advance Tax can only be submitted online.

41. VAT Agent

A non-resident can appoint a VAT Agent who will bear and carry all VAT related
responsibilities arising out of the activities performed by the non-resident. The VAT Agent will
obtain a VAT Registration in the name of the principal for the concerning economic activities.

The following persons may be appointed as VAT agent–

 VAT Consultant appointed under Section 130
 Chartered Accountant
 Cost and Management Accountant
 Any lawyer registered as member of the Bangladesh Bar Council
 Any retired official of VAT Department not below the rank of Assistant Commissioner
 Specialist business representative of the private sector nominated by the Federation of
Bangladesh Chambers of Commerce and Industries (FBCCI)
 Chartered Secretary as per Chartered Secretaries Act, 2010

42. Determination of Value and VAT at import stage

Let’s assume, in Financial Year 2020-21 Government has imposed 25% Customs Duty (CD),
5% Regulatory Duty (RD), 20% Supplementary Duty (SD), 15% VAT & 5% AIT on Product
X. The invoice value of the product at import stage of Tk 45,000 and Assessment Value (AV)
of Tk 50,000. What are the applicable Tax & Charges in the importing stage of the goods?
The Applicable Tax and Charges in the importing stage of the goods are as follows:
 P a g e | 26

Tax/Charge Tax Base Base Value Tax Rate Tax (Tk.)

CD AV 50,000 25% 12,500
RD AV 50,000 5% 2,500
SD AV+CD+RD 65,000 20% 13,000
VAT AV+CD+RD+SD 78,000 15% 11,700
Advance Income Tax (AIT) AV 50,000 5% 2,500
Advance Tax (AT) (AV+CD+RD+SD)*5% 78,000 4% 3,120

43. Tax base/value of goods and services for the imposition of VAT
As per Section 28 of VAT Act 2012, values of taxable imports to be determined for charging
VAT are as follows:
Summation of the value of the goods determined for the imposition of import duty under the
Customs Act and the amounts, if any, of customs duty, SD, or other taxes (other than VAT and
advance income tax) payable on the import of the goods.
VAT base = Transaction value + Supplementary duty + Custom Duty + Regulatory Duty
+ other duties
As per Section 32 of VAT Act 2012, values of taxable supply to be determined for charging
VAT are as follows:
 Consideration for such supply, reduced by the tax fraction of that consideration.
Base Value = Transaction Value – VAT
 In case of the supply of goods consideration receivable by the producer/manufacturer
/business person from the buyer which includes the following:
 Cost of materials purchased
 All expenditures
 All commission, charges, fees
 SD and other duties and taxes where applicable
 Profit
 In case of service rendered on the total receipt provided that the Board can determine
the actual value addition or can determine VAT based on the specific rate of value
addition through an official gazette notification.
The consideration for a taxable supply to an associate or taxable supply without consideration
shall be the fair market price. However, any registered person can make a supply of a maximum
of Tk 20,000 as sample in a fiscal year.
44. Documents to be maintained for VAT purpose
The following books and documents shall be maintained by a VAT taxpayer:
 Purchase ledger book in Form VAT 6.1
 Sale ledger book in Form VAT 6.2
 Tax invoice in Form VAT 6.3
 Goods transfer invoice in Form VAT 6.5
 Certificate of withholding tax at source in Form VAT 6.6
 Credit note- debit note in Form VAT 6.7 and VAT 6.8
 Documents related to adjustment Returns, etc. in Form VAT 6.1

These books and documents shall be maintained for at least 5 years.

 P a g e | 27

Tax Invoice
Every registered supplier is required to issue two copies of serially numbered Tax Invoice on
or before the date when VAT becomes payable containing the following information, namely:
 the date and time of issue of the invoice;
 the name, address and Business Identification Number of both the supplier and the
buyer if the supply value is greater than Tk 25,000;
 description of the goods or services,
 quantity of the goods supplied;
 the value of the supply (exclusive of VAT and inclusive of VAT);
 the VAT rate applicable to the supply;
 the amount of payable VAT; and
 any other information prescribed by the Board.

Notably, if supply is made from multiple locations Tax Invoice should be serialized for each
location. This number along with the name and address of the location should be mentioned in
the Tax Invoices for the supplies made from those locations.
Integrated Tax Invoice and Withholding Certificate
A registered person, who makes a supply to a withholding entity shall on or before the date of
making such supply, issue to the withholding entity an integrated tax invoice and withholding
certificate containing the prescribed information. The form and manner of the Integrated Tax
Invoice and Withholding Certificate shall be prescribed by the Board

45. Reverse Charge of VAT

The imported service will be a taxable supply in the hand of the service recipient and
consequently, it has to be shown as output VAT in the VAT Returns. Simultaneously, the
service recipient will be required to show the applicable VAT on such imported service as their
input VAT in the VAT Return. Hence, there would be no cash flow impact for imported service.
However, this will not be the case for non-registered or non-enlisted persons. VAT Act 2012
requires banks or financial institutions that are responsible for payment for imported services
obtained by nonregistered or non-enlisted persons to deduct VAT appropriately and submit
VAT to the Treasury. VAT on imported service, unless exempted, will be applicable even if
the importer is not registered or required to be registered.

46. Time and mode of payments of VAT

As per VAT Act 2012, the procedures and time for payment of VAT are enumerated below:
Taxable import: In the case of imported goods, the methods and payment of VAT and SD will
be the same as a customs duty as per Customs Act 1969.
In the case of imported services, bank or financial institution shall deduct VAT at source during
the payment of the said service.
Goods produced by a registered person: In the case of goods produced by a registered
person, VAT shall be payable on the happening of the following events which occur first:
a. when such supply is made
b. when a tax invoice for such supply is issued
c. when a part or the whole of the consideration is received
d. when any supply is used personally or given to others for use.
Procedure for payment of VAT: The registered or enlisted person, after determining the net
tax of a specific tax period shall pay it to the government treasury in specific code of accounts.
 P a g e | 28

47. Submission of VAT return and its necessity

Every VAT registered person has to submit information of his sales and purchases, imports-
exports, tax payable, credit obtained, treasury deposits, adjustments, balance etc. to the local
VAT office for each tax period within 15th of the following month in the form ‘VAT 9.1’ and
for Turnover Tax following the end of quarter in the form ‘VAT 9.2’. This is known as VAT
return. It is necessary for VAT officials since through it they get primary information about the
overall activities and tax liabilities of the concerned taxpayers. Based on the information
provided in the returns they can make the necessary analytical calculations in order to be sure
about the reliability of taxpayers’ representations.

A late VAT Return may be filed by obtaining an extension from the VAT Authority which is
limited to 1 month. Nevertheless, delay interest will be applicable at a rate of 2% per month on
the amount of VAT payable, if Return is submitted after 15 days.

The VAT Act 2012 also includes a provision for Amended Return for clerical error or
computational errors. The Amended Return can be submitted before completion of 4 years
from the date of filing of the relevant return or before commencement of audit by VAT
Authority.

The taxpayer will have to pay interest on the difference between the amounts of tax payable as
per the Amended Return less the amount of tax initially paid.

If any taxpayer fails to submit the monthly VAT return within the prescribed time limit,
Commissioner will issue a notice through VAT 11.1 to the taxpayer to submit the late VAT
Return.

If the defaulting taxpayer does not submit the late VAT Return within 21 days of the notice,
Commissioner will issue a VAT Assessment Order through VAT 11.2.

In the failure of submission of late VAT Return within 21 days of the stipulated time period,
the Board will temporarily lock the BIN including suspension of import and export activities
through automatic VAT online system and transactions of source tax-deductible supply. With
submission of VAT Return, BIN will automatically be unlocked within two days of the
submission.

48. Amendment of return

After the submission of Value Added Tax or Turnover Tax return by a taxpayer, the submitted
return may be amended in the following cases–
 If there is any clerical error
 If the amount of tax paid is less because of some errors in calculation
 If the amount of tax paid is more because of some errors in calculation
 If any other types of error is committed excepting forgery.

Application for amendment can be submitted within 4 years of submission of the relevant return
but cannot be submitted if the VAT authority starts any audit or enquiry or in any other manner
the error is discovered.
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49. Tax period

Generally, each English calendar month is a tax period. However, NBR can determine the tax
period of any registered person supplying goods or services differently on specific reasons. In
relation to turnover tax, every three- month period ending on 31 March, 30 June, 30 September
or 31 December.

50. VAT Software

NBR has made it mandatory for registered entities having turnover exceeding Tk 50,000,000
in the previous financial year to maintain their VAT related books and records in software
prescribed by the VAT authority. In order to comply with this provision, only software from
NBR approved software developer or supplier should be used. Entities may also use their own
personal software provided it has the same specifications as prescribed by the NBR the and
after obtaining approval from the NBR.

51. Offenses and Penalties

Non-compliance covers a wider range of situations starting from registration to the collection
and payment of VAT as per the provisions mentioned in VAT Act 2012. According to Section
85 of VAT Act 2012, an assessee any be penalized for the following offenses:

Offenses Penalties
Non-compliance or irregularity for not applying for registration or enlistment
Tk 10,000
within the prescribed time-limit
Non-compliance or irregularity for not displaying the registration or turnover
Tk 10,000
tax certificate in a visible place
Non-compliance or irregularity for not informing the Commissioner of the
Tk 10,000
change in the information of the economic activity
Non-compliance or irregularity for not applying for cancellation of
Tk 10,000
registration or enlistment within the prescribed time limit
Non-compliance or irregularity for not abiding by the provision of section 9(5) Tk 10,000
Non-compliance or irregularity for not filing the VAT or turnover tax return
Tk 10,000
within the prescribed time period
Non-compliance or irregularity for not making the inclusion of the output tax in Twice the amount of
the return output tax not included
Twice the amount of
Irregularities for taking more input tax credit than entitlement in the return
input tax irregularly taken
Twice the amount of
Irregularity relating to making an increase of a decreasing adjustment or increased decreasing
adjustment or twice the
making a decrease of an increasing adjustment in the return
amount of decreased
increasing adjustment
 P a g e | 30

Non-compliance or irregularity for not issuing tax invoice, credit note, debit Tk 10,000
note, combined tax invoice, and withholding certificate
Non-compliance or irregularity for not keeping records in the prescribed Tk 10,000
manner
Non-compliance or irregularity for not furnishing fixed security Tk 10,000
Irregularity for willingly evading or attempting to evade assessment and Twice the amount of
payment of taxes taxes evaded
Failure or irregularity of non-submission of Input-Output coefficient within Tk 10,000
the prescribed time

52. Adjudication authority limits of VAT officials

In case of forfeiture of goods or services and tax evasion:
VAT authorities Value of goods/services
Commissioner or Chief Commissioner Exceeding Tk 40 lakh
Additional Commissioner Not exceeding Tk 40 lakh
Joint Commissioner Not exceeding Tk 30 lakh
Deputy Commissioner Not exceeding Tk 20 lakh
Assistant Commissioner Not exceeding Tk 10 lakh
Revenue Officer Not exceeding Tk 4 lakh

Provided that the proceedings, which do not have any financial involvement, that is,
proceedings of irregularities, shall be initiated and disposed of by specified VAT officials.

53. VAT Deducted at Source (VDS)

VAT Act 2012 has given certain business entities the responsibility to withhold VAT. As per
Guidelines on Collection of VAT at Source, 2019 as amended by SRO 235-Act/2019/71-VAT,
withholding VAT responsibility should be complied in the following manner:

 No Deduction for obtaining exempted or zero-rated goods and services

 No Deduction for obtaining utilities like fuel, gas, electricity, water (WASA),
telephone, and mobile bills
 No Deduction for obtaining goods or services subject to 15% VAT through VAT 6.3
 Deduct applicable VAT for the supply of goods or services subject to reduced or
specified VAT rates through VAT 6.3
 Where applicable, amount of VAT deduction should be the full amount of VAT
applicable.
A withholding entity will have to provide a withholding VAT certificate within 3 days from
making payment to the supplier. The supplier will be able to use the withholding VAT
certificate as evidence for claiming decreasing adjustment in their VAT Returns. Withholding
entities are also restricted from obtaining supplies or services from persons who are not
registered for VAT or do not issue a VAT 6.3. Tax invoices or integrated tax invoices,
withholding VAT certificates, deduction documents, and other related documents should be
preserved for at least 5 years.
 P a g e | 31

54. Payment of VAT deducted at source by the unregistered recipient of supply

An withholding entity shall deposit the tax deducted at source to the government treasury
within 15 (fifteen) days of the payment of consideration. The recipient of supply who is not
registered or enlisted shall issue a certificate for tax deduction at source in favor of the supplier
in form Mushak-6.6 within 3 (three) working days of the deposit.
Except for online deposit, the withholding entity shall send information of deposit of VAT thus
deducted (with copy of treasury challan and withholding certificate) within 7 (seven) days of
the issuance of tax withholding certificate to the nearest Value Added Tax office.
55. Consequences of failure to deduct/collect VAT?
Both the supplier and person authorized to deduct/collect VAT will be equally liable for such
default. VAT shall be collected from the person failing to deduct/collect VAT in such a manner
as if the person were a VAT payer.
As per rule 7 of withholding VAT Rules, if the concerned entity (entities authorized for
deducting VAT a source) fails to deduct VAT at the source, it shall be penalized as follows:
 Pay interest @2% semiannually with the original amount due as VAT. The amount
deducted and paid shall be deemed to be paid by the party from which deduction has
been made;
 If VAT is not deposited within time, the person responsible shall be penalized by not
exceeding Tk 25,000 by the commissioner along with the aforementioned penalty.

56. Appeal procedures and requirements under VAT regulation

Appeal against assessment order or any other case: Appeal must be filed with the
Commissioner (Appeal) or Appellate Tribunal within 90 (ninety) days from the date of service
of notice of the order/decision. However, Commissioner (Appeal) on the reasonable ground if
satisfied then he can extend the time by another 60 (sixty) days. On the other hand, in the case
of the Appellate Tribunal, there is no limit for such time extension. Appellate Tribunal can
accept appeal at any time if there are reasonable grounds u/s-196A (5) of the Customs Act 1969
of Bangladesh.
In case of filing an appeal with the Commissioner (Appeal) or Appellate Tribunal against any
assessment order or fine or penalty, amount of money should be deposited at following rates
along with the appeal application:
Appeal to be filed against Amount of money to be
Appellate to be filed with
the order of deposited to the treasury
10% of the tax demand or in
Up to Additional
Commissioner (Appeal) case of fine/penalty 10% of
Commissioner level
such fine/penalty
Commissioner (Appeal) Appellate Tribunal Do
Commissioner or equivalent
Appellate Tribunal Do
Officer
Where there is neither tax nor
fine/penalty, an appeal can be
Concerned decision-making
Appellate Tribunal filed against any order after
authority
accepting and obeying such
order
 P a g e | 32

The Commissioner (Appeal) having receipt of the application for appeal from the aggrieved
person can call for additional information and documents. The Commissioner (Appeal) shall
dispose of the appeal within 1 year from the date of receipt of appeal application. Otherwise,
the appeal is deemed to be accepted.

In case of appeal to the Appellate Tribunal, the appeal procedure will be as per the provisions
of Section 196 to 196N of the Customs Act 1969 of Bangladesh. The Appellate Tribunal shall
dispose of the appeal within 2 years from the date of receipt of appeal application. Otherwise,
the appeal is deemed to be accepted.

As per section 124 of the VAT Act 2012, if any person is aggrieved by the order/decision of
the Appellate Tribunal, the person can appeal to the appellate division of the Supreme Court.

57. Persons authorized to collect/deduct VAT Deducted at Source (VDS)

Persons authorized to collect/deduct VDS are known as withholding entity. Sub-section 21 of
section 2 of VAT Act 2012 defined withholding entity to mean
 Government entity (Ministry, board, authority, semi Government, autonomous body,
state-owned entity, local authority or similar types of institutes)
 Non-government organization approved by the NGO Affairs Bureau or the Directorate-
General of Social Welfare
 Bank, insurance company or a similar financial institution
 Educational institution of secondary or above level
 Limited company.

58. List of sources on which specific VAT rate is applicable as per third schedule/
Truncated VAT/ Trade VAT
Truncated or short value system is one where VAT at the standard rate (15%) is charged on the
truncated value or deemed or estimated value addition. This price is not the actual nor does the
market prices of the services not even the accurate amount of value addition. This may be
nearer to the amount of value addition and used for the purpose of VAT assessment. Since this
is based on a fraction of the value, the input tax credit cannot be obtained excepting on exports
or deemed exports.

Sometimes, it becomes very difficult to avail VAT credit/ adjustment facilities due to non-
availability of invoices supporting the purchase of input. In order to remove this operational
difficulty fixed bases such as 15%, 25%, 30%, and 60% value addition is taken into account
for the calculation of VAT for a number of goods and services. Thus, truncated value is the
percentage of value addition on which VAT is applicable.

Goods and services subject to Truncated VAT rate will not be eligible for input VAT credit.
Business entities whose supplies are subject to Truncated VAT can choose to exercise the
standard VAT rate of 15% and claim input VAT credit against their purchase.
 P a g e | 33

Head of Services VDS rate

Internet 5%

Indenting firm 5%

Furniture showroom 5%

Goldsmith and Silversmith 5%

AC launch service 5%

Transport contractor (petroleum products) 5%

Electricity distributor 5%

English Medium School 5%

Ride Sharing 5%

Information Technology Enabled Services 5%

Online Sales 5%

Non AC hotel and restaurant 7.5%

Construction contractor 7.5%

Furniture manufacturer 7.5%

Procurement provider 7.5%

Buyer of auctioned goods 7.5%

Amusement park and theme park 7.5%

 P a g e | 34

Seller of both own and others brand readymade garments 7.5%

Motor car garage and workshop 10%

Dockyard 10%

Printing press 10%

Auction firm 10%

Automated laundry 10%

Film studio 10%

Cinema hall 10%

Film producer 10%

Repair and maintenance 10%

Security service 10%

Automated saw mill 10%

Sports organizer 10%

Transport contractor (except petroleum goods) 10%

Board meeting participants 10%

Tailoring shop and tailors 10%

Building, floor, compound cleaning or maintenance service provider 10%

Lottery ticket seller 10%

Social and sports-related club 10%

Land developer 2%

Building construction firm

 Up to 1,600 square feet 2%
 Above 1,600 square feet 4.5%
 Reregistration irrespective of size 2%

Sim Card Supplier 200Tk/pcs

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59. Turnover tax enlistment, period and return

Turnover Tax is a tax as an alternative to full VAT on the turnover of a manufacturer or
producer of taxable goods or provider of taxable services as the case may be, who is not ought
to register for the purpose of VAT.

It has been included in VAT Act 2012 to allow small traders, businessmen, manufacturer to
pay tax @ 4% on turnover, provided it does not exceed annual turnover Tk 3 crore.

The turnover tax payable in a tax period by any enlisted person shall be paid before filing the
return for such period.

If the annual turnover of any trader of goods or provider of services not over Tk 3 crore, he/she
may apply in form VAT 2.1 for enlistment for the purposes of turnover tax. A certificate of
enlistment in form of VAT 2.3 will be issued. No renewal of fee is required for the purpose of
the turnover tax.

If, after enlistment, the turnover exceeds Tk 3 crore during a continuous period of 12 months,
one will apply for VAT registration at the preceding month.

Tax period is quarterly. The enlisted individual shall have to submit a return to the concerned
circle at form VAT 9.2.

60. Books and Records to be maintained by the Turnover Taxpayer

The following books and documents shall be maintained by a turnover taxpayer:
 Purchase ledger book in Form VAT 6.1
 Sale ledger book in Form VAT 6.2
 Turnover Tax invoice in Form VAT 6.9
 Documents related to adjustment Returns, etc. in Form VAT 6.1

These books and documents shall be maintained for at least 5 years.

61. Restrictions relevant to entities enlisted for Turnover Tax

Restrictions relevant to entities enlisted for Turnover Tax are given in the following:
 People enlisted for turnover tax cannot pay tax on the base of tariff or reduced value;
 VAT or turnover tax paid on the inputs purchased by the enlisted person cannot be
taken credit or decreasing adjustment.

Provided that the amount of the advance tax paid by such person shall be adjusted against such
turnover tax

62. Whether turnover tax (TOT) can be deducted at source?

Turnover Tax cannot be deducted at source against the supply of goods or service. However, it
is to be ensured through the presentation of treasury challan and certificate about the deposit of
due tax in advance for the related tax period.
 P a g e | 36

63. Difference between VAT & Turnover Tax

Particulars VAT (Value Added Tax) TOT (Turnover Tax)
Tax Payer pays VAT @15% of
the value added, which may be The taxpayer pays Turnover Tax
Tax Rate
‘full’ invoice value or a part @4% of the ‘full’ invoice value.
thereof as the case may be.
The credit of Tax Payer can take credit of input Tax Payer cannot take credit of input
Input Tax tax paid by him. tax paid by him.
The credit of
The purchaser can take credit for The purchaser cannot take credit for
VAT paid by
VAT paid by him. VAT paid by him.
the purchaser
The Taxpayer pays monthly The Taxpayer pays quarterly before
Tax payment
before submitting the return. submitting the return.
The taxpayer maintains purchase
Books and The taxpayer maintains Daily
register, sales, register, debit
Documents purchase and sales Register.
note, credit note, and Invoices.
The taxpayer submits a return in the
Taxpayer submits Return in the
form VAT 9.2 quarterly within 15
Return form VAT 9.1 monthly within 15
days of the end of the quarter as the
days of the end of the month.
case may be.
Tax deduction
VAT can be deducted at sources. TOT cannot be deducted at sources.
at source

64. Supplementary Duty

Supplementary duty is an output tax. In addition to VAT, SD is imposed on luxuries, not
essential and not socially desirable goods and services on which imposition of the SD is
justified in the public interest, as specified in the Second Schedule.
 Supplementary duty shall be imposable and payable on the import of goods, the supply
of goods manufactured in Bangladesh and on the supply of services rendered in
Bangladesh If they are subject to SD in Bangladesh.
 No SD shall be imposed on an import of goods subject to SD if such goods is imported
for export, and not for home-consumption.
 No SD shall be imposed on the supply of goods or services that are zero-rated under
Chapter Three.
 Supplementary duty on the supply of goods or services subject to SD shall be payable
at only one stage.

Time and mode of payment of SD shall be the same as applicable to VAT.

65. Value of goods or services for the purpose of imposing Supplementary Duty
For the purpose of imposition of the SD, the value of the goods or services shall be –
 In the case of imported goods, the values as determined under section 25 or 25A of the
Customs Act for the purpose of imposition of import duty;
 In the case of goods manufactured in Bangladesh and in case of other taxable goods,
the consideration charged to the buyer in which VAT or SD is not included;
 P a g e | 37

 In case of service provider in Bangladesh, the total receipts on account of service

excluding VAT and SD;
 In the case of goods on which VAT is charged based on the retail price, shall be
considered as the value of the goods for the purpose of imposition of SD.
 Supply without any consideration or with inadequate consideration‚ the value for the
imposition of SD on such goods or service shall be arrived at by deducting SD from the
tax fraction of the fair market price of such supply

66. Tariff value

Certain goods and services are subject to tariff value based VAT such as SIM cards, mild steel
products, newsprint, etc. Tariff value for goods was introduced to-
 Protect the interest of govt. revenue
 Protect the interest of the taxpayers who add low value to their goods/services
 The items for which the 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.

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 policymaker wants to
consider for a certain sector of item. It is a distortion to VAT system, but the government of
Bangladesh has undertaken this system on interim basis to address the trade reality.

67. Sale of business or disposal of assets

VAT on Sale of Business
The previous VAT legislation contained provisions regarding fulfillment of certain VAT
obligations prior to the transfer of ownership of a business. The VAT Act 2012 further clarifies
these obligations by providing clearer instructions for the transfer of ownership of a business.
Furthermore, if a business is purchased with an intention to keep the economic activities
associated with it to be continued, such transfer of ownership will not be regarded as a taxable
supply. Similarly, if any part of the business is sold on a going concern basis it would be
covered by the aforementioned provisions.

VAT on Disposal of Assets

The VAT Act 2012, defines second-hand goods as goods (except precious metal or goods made
out of precious metal) which have been used previously. VAT is applicable on second-hand
goods. However, VAT Act 2012 provides the opportunity to adjust such VAT against the
output VAT, if the second-hand goods are purchased for resale (without any manufacturing
activities). This implies that under the new legislation, VAT paid on second-hand goods not
for re-sale will be a cost.
 P a g e | 38

68. VAT assessments/duties and responsibilities of VAT assesse

VAT assessee needs to pay tax, maintains account and document properly. To this end, his
duties and responsibilities are as follows:
 To ascertain tax liabilities through Current Account at the time of supply of goods and
deposit relevant tax to the exchequer.
 To fill up and make an entry in a current account, purchase and sale account and transfer
the relevant item in concerned books and documents periodically.
 To deposit relevant books and accounts to the tax authority in due time.
 To keep in safe custody all accounts and books relevant to VAT at least for six years.
 To produce relevant books and accounts to the tax authority on demand.
 To allow tax officials to enter into the business premise.
 To maintain invoice to ensure refund and credit of tax.
 To supply an invoice to the purchaser at the time of supply of goods.
 To collect & deposit taxes as per the provision of the VAT act.

69. List of major VAT forms

Form Name Purpose
VAT 2.1 Registration form for VAT and Turnover Tax
VAT 2.2 Registration form for Branch/Division
VAT 2.3 Registration Certificate for VAT/Turnover Tax
VAT 2.4 Cancellation or Amendment of Registration/Enlistment
VAT 2.5 Final Return on Cancellation of Registration/Enlistment
VAT 3.1 Registration of VAT Agent
VAT 3.2 Registration Certificate of VAT Agent
VAT 3.4 Delegation of Power to VAT Agent by Nonresident Person
VAT 4.3 Input-Output Coefficient Declaration
VAT 6.1 Purchase Register
VAT 6.2 Sales Register
VAT 6.2.1 Purchase-Sale Register
VAT 6.3 Tax Invoice
VAT 6.5 Goods Transfer Invoice for Centrally Registered Entity
VAT 6.6 Withholding Tax Certificate
VAT 9.1 VAT Return
VAT 9.2 Turnover Tax Return
VAT 11.1 Late VAT Return
VAT 11.2 Assessment Order for VAT
 P a g e | 39

70. Difference between VAT Act 1991 and VAT & SD Act 2012
Point of
VAT Act 1991 VAT & SD Act 2012
difference
● Producer/manufacturer of goods
Goods and services at
Imposition of ● Service provider
● Import stage
VAT ● Trader
● Supply stage
● Importer
Leviable when annual turnover
Enlistment exceeds Tk 50 lac but not
threshold for Leviable on annual turnover up to Tk exceeding Tk 300 lac
Turnover 80 lac (Annual turnover up to Tk 50 lac
Tax exempted from both turnover tax
& VAT)
Turnover tax
3% 4%
rate
Registration
Leviable when annual turnover Leviable when annual turnover
threshold for
exceeds Tk 300 lac exceeds Tk 300 lac
VAT
● Standard VAT rate 15%
● Standard VAT rate 15%
● Exports are Zero-rated (0%)
● Exports are Zero-rated (0%)
VAT rates ● Multiple VAT rates (Truncated
● Elimination of multiple
based VAT, Tariff value VAT,
VAT rates as much possible
Package VAT)
● If a person carries out
● If a person carries out business business from multiple
from multiple premises, he must premises
obtain central registration and ➢ central registration is
Registration
separate registration for each conditional
& Enlistment
individual branch/unit ➢ unit registration is
requirements
● 11 digit BIN mandatory
● Change of BIN if business address ● 9 digit BIN
changes ● No need to change BIN upon
a change of business address
Tax based On transaction value from
On gross receipts
value economic activity
The credit was available on limited
purchase items. The credit was not
available on
Input tax ● Labor Wages Credit is available on all
credit ● Land purchase
● Building
● Office equipment
● Vehicles
 P a g e | 40

VAT is payable on the manufacturer

In all cases, VAT is payable by
Time of VAT or supplier of goods from the
the 15th of the immediately
payment factory. In some cases at the time of
following month
submission of VAT return
Need to submit Price Declaration Price Declaration not needed but
Price
before the supply of goods and must maintain the input-output
declaration
services coefficient

71. Mention five deficiencies of the current VAT system of Bangladesh.

The current VAT system of Bangladesh has many deficiencies and limitations. Five of them
are described below:

 The standard rate of VAT is 15%. Despite that, there are multiple tax rates prevail in
the current VAT system due to the introduction of truncated base for services. This
creates a limitation on tax neutrality and equality.
 The beauty of VAT system is enjoying input tax credit. But input tax credit cannot be
taken on many occasions. As a result, tax on tax happens significantly.
 In addition to the regular books of accounts, separate books of accounts are to be
maintained by VAT registered persons. This invites duplication of works and increases
higher compliance cost.
 The laws and regulations relating to VAT are very unorganized and scattered. There
are many conflicts and contradictions among different provisions of the law.

72. VAT advice considering the conflict

As a fellow member of ICAB, after working long years, you moved to own practice. VAT is
your specialty. Your retainer-basis client, Smart Footwear Ltd. involves in export and domestic
sale of footwear. This is your single largest fee client. The client provided you a chamber at the
management floor. As a proactive advisor to clients on tax planning, you encourage the client
to gradually introduce the process of claiming input VAT credit and also train them on sensitive
conducts not to land in fines/penalty. Section 85 of VAT law attracts fixed fine and variable
penalty for certain offenses. The list includes offenses of VAT evasion and offenses of fixed
fines. Smart Footwear use imported bonded materials for export orders. You came across
incidents that Smart Footwear sold bonded materials in the local market. This holds potential
VAT action. You discussed this with management who requested you to stay quiet as the year
has already passed by.

Requirements:
i) Write three critical suggestions for the client to be careful in order not to run on penal actions
u/s 85 that may be featured as VAT evasion.
ii) Consider the issue of breaching bond conditions. Identify threat(s) to any fundamental
principles of professional ethics and professional threats, if any, arising from incidents and
explain why the threat(s) arise and if you have any safeguards to mitigate the threat(s).
 P a g e | 41

Solution:
i) Section 85 of VAT Act 2012 provides penalties for offenses. There are offenses subject to
fixed fines and there are offenses leads to charges of VAT evasion. 3 critical suggestions I can
make to Smart footwear Ltd. To stay off charges u/s 85 are as follows:
1. Selling goods (Subject to VAT) without issuing a VAT invoice.
2. Sales delivery without updating the same in sales book (VAT 6.2) and without
recording the payable VAT on such sale in the current account (VAT 6.1).
3. Selling goods without maintaining sufficient balance in the current account.
ii) Smart Footwear Ltd. Need to pay zero (0) % VAT as they export their footwear. Moreover,
they enjoy bonded facility for importing raw materials to produce these exportable goods. It
came to our notice that they have sold some of these imported raw materials to the local market.
This illegal conduct holds potential charges to revenue evasion. Illegal conduct is always illegal
regardless of its age. Customs bond audit in future may detect this departure.

I understand that this is my single largest fee client; management keeps me in their respect and
provided me a space facility. When I spoke to the management, they wanted me to stay quiet
as the incident isn’t current. I am an accountant in public practice. The incident brings before
me threats to fundamental principles like objectivity and independence and it exposes me
intimidation threat as I might lose my client resulting in reduced fee and increased the cost for
the space provided to me.

On the other hand, my engagement with Smart Footwear Ltd. is advisory, not statutory audit
assignments which mean threats as there but not significant for me. It also does not come in
my obligation to disclose the incident to the revenue authority.

As my obligations to fundamental principles and to mitigate the identified threats, I shall

consider the following possible safeguards:
1. Putting up the incident in writing to management (BOD) with my views and the
potential consequence that may result from such non-compliance.
2. Training department staff who are involved in the incident.
3. Developing an internal control policy paper for the management to comply with rules
and regulations to avoid such non-compliance.
4. If management doesn’t take decision in future, I may consider resignation a consultant.
74. Advise letter relating to VAT issues
Worldtel Ltd. is a fixed wireless phone service providing company. It provides services by
selling fixed phone sets, connection cards and stretch cards to its customers. It has its registered
head office, warehouse, seven own divisional sales centers, and almost two hundred retail sales
points throughout the country.
Worldtel Ltd. has been operating its business for last one year under one VAT registration with
service code S012.10 (Telephone) showing the address of its head office and depositing VAT
to Government exchequer based on its sales through the sales centers and retailers. Recently it
has received a letter issued by VAT authority stating that it has not complied with the
appropriate registration of VAT and not having separate VAT registration for its each sales
points. CFO of Worldtel has appointed you to advise on the remedy to the above crisis.
Requirement: Draft a letter to the CFO suggesting a workable solution in accordance with the
relevant provisions of VAT law.
 P a g e | 42

Solution:
Date
Chief Financial Officer (CFO)
Worldtel Ltd.
Nafis Tower, 4th floor,
12 Gulshan, Dhaka.

Subject: Workable solution on VAT registration.

Dear Sir,

Referred to your recent communication requesting us to advise on a workable solution with

regard to VAT registration of your company in the light of the letter issued by VAT authority.

Your company provides services by selling fixed phone sets, connection cards and scratch cards
to your customers. Currently, your company has got its registered head office, warehouse, seven
own divisional sales centers, and almost two hundred retail sales points throughout the country.
You have been operating your business for last one year under one VAT registration under
service code S012.10 (Telephone) being head office as registered address and depositing VAT
to government exchequer based on its sales through the sales centers and sales points.

Please note that as per sec 5 of VAT Act 2012, there are two different means of getting
registered for VAT. When an entity delivers service or goods from two or more than two places,
it will be required to obtain VAT registration separately for each of the places and will be
required to maintain all the books and records separately. Alternatively, if the entity delivers
service or goods from two or more than two places and maintains all the books and records
centrally for all the places altogether, it can apply for central VAT registration for all the places
of delivery of goods or services.

In order to comply with the above provisions, your company is either required to obtain VAT
registration for the warehouse, seven own divisional sales centers and almost two hundred retail
sales points where separate books and records would be maintained for each of those delivery
points or apply for central VAT registration declaring your warehouse as a central distribution
point and maintain centralized books and records for the central delivery center. For central
VAT registration, your company will be required to comply with the conditions of central VAT
registration. We would like to highlight a few major terms and conditions below:
 Application for central VAT registration should be submitted in the form of VAT 2.1.
 Issuance of products from central delivery center won’t create any VAT implication.
 VAT of a month of all the delivery centers will be paid through one VAT return
maintained centrally within 15th of the following month.
 P a g e | 43

 VAT 6.5 will be issued at the time of delivery of goods from the centrally registered
delivery center.
 The books and records will be maintained in the centrally registered delivery center in
accordance with sec 107 of VAT Act 2012.

On the basis of what has been stated above obtaining separate VAT registration for your
warehouse, seven sales center and almost two hundreds sales point around the country may not
be workable for your company as you will have to employ people to maintain compliances for
all of your registered offices which is not at all cost-effective. Hence we would recommend
you to apply for central VAT registration, by declaring your warehouse as a central delivery
center which will ensure compliance as well as operating with the present cost structure for
VAT operations.

Should you have any query, please feel free to contact us.
Thank you.

75. Advise on VAT issues

You are a VAT adviser to PQ Ltd. (Company). A taxable service provider is unwilling to issue
a valid VAT invoice (VAT 6.3) and has asked the Company to deduct VAT at source from the
amount payable thereto. The Chief Financial Officer (CFO) of the Company has requested you
to discuss the issue in more detail at the next meeting.

Requirements: Prepare a note for discussion at the meeting with the CFO of the Company,
addressing the consequence of entering into a transaction with a registered person who/which
does not issue a valid VAT invoice (VAT 6.3).

Solution:
According to section 85 of VAT Act 2012, the following activities will be treated as an offense,
if any person:
 Fails to issue a VAT invoice or renders a fallacious VAT invoice from the perspective
of material information.
 Receives goods or services without VAT invoice despite the recipient is a VAT
registered person.
 Engages himself in receiving and acquiring possession of goods or entering into
transactions through he knows or he has reason to believe that VAT or, where
applicable, VAT and SD payable on such goods has been evaded; or
 Evades or attempts to evade VAT by any other means.

In the event that the aforementioned offenses result in evasion of VAT, the said person shall
be liable to a monetary penalty which shall be twice of the amount of VAT so evaded. For the
offenses set forth in section 85 of VAT Act 2012, which are considered as irregularities other
than evasion of revenue, the said person shall be liable to a monetary penalty of Tk 10,000.

Section 111 of VAT Act 2012 provides that, whoever dishonestly makes and uses tax invoice
or evades payment of the payable tax otherwise shall be punished with imprisonment for a term
which may extend to one year, or with a fine equal to the amount of tax payable, or with both.
 P a g e | 44

In accordance with the rule 84 of VAT Act 2012, goods and services (where applicable) related
to such contravention shall be confiscated in favor of the government.

In light of the above, it is obvious that there is no scope in VAT laws to do a transaction with
a person who/which does not provide a valid VAT invoice (VAT 6.3). Deduction of VAT at
source will not discharge the service from the obligation to enter into a transaction with a VAT
compliant counterpart.

76. Evaluate professional and ethical issues

As an ICAB member, you are a VAT adviser to many large companies. You know about
Panama papers leaks news story which put selected names of Bangladeshi under the spotlight.
One of your VAT clients name was seen in that list, the truth of the report unconfirmed.
Although there are legitimate ways of using tax havens, most of what has been going on are
about hiding true owners, the origin of the money and avoiding tax thereon. VAT evasion is
one of the crude tools of money launderers. You are in the center stage of a sensitive practice.
Evaluate any professional and ethical issues for yourself and your firm arising from the news
story about Panama paper leaks. Set out the actions that you and your firm should take.

Solution: Panama paper leaks story is all about sheltering of assets secretly as offshore tax
heavens. Offshore tax shelters may be legal, but the ethicality of using them to eliminate taxes
is highly irregular. One of my clients’ name is on the alleged list of names. I shall maintain that
client be requested to fully investigate the alleged story to confirm its truth. I see no connection
of my firm and myself with such alleged leak story naming my client. However, I find this as
an alert signal for my firm and me to reposition the way of client dealing. I see that two major
fundamental principles Professional behavior and confidentiality are likely to be impaired at
allegation like Panama Paper leaks. Familiarity threats and self-interest threat are likely to crop
up in such circumstances as the leak story got in wider media. The news story obliges me to
review my and my firm’s conduct at clients to examine if our conduct does discredit the
profession. I have also examined if the leak story pops up any threats to our compliance with
these principles.
As section steps, I shall-
i. Meet client management and discuss with him the leak story linking his name and for
further investigation,
ii. Advise client to engage a lawyer to deal with the alleged story,
iii. Request the client in writing to arrange training for the key staff on money laundering
and cross-border transactions,
iv. Request the client in writing to introduce a code of conduct for the employees.

If the allegation were found true, I would elect to distance from the service of this client. I shall
review my firm’s code of conduct to make that current with time, shall include training for the
firm’s staff on money laundering and code of conduct. We must uphold public interest as ICAB
member. Accountants must not forsake ethical responsibilities when working for wealthy
clients. We must not let loose the privilege of our self-regulation.
 P a g e | 45

Example of VAT Math

1. Net VAT payable

XYZ Ltd. is a public Limited company. In July, they have -
 Imported raw material from Thailand through bill of entry where Tk 500,000 paid as
VAT and 100,000 as advance tax to the customs authority.
 Purchased other materials about Tk 3,000,000 where 1,000,000 paid through cheque
and remaining will be paid through six installments from M/S. Kader Enterprise under
LTU-VAT.
 M/S J&J Trade Promotions, a sole proprietorship business, have provided
advertisement services about Tk 500,000 paid in cash.
 Paid last three months electricity bill about Tk 100,000 through the banking channel of
Palli Bidyut Samiti.
 Sold goods with 300 invoices amounting value of 20,000,000 to different buyers. The
total amount of goods returned were Tk 225,000 refunded to customers after deducting
Tk 25,000.
 The company conducted their business under VAT Act 1991 and year ended June 30
having a positive balance of VAT current account about Tk 2,500,000. Since no past
due or unresolved cases against them commissioner has issued an attested VAT form
18.6 for adjustment under the new act.
Determine the net tax for this period.

Solution#1: Calculation of net VAT

 Output Tax (OT)
20,000,000 x 15/115 = 2,608,695.65
 Input Tax (IT)
VAT paid at Customs = 500,000
M/S Kader Enterprise = 3,000,000 x 15/115 = 391,304.35
M/S J&J Trade Promotions = 500,000 x 15/115 = 65,217.40
Input tax on electricity bill = 100,000 x 15/115 = 13,043.50
Total = 969,565.25 – 65,217.40 = 904,347.85
 Increasing Adjustments (IA)
VDS from J&J = 65,217.40
 Decreasing Adjustments (DA)
AT = 100,000
GR = (225,000 - 25,000) x 15/115 = 26,086.96
 Net Tax = OT – IT + IA – DA
= 2,608,695.65 - 904,347.85 + 65,217.40 - 126,086.96 = 1,643,478.24

2. Total tax and charges

Government levied 25% Custom Duty (CD), 5% Regulatory Duty (RD), 20% Supplementary
Duty (SD), 15% VAT, 5% Advance Tax (AT), 5% Advance Income Tax on Product A. The
invoice value and assessable value (AV) at the import stage was Tk 45,000 and Tk 50,000
respectively. Assess the applicable Tax and Charges in the importing stage.
 P a g e | 46

Solution#2

Tax Base Value Formula Base Value Rate Tax and Charges

CD AV 50,000 25% 12,500

RD AV 50,000 5% 2,500
SD AV+CD+RD 65,000 20% 13,000
VAT AV+CD+SD+RD 78,000 15% 11,700
AT AV+CD+SD+RD 78,000 5% 3,900
AIT AV 50,000 5% 2,500
Total Tax and Charges 46,100

3. Partial tax credit

A registered company makes total sales Tk 7,500/- consisting of taxable Tk 7000 supplies. The
total amount of input tax is paid Tk 850/-. What will be the amount of creditable input tax?

Solution#3
Total amount of input Tax, I = 850
Total Taxable Supply, T = 7,000
Total Supply, A = 7,500
Therefore,
Partial Input tax Credit = I x T/A
= 850 x 7,000 / 7,500 = 850 x 0.9333 = 793.33

4. Each stage VAT

Manufacturer: A shampoo manufacturer buys material for shampoo at Tk 20 where Tk 3 vat
is included. The manufacturer sells this at Tk30.He pays vat of Tk 6 which is 20% of Tk30.

Distributor: A shampoo distributor buys shampoo at Tk 36 where Tk 6 vat is included. He

wants to sell this at Tk50. At this stage, he pays Tk 10 which is 20% of Tk 50. So the selling
price becomes Tk 60.

Wholesaler: A shampoo wholesaler buys shampoo at Tk 60 where Tk 10 vat is included. He

wants to sell this at Tk 80. At this stage, he pays Tk 16 which is 20% of Tk 80.So the selling
price becomes Tk 96.
Determine each stage VAT:

Solution#4
Input VAT on input Value Output VAT on output Net
Stage
price price addition price price VAT
Manufacturer 17 3 10 27 6 3
Distributor 36 6 14 50 10 4
Wholesaler 60 10 20 80 16 6
 P a g e | 47

5. VAT on Supplies
Suppose a taxpayer supplies product of Tk 2,000,000 using 500 invoices. Tk 100,000 of
products are exported by 5 invoices whereas exempted products of Tk 500,000 are supplied
using 100 invoices. He paid tax at the standard rate. What will be his payable tax?

Solution#5

Nature of Supplies Price (A) SD (B) VAT (C)

Zero-rated Direct export -

Goods/Services Deemed export 100,000 -
Exempted Goods/Services 500,000
Standard rated Goods/Services 1,400,000 - 182,608.70
Maximum Retail Price
Fixed-Rate base Goods/Services
Rate for Goods/Services other than
Standard Rate
Retailer/Whole seller/Trader base supply
Total selling Price and total payable tax 182,608.70

6. Cost sheet
At 30 June 2018 the information regarding production and sales of Shova Enterprise Ltd. are
as follows:-

Particulars BDT
Purchase of Raw Materials 200,000
Net wages 50,000
Excess Industrial Expenditure 50,000
Excess Administrative Expenditure 60,000
Expenditure for Sale 40,000

The company sells all of its goods adding 25% profit with total expenditure. Its starting stock
of raw materials and ending goods are Tk 60,000 and Tk 40,000 respectively. The quantity of
ending stock goods and raw materials are Tk 80,000 and Tk 20,000 respectively. If VAT is
imposed @ 15%, calculate the total amount thereof.
 P a g e | 48

Solution#6
Particulars BDT
Opening Stock of Raw Materials 60,000
Add: Purchase of raw materials 200,000
Less: Closing stock of raw materials (20,000)
Add: Net wages 50,000
Prime cost 290,000
Add: Excess Industrial Expenditure 50,000
Excess Administrative expense 60,000
Expenditure for sale 40,000
Add: Opening stock of finished goods 40,000
Less: Closing stock of finished goods (80,000)
Cost of Sale 400,000
Add: Profit @25% on cost 100,000
Selling Price 500,000

Calculation of Net VAT:

36,000
39,000

7. Selling price determination

ABC Ltd. provides the following information about its production and sales:

Particular BDT
Purchase of raw materials (Including VAT Tk. 300,000) 2,300,000
Direct wages 250,000
Electricity (Including VAT Tk. 3,000) 63,000
Telephone (Including VAT Tk. 1500) 11,500
Depreciation of machinery 30,000
Other production overhead 40,000
Other administrative overhead 70,000
Selling expenses 20,000

The company sells its products by adding a 25% margin on cost. A trade discount of 5% is
allowed. Other production and administration overheads and selling expenses do not include
any VAT. There were no opening & closing stock of raw materials.

Requirement: Determine VAT payable if the rate is 15%, assuming that the opening & closing
stock of finished goods were Tk 30,000 and Tk 20,000 respectively.
 P a g e | 49

Solution#07 Calculation of Net VAT of ABC Limited Tk

Particulars .
Opening raw material -
Add: Purchasing of raw material (excluding VAT) 2,000,000
Less: Closing Stock of raw material -
Raw material used 2,000,000
Add: Direct labor/wages 250,000
Prime Cost 2,250,000
Factory Electricity 63,000
Telephone 11,500
Depreciation of machinery 30,000
Other production overhead 40,000
Factory Cost 2,394,500
Add: Opening Stock of finished goods 30,000
Less: Closing stock of finished goods (20,000)
Manufacturing Cost 2,404,500
Selling Expense 20,000
Other administration overhead 70,000
Total cost 2,494,500
Add: Profit @ 25% margin on cost 623,625
VAT imposable price 3,118,125
Add: VAT @ 15% 467,719
Less: 5% Rebate (155,906)
Selling Price 3,429,938
Net VAT = Output VAT - Input VAT
= 467,719 - (30,000 + 3,000 + 1,500)
= 163,219

8. Journal entries
1. Purchases: Tk 115
2. Sales: Tk 230
3. Goods returned from customers: Tk 57.50
4. Goods returned to the supplier: Tk 57.50
5. Discounts allowed: Tk 11.50 [Credit note]
6. Discounts received: Tk 17.25 [Credit note – supplier]
7. Allowable expenses: Tk 23,000
8. Bad debts (Input Tax): Tk 115
9. Bad debts recovered: Tk 57.50
10. Entertainment expenses to suppliers: Tk 500 (Blocked input – Input Tax not allowed)
11. Entertainment expenses to employees, existing customers: Tk 300 (Blocked input –
Input Tax not allowed)
12. Import services (reverse charge): Tk 34,500
 P a g e | 50

Solution#08
S/L No. Journal Entries Tk Tk
1 Purchases 100
Input tax 15
Trade creditors 115
2 Trade debtors 230
Sales 200
Output tax 30
3 Output tax 7.50
Return inwards 50
Trade debtors 57.50
4 Trade creditors 57.50
Return outwards 50
Input tax 7.50
5 Output tax 1.50
Discount allowed 10
Trade debtors 11.50
6 Trade creditors 17.25
Return outwards 15
Input tax 2.25
7 Rental expenses 20,000
Input tax 3,000
Bank 23,000
8 Bad debts 100
Input tax 15
Trade debtors 115
9 Bank 57.50
Bad debt recovered 50
Output tax 7.50
10 Entertainment expenses 500
Bank 500
11 Entertainment expenses 300
Bank 300
12 Service fees 30,000
Input tax 4,500
Amount owing to HQ (Outside BD) 30,000
Output tax 4,500
 P a g e | 51

9. Net VAT determination

M/S Zibon Corporation (ZC) is an enterprise registered with LTU-VAT and have a different
type of business activity.
 Imported raw materials from Taiwan paying VAT of Tk 300,000, Advance Tax of Tk
60,000.
 Purchased raw materials from Zaraa fashions Ltd. (a company enlisted with DSE)
having a value of Tk 2,500,000 and paying cash 500,000 and remaining amount will be
settled one-year deferred payment.
 Sold goods with 250 invoices amounting value of 5,000,000 to different buyers. Out of
250 buyers, 3 buyers returned some goods having a total value of Tk 300,000.
 Purchased another type of raw materials from a registered proprietorship firm MS Jahid
Traders having a value of Tk 200,000 and payment is done through a certified cheque.
All these transactions are performed in a particular tax period. Calculate net VAT for the tax
period.

Solution#09:
Calculation of net VAT
 Output Tax (OT)
Total Taxable sales x 15/115 = 5,000,000 x 15/115 = 652,173.90
 Input Tax (IT)
VAT at import = 300,000
From ZFL = 2,500,000 x 15/115 = 326,086.96
From JT = 200,000 x 15/115 = 26,086.96
Total = 652,173.92
 Increasing Adjustments (IA)
No VDS
 Decreasing Adjustments (DA)
AT = 60,000
GR = 300,000 x 15/115 = 39,130.43
 Net Tax = OT – IT + IA – DA
= 652,173.90 - 652,173.92 - 39,130.43 = (39,130.45)

10. VAT on different stages

An importer imported 100 pieces of Motorcycle at C&F price Tk 80,000 per piece. The clearing
and incidental charge amounted to Tk 90,000 for the lot. He sold 90 pieces of the cycle to a
wholesaler at a margin of 10% exclusive of VAT which is 15% on the value of sale price. The
wholesaler charged 15% commission to sell it to a retail seller to be sold from their sale center.
The retailers incur cost @ 1,000 for maintenance and salary of persons of sale center and charge
cost plus 10% margin.

Requirement: Compute VAT assuming that retailers sold 70 pieces of the cycle in the month
of December 2018.
 P a g e | 52

Solution#10
Import Stage:
Particulars Tk
CIF value/imported price (100X80,000) 8,000,000
Add: C&F charge 90,000
Cost of 100 pieces 8,090,000
Cost of 90 pieces (8,090,000 X 90/100) 7,281,000
Add: Profit @ 10% of Tk 7,281,000 728,100
Selling price excluding VAT 8,009,100
Add: Output VAT of 90 Pcs @15% 1,201,365
Selling price including VAT 9,210,465
Wholesaler Stage:
Particulars Tk
Cost of purchase 9,210,465
Less: Input VAT (1,201,365)
Purchase price excluding VAT 8,009,100
Add: Commission @ 15% 1,201,365
Selling price excluding VAT 9,210,465
Add: Output vat @ 15% 1,381,570
Selling price including VAT 10,592,035
Retailer Stage:
Particulars Tk
Cost of 90 Pieces 10,592,035
Cost of 70 Pieces (10,592,035 X 70/90) 8,238,249.25
Less: Input VAT (1,381,570 X 70/90) (1,074,554.25)
Purchase price of 70 pieces excl. VAT 7,163,695
Maintenance (1000 X 70) 70,000
Total cost 7,233,695
Add: Profit @10% 723,370
Selling price excluding VAT 7,957,065
Add: Output VAT of 70 Pcs @ 15% 1,193,560
Selling price including VAT 9,150,624
Working:
Particulars Importer Wholesaler Retailer
100 Pcs 90 Pcs 70 Pcs
Output VAT 1,201,365 1,381,570 1,193,560
Input VAT (1,201,365) (1,381,570)
Input VAT credit @ proportionate basis (1,201,365) (1,074,554)
VAT payable (Net VAT) 1,201,365 180,205 119,005
VAT payable for 70 units 934,395 140,159 119,005
Total VAT for 70 pcs = 934,395 + 140,159 + 92,560
= 1,193,560
 P a g e | 53

Alternative:

Input Price Other Amount of Output Price Net VAT

Stage of Units Input VAT Output VAT
for units Expenses Value for units payable for
Business Sold (Taka) (Taka)
sold(Taka) (Taka) Addition sold(Taka) 70 units

Importer and
Manufacturer 90 7,281,000 - 728,100 8,009,100 - 1,201,365 934,395
Wholesaler 90 8,009,100 - 1,201,365 9,210,465 1,201,365 1,381,570 140,159
Retailer 70 7,163,695 70,000 723,370 7,957,065 1,074,554 1,193,560 119,005
1,193,560

11. Advise on VAT invoice and credit

Question (a)
In early June 2019, XY Ltd. offered to provide some engineering consultancy services to AB
Ltd. at Tk 850,000 which is the lowest bid price. Another bidder quoted Tk 1,000,000. XY Ltd.
has not attained VAT registration. AB Ltd. intends to hire the services of XY Ltd., being
cheaper. PQ Ltd., a security service provider appointed by AB Ltd. i.e. 1 June 2015, is
registered with VAT authority. PQ Ltd. is unwilling to issue a valid VAT invoice (VAT 6.3)
and has asked the Company to deduct VAT at source from the amount payable thereto. In this
situation, AB Ltd. is not sure whether deduction of VAT at source would be sufficient
compliance with the provisions of VAT laws.
Requirement: Advise AB Ltd. with consequences, if any, for entering into the above
transactions.

Question (b)
AB Ltd. is now negotiating a deal with ST Ltd. for purchasing television sets. AB Ltd. intends
that ST Ltd. deliver the television sets to CD Ltd., a dealer of AB Ltd. wants that ST Ltd. issues
VAT 6.3 challan in favor of ST Ltd. so that they would be able to get input tax credit on the
purchase.
Requirement: Advise AB Ltd. on the above.

Solution#11
Answer (a)
As per VAT Act 2012, no person would be able to take part in any tender if he is not registered
with the VAT Authority or any work order cannot be issued in favor of him. A company cannot
purchase anything from a VAT unregistered entity and even cannot pay if any purchase occurs
accordingly. Moreover, as per Section 46 of the VAT Act 2012, input VAT credit shall not be
allowed on any purchase if anybody makes the purchase from any person not registered with
the VAT authority.

In the given situation, XY Ltd., the lowest bidder to provide the engineering consultancy
services to AB Ltd., is not registered with the VAT authority. As per Section 46 of the VAT
Act 2012, a registered person shall be entitled to an input tax credit against the Value Added
Tax imposed on a taxable supply or a taxable import. Therefore, it is advisable to hire the
consultancy services from an entity registered with VAT authority instead of XY Ltd. to avoid
 P a g e | 54

the negative consequences as mentioned above. AB Ltd. should include a provision of

mandatory submission of a copy of the VAT Registration Certificate by intended local
suppliers in its vendor enlistment policy and ensure availability of valid VAT 6.3 before
receiving a commercial invoice from suppliers.

However, in the event AB Limited enters into the transaction with XY Limited, the invoice of
XY Limited should be considered as inclusive of VAT as per Section 15 VAT Act 2012. AB
Limited has the responsibility of determining the applicable withholding VAT by back-
calculation (i.e. multiplying invoice amount by 15/115). In this case, the VAT amount becomes
Tk 110,870 (Tk 850,000X15/115). AB Limited will be required to deduct the applicable VAT
at source before making payment and deposit the same to the Government exchequer within
15 working days of deduction.

The same process will apply if AB Limited hires the service from the other bidder and the
bidder does not mention VAT amount separately in the issued VAT 6.3. However, since XY
Limited is unregistered, it appears that they did not consider VAT from its fee. In such case,
AB Limited would be required to bear the applicable VAT (i.e. Tk 110,870) from its own
exchequer.

A company has the responsibility of deduction of VAT at source if it takes supply from VAT
unregistered entity deposit to exchequer using the relevant Commissioner Code within 15
working days of deduction. However, as per Section 46 of the VAT Act 2012, input VAT credit
shall not be allowed on any purchase without availability of valid VAT invoice (i.e. VAT 6.3).
Therefore, merely the deduction of applicable amounts of VAT would not be sufficient to avoid
the negative consequence of loss of input VAT credit.

In the given situation, PQ Ltd., as appointed by AB Ltd. to provide security service, is unwilling
to issue the valid VAT invoice (i.e. VAT 6.3). AB Ltd. is required to deduct the applicable
amount of VAT at source and should deposit the same to the Government exchequer within
due time. However, in the absence of valid VAT invoice, AB Ltd. cannot take input VAT
credit. Therefore, I would advise AB Ltd. to discuss with PQ Ltd. to provide a valid VAT
invoice.

Answer (b)
In the given situation, AB Ltd. wants that ST Ltd. issue VAT 6.3 Challan in favor of ST Ltd.
As per the current provision of the VAT law, a person cannot issue VAT 6.3 Challan in favor
of himself. Therefore, it is assumed that the question intends to mean to issue VAT 6.3 Challan
in favor of AB Ltd instead of ST Ltd. so that it can get input VAT credit.

As per Section 51 of the VAT Act 2012 and Rule 40 of the VAT Rules 2016, every VAT
registered supplier has to issue Challan in form VAT 6.3 for supply of every good and such
VAT 6.3 challan has to be accompanied with the goods up to its final destination mentioned
on it as original to be given to the buyer. Moreover, the purchasers and seller's name, address,
registration number and destination of goods, etc. have to be clearly mentioned on the VAT
6.3 Challan. Moreover, as per Section 46 of the VAT Act 2012, the products purchased are
 P a g e | 55

required to be brought into the premises of the registered entity in full to avail input VAT credit.
Therefore, for the given situation in the question, it is advisable to AB Ltd. to bring the
televisions into its own premises first from ST Ltd. for avoiding the risk of confiscation by the
VAT authority and availing input VAT credit. AB Ltd. can then supply the purchased
televisions to the CD Ltd. Provided that the name, address, and VAT registration number, etc.
of AB Ltd. and ST Ltd. have to be clearly mentioned on the VAT 6.3 Challan.

However, this suggestion may be impracticable to follow if the business premise of CD Ltd.
and ST Ltd. is adjacent or nearer and that of AB Ltd. is far away from ST Ltd. In that case,
once getting the products from ST Ltd. and then sending them back to CD Ltd. may not be
cost-effective. AB Ltd., in that case, may open a small branch near to CD Ltd. with separate
VAT registration, receive the goods from ST Ltd. and immediately forward the same to CD
Ltd. The branch will perform the necessary documentation work to get input VAT credit,
deposit VAT and then sell the televisions to its dealer/customer.

12. VAT compliance

Three persons as follows are in the process of starting a new business and approach you for
advice under Value Added Tax Act 2012 considering the current provisions in force.
i) A Chartered Accountant is obtaining 'Certificate of Practice' from ICAB to begin
professional practice in accounting and auditing with an estimated annual fee income of Tk
7,500,000.
ii) A retired Biman Airlines Manager in the process of setting up a Tour Operator business.
Estimated annual commission income is Tk 6,500,000.
iii) XYZ Ltd., a private limited company, operating from Kaptan Bazar, Dhaka, and already a
VAT-registered assesse, engaged in product distribution got a new national distributorship
agreement from a Chinese Manufacturer to import, stock and sell the mobile handset in
Bangladesh. Estimated annual turnover of XYZ Ltd. from new handset dealership is Tk
25,000,000. The company plans to appoint District Distributors (DD) to sell mobile handsets
through selected retailers in major cities.

Requirement:
a) Please brief on the three persons shown in (i), (ii), (iii) above in connection with the
compliance under VAT law considering the provision now in force with respect to initial
compliance obligation and statutory VAT records. Examiner shall take into account mention
of Codes, prescribed VAT Forms, Records and Sections/Rules.
b) XYZ Ltd., the company in (iii) above requires additional advice on the formulation of the
handset price at various stages using the system of 'input VAT credit claims' at each stage of
delivery chain u/s 9 of the law. Please make the detailed computation of the price in each stage
up to MRP (Price to Distributor, Price to Retailer and MRP) clearly showing input-output VAT
adjustment and the net VAT payable amount in each stage of National Distributor (ND) and
District Distributor. Your answer should also contain a reconciliation of the 'VAT (15%) on
the cost to retail' and summation of VAT at earlier stages beginning from the import.
[Assume: Per unit landed cost of XYZ Ltd is Tk 5,500 including import stage VAT (15% =
660), AIT (5% = 220) and Advance TAX (5% = 220), and margin is 50% on landed cost. ND
margin 15% on cost price, Trade Promotion expense, estimated damage recovery total 15% on
'value after ND margin'; DD margin 5% and Retailer margin 15%]
 P a g e | 56

c) XYZ Ltd., the company in (iii) above may soon run out of space at the present rented
premises upon addition of a new set of employees for handset dealership. The company has
owned bigger floor space in Uttara, Dhaka. Management is considering the option of moving
from current rented space from Kaptan Bazar to own space in Uttara, two being separate VAT
divisions, Please advise Company on steps within the purview of VAT law (mentioning
Section, Rule and prescribed From) if the company decides to change office/store to Uttara.

Solution#12
Answer (a)
(i) Chartered Accountants Firm/ (ii) Tour Operator:
a) VAT Registration
Initial compliance obligation is VAT registration using Form VAT 2.1 and obtain VAT
registration certificate at VAT 2.3. Although it may appear that the firm will not be required to
obtain VAT registration certificate rather will be required to obtain turnover tax registration
since their estimated annual turnover is less than threshold i.e. Tk 3 crore as per General Order
No. 17/VAT/2019 of 2019 the firm must apply for VAT registration irrespective of annual
turnover.
b) Input-Output Coefficient
The firm is required to file Input-Output Coefficient Declaration in VAT Form 4.3. For the first
supply of goods and services, Input-Output Coefficient Declaration should be filed with the
VAT Authority’s online system or concerning divisional VAT official 15 days prior to the date
of supply.
c) VAT payment
The payer is responsible for deduction of VAT at source at the time of making payment to the
CA firm if a proper invoice is not raised. The firm will be required to collect VAT 6.6 from the
payer in case of deduction at source. VAT paid to the firm must be deposited to the Government
Exchequer along with submission of VAT return. VAT withheld from the service provider
should also be deposited to the government exchequer.
d) VAT return
VAT return (VAT 9.1) must be filed to the respective circle within 15th day of the next month.
e) VAT record keeping
VAT 6.3, VAT 6.6, Treasury Challan, etc.

(iii) XYZ Ltd:

a) VAT Registration
XYZ is already a VAT registered person. Their type may be a trader. However, we need to
review VAT registration certificate as to whether their types also includes importer or not. If
not then XYZ will be required to amend VAT registration to include importer in their VAT
registration.
b) Input-Output Coefficient
XYZ Ltd is required to file Input-Output Coefficient Declaration in VAT Form 4.3. For the
first supply of goods and services, Input-Output Coefficient Declaration should be filed with
the VAT Authority’s online system or concerning divisional VAT official 15 days prior to the
date of supply.
c) VAT payment
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VAT is payable being trader @ 5% along with filing return. Decreasing adjustment for @ 5%
AT has already been deposited to the Government Exchequer at the time of importation of the
mobile handset. If XYZ follows price declaration basis, they will be required to pay VAT on
the value addition at the time of selling goods to their customer @15% on value addition and
claim input VAT credit.
d) VAT return
VAT return (VAT 9.1) must be filed to the respective circle within 15th day of the next month.
e) VAT record keeping
VAT records (as existing) are VAT 6.2.1, VAT 6.3, VAT return 9.1, etc. Other related
documents to support information in the statutory records.

Answer (b):
Calculation of landed cost:
Total cost 5,500
VAT (660)
AIT (220)
AT (220)
Landed cost 4,400
Price computation at each stage:
Value addition
Input Net
Stage Input Output Output Invoice
Margin Expense VAT VAT
VAT price
VAT paid at
880
import stage
XYZ 4,400 2,200 - 6,600 880 990 7,590 110
ND 6,600 990 990 8,580 990 1,287 9,867 297
DD 8,580 429 - 9,009 1,287 1,351 10,360 64
Retailer 10,360 1,554 - 11,914 1,351 1,787 13,701 436
Customer 11,914 - - - - - - -
Total 1,787
The total cost to be paid by customer = 13,701

Answer (C)
Rules 13 of VAT Rules 2016 provides for formalities as to the change of business location and
situation. This is, however, not for ownership change. Application for change of business
location and nature should be done 15 days prior to the change. All pending VAT must be paid
off before the application or an undertaking on stamp paper to settle VAT or other liabilities
with VAT law. Any work stoppage at the present location must be informed to the respective
VAT circle. The physical change of the location and transfer of the stock-in-trade should not
be done without clearance from present VAT circle. Steps to be taken are as follows:
 Application for change of location in Form VAT 2.5 to present VAT Circle. [Together
with the attested copies of Trade License, Lease Agreement, NID, original VAT
registration certificate, application in plain paper, copies of previous four months' VAT return.]
 VAT inspector shall visit the location to inspect stock-in-trade/other information of the
XYZ Ltd.
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 Information of such change and a copy of the application for change should also be
filed with the new VAT circle under new VAT division (as the change to a separate
division, Uttara).
 After scrutiny and satisfaction, the present VAT circle shall cause to transfer VAT file
of the assesse to the new VAT Circle.

13. VAT impact in different stages

A manufacturer sold goods worth Tk 10 lakh to the wholesaler by including VAT @ 15%. The
wholesaler added 10% as mark up and sold the goods to the retailer by adding VAT who in
turn sold the goods to the consumer by adding markup @ 15%. Compute VAT at each stage
and indicate the total VAT paid by the consumer.

Solution#13
Manufacturer Wholesaler Retailer Consumer
Particulars
Tk Tk Tk Tk
a) Cost of goods 1,150,000 1,265,000
(b) Input VAT Recoverable 150,000 165,000
(c) Net cost of goods sold 1,000,000 1,100,000
(d) Mark-up 100,000 165,000
(e) Selling price Net of VAT 1,000,000 1,100,000 1,265,000
(f) VAT chargeable 150,000 165,000 189,750
(g) Gross selling price 1,150,000 1,265,000 1,454,750
Gross VAT due 150,000 165,000 189,750
VAT recoverable - 150,000 165,000
Net VAT payable 150,000 15,000 24,750
VAT borne by the Consumer = 189,750

Alternative:
Net VAT
Input Amount of Output Input Output
Stage of payable
Price Value Price VAT VAT
Business (Treasury
(Taka) Addition (Taka) (Taka) (Taka)
Deposit)

Manufacturer -
- 1,000,000 1,000,000 150,000 150,000

Wholesaler
1,000,000 100,000 1,100,000 150,000 165,000 15,000

Retailer
1,100,000 165,000 1,265,000 165,000 189,750 24,750
VAT borne by consumer 89,750