Indirect tax - Bangladesh

Value Added Tax is the main indirect tax that is imposed on taxable import and taxable supply.

Value Added Tax (VAT) is such an indirect tax which is paid by the consumer through a registered person. VAT on goods or service is determined based on adding actual level of value of the said goods or service adjusting input tax payable against the supplied goods or service.

According to the provision of VAT & SD Act 2012, three different types of indirect tax are charged which are as follows:

1. Value Added Tax: Importers, manufacturers, and service providers must pay VAT on value addition in each stage under VAT & SD Act 2012.
2. 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 VAT & SD Act 2012. Currently the turnover tax enlistment limit is below BDT 30 million and the turnover tax rate is 4%.
3. 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 & SD Act 2012.
   VAT registration criteria depends on the economic activity carried on regularly or continuously for making supply of any goods, services, or immovable property, and
   
   • also includes the following activities, namely–
     
     • business, profession, vocation, means of earning livelihood, manufacture or undertaking of any kind, whether not for profit.
     • Supply of any goods, service or property made under any lease, license, or a similar arrangement,
     • one-off initiative in the nature of a commercial activity or enterprise.
     • activity carried out at the beginning or at the end of such an activity.
   • shall not include the following activities, namely-
     • service rendered by an employee to his employer.
     • 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.
     • recreational pursuit or hobby carried on a non-commercial basis; or
     • any prescribed activity carried on by Government without commercial motive.

Registration threshold means the limit of BDT 30 million 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.

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.

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.

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. Transfer the goods in the form VAT 6.5 from his one branch to another branch (including warehouse).

For producers or suppliers of taxable goods and services with annual turnover below BDT 30 million, registration is not a lawful requirement. Even then if some of them want to register, they can, and this is called self-registration.

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.

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.

The registration may be cancelled 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 BDT 30 million 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.

A penalty may be imposed by the tax authority under section 85 of VAT & SD Act 2012, if a business fails to register at the correct time.

The normal VAT registration limit applies to businesses who are not established in the BD. If any non-established individual likes to operate economic activity from a particular place in Bangladesh, he will operate his economic activity or businesses by appointing a VAT agent and the economic activity and threshold limit will be same as the established business.

According to the VAT and SD Act-2012, a non-resident business not having physical presence in the country must have to appoint an agent for executing its VAT-related activities.

A non-resident foreign companies can access to the VAT online system through VAT agent So, the non-resident digital/electronically service providers are now able to obtain business identification number, submit VAT returns and pay VAT directly through their overseas bank accounts.

There is a provision which makes the agents jointly responsible with the non-resident foreign companies to pay VAT in case of VAT evasion detected by the NBR. Currently, the NBR is receiving VAT at the rate of 15% from the companies as banks deduct the VAT at the time of remitting the money to the accounts of the firms.

A non-established business can appoint a VAT Agent who will bear and carry all VAT related responsibilities arising out of the activities performed by the non-established business. 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.

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 15 days (if 15th is a public holiday, following day) of the following month in the form of ‘VAT 9.1’ and for Turnover Tax following the end of quarter in the form of ‘VAT 9.2’.

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.

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

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 are committed excepting forgery.

Application for amendment can be submitted within four 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.

Penalty for not filing the VAT or turnover tax return within the prescribed time period is BDT 10,000.

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

Businesses that are registered under VAT & SD Act 2012 in Bangladesh and make supplies of goods or services has to declare some issues through the following forms.

1. Input-Output Coefficient Declaration through VAT 4.3 by manufacturing entity.
2. Purchase register through VAT 6.1
3. Sales register through VAT 6.2
4. Tax invoice through VAT 6.3
5. Transfer the goods related economic activity in the form VAT 6.5 from one branch to another branch (including warehouse);
6. Withholding Tax Certificate through VAT 6.6
7. Credit notes through VAT 6.7
8. Debit notes through VAT 6.8
9. Declaration for transactions which are above BDT 200K through VAT 6.10

There are some more declaration forms to comply in Bangladesh to conduct economic activities.

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 & SD Act 2012. According to Section 85 of VAT & SD Act 2012, an assessee may be penalized for the following offenses:

• Non-compliance or irregularity for not applying for registration or enlistment within the prescribed time-limit is BDT 10,000.
• Non-compliance or irregularity for not displaying the registration or turnover tax certificate in a visible place is BDT 10,000.
• Non-compliance or irregularity for not informing the Commissioner of the change in the information of the economic activity is BDT 10,000.
• Non-compliance or irregularity for not applying for cancellation of registration or enlistment within the prescribed time limit is BDT 10,000.
• Non-compliance or irregularity for not abiding by the provision of section 9(5) is BDT 10,000.
• Non-compliance, irregularity, or tax evasion in case of inclusion of the output tax in the return is equal the amount of output tax not included.
• Irregularities for taking more input tax credit than entitled in the return is equal the increased amount of input tax taken as credit.
• Irregularities relating to making an increase of a decreasing adjustment or decrease of an increasing adjustment is double the increased amount of decreasing adjustment or equal the decreased amount of increasing adjustment.
• Attempting to evade assessment and payment of taxes is equal the amount of evasion.
• Non-compliance or irregularity for non-submission of input-output coefficient declaration within the prescribed time is BDT 10,000.
• Non-compliance or irregularity for not maintaining proper statements under prescribed manner is BDT 10,000.
• Non-compliance or irregularity for not providing debit note, credit note, tax invoice is BDT 10,000.

No. Only registered entity will be allowed to claim Vat rebate.

As per section 46 of VAT & SD Act 2012, the registered entity 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 BDT 0.1 million 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 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 exceeding 80%
• 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 Register or combined Purchase-Sale Register prescribed by the Rules,
• Input-Output Coefficient Declaration not submitted in case of value of inputs changed more than 7.5%
• In case of input tax credit for the input of Gas, Water, Electricity and Telephone bill, the invoice raised by the organization will be considered as tax invoice
• Input Tax credit cannot be taken If goods or services are provided at a price lower than the cost of materials.

Every registered supplier is required to issue two copies of serially numbered Tax Invoice named VAT 6.3 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 BDT 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.
• The SD rate; and
• The name and nature of transport.

Tax invoices should be serialized fiscal year wise. Notably, if supply is made from multiple locations, Tax invoice should also be serialized for each location. This serial number along with the name and address of the location should be mentioned in the Tax invoices for the supplies made from those locations. The original Tax invoice (ie VAT-6.3) should be presented while making transportation of the goods.

The registered person can preserve in his own format Tax invoice including additional information for the requirement of his business where all information in the prescribed form shall be included and shall be issued in the prescribed number of minimum copies. Moreover, NBR, by a notification in the official Gazette, can declare any Tax invoice or bill issued by a registered person in his/her own format as a Tax invoice.

From Year 2021, NBR make it mandatory to file online VAT return in NBR VAT online system.

NBR has made it mandatory for registered entities having turnover exceeding BDT 50 million in the previous financial year to maintain their VAT related books and records in VAT software prescribed by the authority. An entity must take the VAT software NBR approved software developers.