VAT system in Bangladesh (part 1)

What is VAT ?

“VAT is a tax on which the value of an article has been increase stage of its production.” --The Oxford Dictionary.

So we can define it in this way, VAT is a simplified and transparent system of law which is indirect in nature and the charge is levied on the value addition of goods 

and services at each stage of production and circulation. It is known in some countries as "Goods and Services Tax (GST)". 

The system of VAT is often erroneously compared to the system of Sales Tax. But it’s not right. Because in case of later, the charge is levied not on the value addition but on the total cost of goods and services. So we shouldn’t mix these two.

Origin of VAT

If we trace out the origin of VAT, then we will see that the concept was first introduced by F. Von Siemens, a German industrialist. He proposed it as a substitute for German Turnover Tax. But the modern variation of VAT was first implemented by France in 1954. Gradually various other countries also adopted this system in their state economy.

However in Bangladesh, the first initiative for introducing VAT was first taken in 1979 by the Taxation Enquiry Commission (TEC). We can't deny the pioneering role of World Bank for the introduction of VAT. Final version of Value Added Tax Act was promulgated on 31 May, 1991 as a presidential order which was passed by the parliament on 9 July, 1991. This Act was in vogue for a long period in Bangladesh. Gradually a new Act was introduced on VAT in the name of "Value Addition Tax and Supplementary Duty Act, 2012". This Act was supposed to be implemented from 1st July, 2017 but it was finally enforced from 1st July, 2019. This new Act took some reformation into the previous one.

History of VAT system in Bangladesh  

Value Added Tax (VAT) in Bangladesh was introduced in 1991 replacing Sales Tax and most Excise Duties. The Value Added Tax Act, 1991 was enacted that year and VAT started its passage from 10 July 1991. In Bangladesh, 10 July is observed as National VAT Day.  The standard rate of VAT is 15% . Applicable rate of VAT in case of import and supply is 15% and in case of export is 0%.        

Value Added Tax Features in Bangladesh

The main features of VAT in Bangladesh are as follows:

1.VAT is imposed on goods and services at import stage, manufacturing, wholesale and retails levels;

2.A uniform VAT rate of 15 percent is applicable for both goods and services;

3.15 %  VAT is applicable for all business or industrial units with an annual turnover of Taka 2 million and above;

4.Turnover tax at the rate of 4 percent is leviable where annual turnover is less than Taka 2 million;

5.VAT is applicable to all domestic products and services with some exemptions;

6.VAT is payable at the time of supply of goods and services;

7.Tax paid on inputs is creditable/adjustable against output tax;

8.Export is exempt;

9.Cottage industries (defined as a unit with an annual turnover of less than Taka 2 million and with a capital machinery valued up to Taka 3,00,000) are exempt from VAT;

10.Tax returns are to be submitted on monthly or quarterly or half yearly basis as notified by the Government.

11.Supplementary Duty (SD) is imposed at local and import stage under the VAT Act, 1991.

VAT contribution in Bangladesh

The government earned Tk 202,312 crore in the last fiscal year (FY2018-19), in which the VAT contribution was Tk 78,694 crore, or 38.89% of the total revenue, according to the NBR.The VAT share on total NBR revenue remained at about 35% over the last couple of years, said the NBR data. The government collects VAT from four main sources: imports, local production, wholesale, and retail sale. Among the heads, VAT from imports contributes almost 40% of the total collection, while local trade and production contribute the rest 60%.The revenue board chief recently said the NBR was going to introduce VAT law and working for bringing businesses under the VAT automation so that they could ease VAT collection and raise the tax income. Mosharraf said the tax to GDP ratio was 7.23 in 1991, the year the NBR introduced the VAT, he said, adding it increased to nearly 10% now.“The tax-GDP is still lower than other developing countries,” he said, adding that the country needed more revenue to graduate the country to upper level. The revenue target of the current fiscal year is Tk325,600 crore, with Tk1,17,672 crore coming from VAT.

Online VAT Registration in Bangladesh

The registration Online VAT has formally begun from on March 15, 2017 with the expectation that the people of the country will now pay Value Added Tax (VAT) online for the growth of the country. NBR ( National Board of Revenue) started the online VAT registration in Bangladesh on March 15 informally. Any Businesses will be able to take online VAT registration very easily now.

Any businesses can collect VAT registration online from now. No one can collect VAT  Registration manually from tax offices. All will have to register electronically.

The introduction of electronic VAT registration is expected to end the hassle of having to visit the tax offices to collect BINs ( Business Identification Number). Following documents required for getting VAT registration certificate online;

Online VAT Registration for Proprietorship Business:

·         Name of the Proprietor

·         NID/ Passport

·         Name of Business

·         TIN Certificate

·         Business Address

·         Bank Information

·         Nature of Business

Online VAT Registration for Partnership Firm:

·         Name of Partnership Firm

·         TIN Certificate of Partnership Firm

·         Business Address

·         Bank Information

·         Nature of Business

·         Information of all partners including portion of capital, NID/ Passport.

Online VAT Registration for Limited Company:

·         Name of the Company

·         Incorporation Number

·         TIN Certificate of  the Company

·         Business Address

·         Bank Information

·         Nature of Business

·         Information of all Director’s including percentage of share, NID/ Passport.

Now they will get it instantly by filling up the application form online. Businesses, particularly those with no internet access, will get support from VAT Online Service Centres (VOSC) to sign up for registration and re-registration.

VAT plays a vital role in our daily life as well as great source of revenue collection of our country. Now it is very important for Bangladeshi business owner. All over the world VAT plays essential responsibility for government revenue field.  More or less 130 countries are doing exercise VAT in the world. Our government is extremely insensitive in collection of VAT from all applicable sources. In Bangladesh the part of the VAT is rising progressively.

VAT authority

When the Board appoints certain officials for the purpose of effective application of VAT laws and rules, these officials are known as Value Added Tax Authorities. They hold the sole responsibility to execute the provision relating to VAT applicable in Bangladesh. They also have some functions like identification of assesses, computation, collection of vat and other relevant taxes, receiving application in this regard and appeal, setting the appeals, imposition of fines and penalties for offences etc.

There are two types of vat authorities and they are Administrative authorities and judicial authorities.

The power and functions of administrative authorities:

National Board of Revenue (NBR):

National Board of Revenue is constituted under the National Board of Revenue Order, 1972 and given the highest authority under the Ministry of Finance. It is e body consisting of a chairman, member, officers, secretaries.

It has the power to declare and explain the scope of taxable goods and services,  to determine the rate of vat and quantum of vat, to direct the method and timing regarding the payment of vat, to declare any goods and services exempted from vat, to appoint officials and give necessary guidelines, to determine the time and procedure for registration of vat.

Commissioner, VAT:

The commissioner is appointed by the NBR and exercise the authority conferred him by law and the authority while controlling the sub-ordinates under his jurisdiction and territory. He has the power to determine and collection of vat, control the affairs between Joint and Additional Commissioner VAT, has the right to summon, to enter any place of production, guidelines regarding the use of stamp, and has the power to seize the forfeitable goods where the value of these goods exceeds Tk. 15 lacs.

Deputy commissioner, VAT:

Deputy Commissioner is also appointed by the NBR works under the supervision of Commissioner or Joint Commissioner and do the same work as the Commissioner can do but can seize the forfeitable goods where the value doesn't exceed not more than Tk. 5 lacs.

Superintendent, VAT:

This authority is also appointed by the NBR and works under the supervision of Assistant Commissioner, Vat. They are mainly engaged in VAT assessment,  recovery and other relevant activities and has the same power as the Deputy commissioner can do. they can seize the forfeitable goods where the value of these goods doesn't exceed not more than Tk.1 lac