Business Taxation

Introduction Taxation one of the major sources of public revenue to meet a country‘s revenue and development expenditures with a view to accomplishing some economic and social objectives, such as redistribution of income, price stabilization and discouraging harmful consumption. It supplements other sources of public finance such as issuance of currency notes and coins, charging for public goods and services and borrowings. The term ‗tax‘ has been derived from the French word taxe and etymologically, the Latin word taxare is related to the term ‗tax‘, which means ‗to charge‘. Tax is ‗a contribution exacted by the state‘. It is a nonpenal but compulsory and unrequited transfer of resources from the private to the public sector, levied on the basis of predetermined criteria. Background of the Report This report entitled ―The practice of VAT in Bangladesh‖ is a fundamental requirement for the completion of the course Business Taxation (4201). The main purpose of this report is to extract the information of the Value Added Tax practiced in Bangladesh. Under the instruction and guidance of the course instructor Professor Dr. Dhiman K Chowdhury, we have taken the initiative to conduct the topic and prepare this report with much precision and by being completely unbiased. Objective The general objective of this report is to provide a synopsis of how Value Added Tax is practiced in our country and related consequences. It is also required for the completion of this course. Beside the general objective, the objectives behind this report are given below: Primary Objective: The primary objective of the report is:  To analyze on the issue ―The practice of VAT in Bangladesh‖.  To analyze and recommend on the mentioned issues. Secondary Objective: The secondary objective to prepare this report is: 1|Page  To fulfil the requirements of our course Business Taxation (4201).  To gather experience and knowledge of doing a professional report. Scope of the Study This assignment study will cover the topic ―The practice of VAT in Bangladesh‖ and its related issues. It also includes recommendations against the selected issues. This report can be used as a secondary source for further purposes. Sources of Information To fulfil the objective of this report collection of relevant, accurate, standardized and needful information was required. To make this report reliable we have collected data from secondary sources. Special consideration was given so that chances of biasness could not arise. The sources used were: Secondary Sources: Secondary data represents the data which are made by others but it is useful for another purpose or research. As a part of collecting data from secondary sources, we have referred different books of Tax and VAT. We collected our data from the magazine, news paper, libraries and also from the websites. Limitations No study is beyond any limitations. While doing this research study we had to face some difficulties. The limitations of the research activities are as follows—  We did not have so much experience for conducting research and preparing the report very frequently, though we are in learning position.  In depth interview some participants were unenthusiastic to provide enough information.  There was no current information related to Bangladesh on the Website.  There was lack of precise information; both primary and secondary.  There was not enough time to analyze the selected issues.  Our resources (such as, human resource, financial resource, etc) were limited. So it was hard for us to prepare a professional report with our limited resources. 2|Page Methodology This report covers the different aspects and activities that are required for the collection of VAT by the Govt. However, the report is prepared based upon the information collected from several persons and organizations who are involved in the relevant business like dealing with VAT able goods and services, the researcher‘s own judgments and also from the Internet. Some surveys have been conducted and some interviews were taken. The findings are strictly structured upon information provided by these sources and some secondary sources. The focus here is on presentation of facts as discovered. 3|Page Introduction Value Added Tax is emerging as an effective tool of taxation in the hands of Governments internationally. In fact more than 100 countries around the world have accepted this as a way of taxation on commercial activities. Our neighbouring countries like India, Bhutan, Nepal and Pakistan have already recognized VAT. Developed countries including Australia, United States, USSR, and UK have already introduced VAT successfully. The origin of Value Added Tax (VAT) can be traced as far back as the writings of F Von Siemens, who proposed it in 1918 as a substitute for the then newly established German turnover tax. Since then numerous economists have recommended it in different contexts. Also, various committees have examined the tax in great detail. However, for its rejuvenation, the tax owes much to Maurice Faure and Carl Shoup. The recent evolution of VAT can be considered as the most important fiscal innovation of the present century1. VAT was first introduced in France in 1954. With the imposition of Taxe sur la Valeur Adjoutee, France become the first European country to implement VAT on an extensive scale. It was not, however, at first a complete system of VAT, since it applied only to transactions entered into by manufacturers and wholesalers. It was supplemented by a separate tax on services (Tax sur les Prestations de Services). In addition, there were special excises (Taxes unique) which were levied on services and distribution in lieu of the taxes sur les presentations de services. Value Added Tax (VAT) Value Added Tax, or VAT, is levied on top of the cost of a product or service and generates revenue for a government. Value Added Tax, popularly known as ‗VAT‘, is a special type of indirect tax in which a sum of money is levied at a particular stage in the sale of a product or service. In 1954, the value added tax system was initiated by the then joint director of the tax authority of France, Maurice Laure. VAT came into effect for the first time on 10th April, 1954. From its inception, the value added tax system was imposed on all major sectors of a country. Once instituted, it was immediately clear that revenues collected from the VAT system constituted a substantial share of the government‘s revenue in the economy. Not 4|Page surprisingly, due to the ease of payment and ready comprehensibility, the value added tax system has been adopted by different nations across the world. Value Added Tax (VAT) a percentage tax on the value added of a commodity or service as each constituent stage of its production and distribution is completed. VAT may be classified in three ways: (1) On the basis of coverage of stages – throughout the production and distribution stages, or confined to limited stages – manufacturing plus wholesale, or wholesale plus retail; (2) On the basis of the method of calculation – tax credit method, subtraction method, and addition method; and (3) On the basis of tax treatment of final-product capital goods such as machinery, equipment, and supplies – the consumption form, the income form, and the product variety. Thus the three broad types of VAT are the gross national product (GNP) type, income type and consumption type. A consumption type VAT is an indirect tax. An income type or a GNP type VAT might be considered as a direct tax but a commodity tax cannot be considered so. Consumption type VAT is also considered as an alternative form of ‗sales tax‘. VAT is intended to be levied – or charged – whenever there is some value addition to raw material. The taxpayers on the other hand, will get credit for the amount of tax paid off at the stages of procurement. The value added tax system has proven to be effective in avoiding problems that normally might arise out of the double taxation of goods and services. The value added tax system is designed to address various problems associated with the conventional sales tax system. In sales tax, there is no provision for input tax credit, which means that the end consumer may pay tax on an input that has already been taxed previously. This is known as cascading and leads to increases consumer tax and price levels, which increases the rate of evasion and can be detrimental to economic growth. The value added tax system deals with these problems quite efficiently. As VAT is imposed on value addition – at every single stage – there is no incidence of cascading. In this way, the final consumers bear the burden of paying value added tax. This system involves absolute transparency at every stage of taxation, thereby making the tax system quite comprehensible and simple. 5|Page The value added tax system allows for input tax credit, or ITC, on the amount of tax levied at the preceding stage of the value addition chain. The allowance for ITC is normally appropriated from the value added tax liability imposed on the following stage of the sale of the product. VAT in Bangladesh The main components of indirect tax in Bangladesh are Value Added Tax (VAT), Supplementary Duty and Excise Duty. VAT is imposed on producer, manufacturer, importer, exporter or service render under the Value Added Tax Act, 1991, on goods or specified services, at the rate of 15% at every stage of transfer. VAT paid against the input is adjustable against the VAT on output to be collected from the buyers and the net sum stands payable on delivery of goods or specified services to the VAT authority. Exemption is allowed to certain goods or service or certain taxpayers. All cottage industries, except those producing particular products, are exempted from VAT. But, manufacturer, producer or service render (other than cottage entrepreneurs), whose annual turnover does not exceed Taka 1.5 million are required to pay Turnover Tax at the rate of 2.5 per cent in lieu of 15 per cent VAT. This limit is too low for small industries. As a result, small industries are subjected to the same 15 per cent VAT as their large-scale counterparts. In addition, supplementary duty is imposed at variable rates on certain categories of consumption goods across all size categories. Finally, excise duty applies to a limited number of items irrespective of size classification. National Board of Revenue (NBR): The Tax Central Collection Authority The National Board of Revenue (NBR) is the central authority for tax administration in Bangladesh. It was established by President‘s Order No. 76 of 1972. Administratively, it is under the Internal Resources Division (IRD) of the Ministry of Finance (MoF). MoF has 3 Divisions, headed by 3 permanent Secretaries to the Government, namely, the Finance Division the Internal Resources Division (IRD) and the Economic Relations Division (ERD). The Secretary, IRD is the ex-officio Chairman of NBR. NBR is responsible for formulation and continuous re-appraisal of tax-policies and tax-laws, negotiating tax treaties with foreign governments and participating in inter-ministerial 6|Page deliberations on economic issues having a bearing on fiscal policies and tax administration. The main responsibility of NBR is to collect domestic revenue primarily, Import Duties and Taxes, VAT and Income Tax for the government. Other responsibilities include administration of all matters related to taxes, duties and other revenue producing fees. Under the overall control of IRD, NBR administers the Excise, VAT, Customs and Income-Tax services consisting of 3434 officers of various grades and 10195 supporting staff positions (Approved set up as on 09 Feb., 2000 AD). National Board of Revenue (NBR) is the apex authority of the government responsible for collecting tax revenue, administering taxation administration and framing taxation policies and laws for the government. The main responsibility of NBR is to mobilize domestic resources through collection of Import Duties, VAT, Excise and Income Tax for the Government. NBR through its different taxation sources collects more than 95% of the tax revenue for the government. NBR was created by a Presidential Order in the year 1972 and placed under Internal Resource Division (IRD) of Ministry of Finance. Secretary of IRD acts as the Chairman of NBR. Four Members (top position of the hierarchy) of NBR from Direct Tax wing and four Members from Indirect taxation wing assist the chairman in executive, legislative and policy matters. Introduction of VAT in Bangladesh In April 1979, the Taxation Enquiry Commission (TEC) officially took up the issue of introducing VAT in Bangladesh as an alternate to sales tax. Until 1982, sales tax was being collected under the Sales Tax Act 1951, which was replaced by the Sales Tax Ordinance 1982 with effect from 1 July 1982. The World Bank played the pioneering role in introduction of VAT in Bangladesh. A World Bank Mission visited Bangladesh for preparing an agenda for tax reform in Bangladesh in December 1986. The mission submitted its final report on 15 October 1989. The report recommended the introduction of a manufacturing- cum-import stage VAT at a single standard rate within three years. Thereafter, a Bangladesh Tax Mission visited India, Indonesia, the Philippines and Thailand during 13 November – 04 December 1989. The Mission submitted its report in January 1990. The government discussed the issues relating to introduction of VAT with all related private and public 7|Page agencies including the various leading Chambers of Commerce and Industry from time to time. The government prepared the Value Added Tax Act 1990 (Draft) in June 1990. Final version of the Value Added Tax Act was promulgated 31 May 1991 as a Presidential Ordinance with eight sections (relating to registration under VAT system and the appointment and powers of VAT authorities). It was made effective from 2 June 1991. The Value Added Tax Bill 1991 was introduced in the Parliament on 1 July 1991 and the Parliament passed it on 9 July 1991. With the Presidential assent to the bill on the next day it came into effect as The Value Added Tax Act 1991. The VAT Act 1991 replaced the Business Turnover Tax Ordinance 1982 and the Sales Tax Ordinance 1982 with effect from 1 July 1991. It imposed VAT @ 15% on importer or supplier (producer) of taxable goods and provider of taxable services having annual turnover of Tk 1.5 million or more. It imposed Turnover Tax (TT) @ 2% (currently 4%) on supplier of taxable goods and provider of taxable services having annual turnover of less than Tk 1.5 million (Tk 2 million at present). The new law imposed VAT at zero-rate on export sales of any goods and services, brought excise duties on most goods under the VAT net, and imposed Supplementary Duty (SD) @ 10% to 85% on goods and services which are luxurious and non-essential and are socially undesirable. The objectives behind introducing VAT in Bangladesh were to-  Bring transparency in the taxation system;  Prohibit cascading taxation at different stages of production;  Consolidate the tax administration;  Activate the overall economy by mobilizing more internal resources; and  Bring a consistency in the tax-GDP ratio. VAT introduced in Bangladesh in its initial form was a sort of consumption tax (by allowing purchase of capital goods as input), which extended its coverage up to the level of import, production or manufacture and service-rendering but not to export (which is zero-rated), wholesale or retail level. Since the financial year 1996-97, VAT in Bangladesh has become a broad-based consumption expenditure tax by covering the wholesale and retail levels. VAT is imposed on the following goods and services: all goods imported in Bangladesh except those mentioned in the First Schedule of the VAT Act; all goods supplied except those mentioned 8|Page in the First Schedule of the VAT Act; and all services provided in Bangladesh except those mentioned in the Second Schedule of the VAT Act. The standard tax rate for VAT has been fixed all along at 15% (for taxable goods and services). The adoption of truncated value-bases caused multiplicity of practical tax rates, but VAT rate is a single, flat or uniform one. The rate of turnover tax (TT) is also uniform at 4% (2% up to 11 June 1997). But the rates of supplementary duty (SD) are multiple. At the beginning (FY 1991-92), there were five different rates which ranged from 10% to 85%. Next rates were eleven in number and ranged from 5% to 350%. For FY 2000-01, there are 31 different rates that ranged from 2.5% as on coffee to 350% as on cigarettes. The computation of actual value-addition requires detailed recording of payments for goods/services bought, which is not properly done in Bangladesh. To ease the administrative steps for taxation of services, in specified cases, a ‗truncated value-base‘ was fixed with the option of waiving ‗input tax credit‘. Under the VAT system, tax points depend on the stage of production and distribution. For goods imported by any importer, VAT is to be paid at the time of paying import duty under the Customs Act 1969. For goods produced or manufactured or imported, purchased, acquired, or otherwise collected by any registered persons in the course of business operation or expansion, VAT is to be paid at the time of one of the following activities whichever occurs first:  when the goods are delivered or supplied;  when an invoice relating to the supply of goods is given;  When any goods are used personally or given for use to another person; and  When the price is received in part or full. For services rendered by any registered persons in the course of business operation or expansion, VAT is to be paid at the time of one of the following activities whichever occurs first:  When the services are rendered;  When an invoice relating to the rendering of service is given; and  When the price is received in part or full. For goods or class of goods for which the NBR has ordered through the official Gazette notification to use stamp or banderole or 9|Page  special sign or mark having security system of specified value on package or carrier or container of the goods, VAT is to be considered as paid equivalent to the value of the stamp or banderole or special sign or mark used. For services rendered by construction firms, indenting firms, travel agencies, motor garages and workshops, and dockyards and other services determined by the official Gazette notification, VAT is to be paid as withholding tax and VAT is collected, deducted and deposited by the receiver of the services or the persons paying the price or commission as the case may be. For any other goods and class of goods or services, VAT is to be paid at the time as indicated in the NBR rule. Taxation remains a poor tool of government revenue collection in Bangladesh. Taxes to GDP (gross domestic ratio) ratios are usually not high in South Asia. But in case of Bangladesh the figure is alarmingly low – only a little higher than 9%, while the average for South Asian countries is 11%, the developing countries more than 15%, the industrialized countries 30%, and high income countries 24%. The introduction of VAT contributed significantly to raise the tax revenue collection in Bangladesh. The joint contribution of sales tax and excise duty to in the increase of total tax was Tk 696.9 million (28.8% of total increase) in 1979-80 and Tk 3.9 billion (44.8% of total increase) in 1989-90. In absolute volume, the annual increase in revenue from VAT and excise duty is more than the previous annual increase in revenue from sales tax and excise duty. However, in relative term, the share of sales tax and excise duty in total tax in the 1980s was almost similar to the share of VAT and excise duties in that under the VAT regime. The share of VAT as a per cent of different indicators (internal trade tax, external trade tax, indirect tax, total tax, total GDP and non-agricultural GDP) has usually an increasing trend and the shares are significant. On an average, around 75% of total tax come from indirect taxes, and more than a half of the indirect taxes is collected in the form of VAT. The scope of VAT mainly covers the ‗non-agricultural sector‘ but with a standard tax rate of 15% the share of VAT as a percent of ‗non-agricultural GDP‘ is only 3% to 4%. VAT was introduced in Bangladesh as a consumption tax and allowed the full deduction of ‗machinery‘ as an input from the ‗output value‘ (sale proceeds of taxable goods and services) to compute the tax-base (i.e., value added). Although the initial coverage was up to import and production stages, the VAT-net is now expanded to wholesale and retail stages. Initially, the number of VAT taxable services were 25 (under 21 Heading numbers), but now the 10 | P a g e number is theoretically unlimited, although for practical purposes this number is kept limited to 70 services under 57 heading numbers for which the scope is defined. Goods other than primary unprocessed agricultural products and food items listed in the First Schedule of the VAT Act (live animals or poultry, human or animal hair, parts of animal body or animal products, parts of plant, green or dried vegetables, fruits, unprocessed spices, food items, oil seeds, natural gums or like products, wood, uncared wool or cotton, and raw jute, etc) are subject to VAT. Thus almost the whole economy falls under the VAT-net and as a consumption tax, VAT is supposed to streamline the economic activities with corrective measures by applying supplementary duty. 11 | P a g e Definition of Value Added Tax VAT is a tax, which is charged on the ―increase in value‖ of goods and services at each stage of production and circulation. It is levied on the added value that results from each exchange. It is also chargeable on the value of all imported goods. It differs from the sales tax because the sales tax is levied on the total value of the exchange. VAT is simplified and transparent system of tax in which tax is levied on the value additions, at each stage in the production distribution with provision of set-off of tax paid on earlier stage. VAT & its necessity VAT is a multi-point tax system but without the effect of double taxation. Tax is chargeable at rate prescribed at each point of sale. In Valued Added Taxation system, the tax is calculated at different points of production and distribution of a commodity. It is collected in instalment on the basis of value added at each point of production and distribution. Since an input is taxed only once VAT avoids the cascading effect, which is the chief demirt of a generalized system of taxation i.e. excise and sales tax. There are several objectives associated with VAT, foremost being its revenue raising quality, due to inclusion of items such as wages, interest, profits etc. in its base. It shall also bring in more discipline in the indirect tax regime. It is also imperative that VAT will take care of the demerits of the existing system. Characteristics of VAT in Bangladesh (1) A single stage VAT for import cum manufacturing. (2) A uniform rate of 15 per cent is applicable for both goods & services. (3) VAT for whole sellers/retailers is compulsory (for selected items). (4) VAT is applicable for all items (except some of the unprocessed agricultural products) & thirty five listed services. (5) Exports are zero rated. (6) VAT is leviable at the time of supply of goods and services. (7) Turnover tax @ 2 per cent is leviable where turnover amount is less than 1.5 million taka. (8) Cottage industries are exempt from VAT. (9) Tax paid on inputs are creditable against output tax. 12 | P a g e (10) Tax returns are to be submitted on monthly or quarterly basis. (11) Luxurious and socially undesirable goods are subject to supplementary duties at different rates ranging from 5 per cent to 350 per cent. Cigarettes, natural gas and petroleum products which were the major sources of excise duties, initially were kept beyond VAT net work. In 1992-93 these items were brought under VAT. It may be mentioned that at present manually made cigarettes (known as Biri), part of textile items & services rendered by commercial banks are still under excise system. Bangladesh Value Added Tax Law Rules and regulation enacted in the following laws are taken into consideration to impose Value added Tax on goods and services; (1) Value Added Tax Act 1991: The Value Added Tax Act 1991 (22 no Act of 1991) came into force on 1st July 1991. It has 73 sections, numerous subsections, and three schedules containing the necessary provisions for the purpose of imposing Value Added Tax. (2) Value Added Tax Rules 1991: The National Board of Revenue prepared the relevant rules under the name ―Value Added Tax Rules, 1991‖. The rules are followed in the administration of the VAT Act. (3) Finance Act: To give effect to the various proposals in the annual budget covering the areas of direct and indirect taxes, Finance Act is issued. It contains various applicable tax rates and amendments to the Value Added Tax Act & Rules 1991. (4) SRO (Statutory Regulatory Orders): According to the section 21 of the Value Added Tax Act 1991, NBR can issue certain circular as and when necessary. The provisions of these SROs are also to be considered as the time of imposing VAT. (5) VAT Case Law: In the course of assessment proceeding, the judgement given by the courts regarding the interpretations of any provisions of the VAT Act may also act as guidance to the assessing officers and the assessee in similar relevant circumstances. 13 | P a g e Benefits of VATs The VAT avoids most of the negative features of the sales tax and excise taxes. It removes cascading, allowing the tax content of any product to be known with greater degree of certainty and thus leading to better resource allocation decisions as the investment decisions can be taken independent of the tax policies. The self policing and cross checking properties of VAT as well as its collection in stages, leave less incentive for evasion. There is no frequent change in tax policies allowing investors to operate in a certain and stable tax environment. VAT simplifies tax administration and increases efficiency in resource allocation. Value Added Tax (VAT) Wing Value Added Tax (VAT) was first introduced in Bangladesh in the year 1991 by partially replacing the Excise Duty and wholly the sales tax at the import stage. In Bangladesh, only a single rate of VAT 15% is prevailing. However in some cases base value for VAT is truncated. VAT Administration VAT administration is one of the three wings of National Board of Revenue (NBR). Under the direct supervision and control of the Chairman NBR, Member (VAT) of NBR works as the head of operational and administrative activities of VAT administration. At present there are eight VAT Commissionerates all over Bangladesh each headed by a Commissioner of VAT. The Commissionerates are Dhaka (south), Dhaka (North), Rajshahi, Jessore, Khulna, Sylhet Chittagong, and VAT Large Taxpayers‘ Unit (LTU). Each VAT Commissionerates has five to eight divisions which are headed by Divisional Officers who may be Deputy Commissioners or Assistant Commissioners. Under each VAT Division there are two to five circles which are headed by Superintendents. These circles are the basic building block of VAT administration. However, the head of each VAT division plays the most significant role for VAT collection and administration in the field level. Commissioners, Additional Commissioners, Joint Commissioners usually monitor and supervise the functions of VAT circles. 14 | P a g e VAT Mechanism VAT system in Bangladesh operates under the legal framework of Value Added Tax Act 1991 and Value Added Tax Rules 1991 made under Value Added Tax Act 1991. As per VAT Act at a flat rate of 15% is chargeable on all goods and services imported in Bangladesh and on all goods and services produced in Bangladesh at every stage when the title of the goods and services of the concerned transaction is transferred. However there is exception for certain the goods and services listed in the first schedule and second schedule of VAT act 1991 respectively. The exempted items are basic agricultural products, live animals and animal products, education, books, magazines, newspapers, postal services and passengers and goods transportation services etc. Contribution of VAT in Bangladesh The concept of Value Added Tax has been introduced in Bangladesh in 1991 replacing the outdated excise and sales tax regime. This shift was motivated by the argument that VAT had higher revenue potentials and that its collections and administration are more economic, efficient and expedient. Despite having various limitations in the adoption process, VAT has become the single largest source of government revenue exceeding customs. The following table will show the clear picture of VATs contribution in Bangladesh economy (Crore Taka): particulars 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2005 2006 2007 2008 2009 2010 2011 2012 2013 Tax GDP 8.6 8.7 8.3 8.8 9.0 9.2 9.9 10.5 11.3 Ratio Total 39200 44868 49472 60539 69180 79484 95188 114885 139670 Revenue Total Tax 31950 36175 39247 48012 55526 63956 79052 96285 116824 Revenue Value 10605 12398 13683 17013 20116 22795 28274 34304 40466 Added Tax %of VAT 33.19 34.27 34.86 35.43 36.23 35.64 35.77 35.63 34.64 15 | P a g e to total revenue Customs 8000 8235 8279 9300 9570 10430 10915 12664 14568 Duty % of 25.04 22.76 21.09 19.37 17.24 16.31 13.81 13.15 12.47 Customs Duty to total revenue Income 5850 6960 8924 11005 13538 16560 22105 28061 35300 Tax % of 18.31 19.24 22.74 22.92 24.38 25.89 27.97 29.14 30.22 Income Tax to total revenue Tax Base for VAT (1) Import Stage: Customs Assessable Value + Customs duty + Supplementary Duty (2) Domestic/Local Stage: a) Goods (manufacturing): [Production cost + Profit and Commission (if any) + Supplementary duty (if any)] 16 | P a g e  b) Services: [total receipts excluding VAT but including supplementary duty (if any)] Truncated Base / Fixed Value Addition: In some of the cases of goods and services producers and sellers face difficulties in availing VAT credit/adjustment facilities due to non availability of invoices from the sellers of input. In order to remove this operational difficulty fixed bases such as 10%, 25%, 30%, and 60% value addition is taken into account for calculation of VAT for a number of goods and services. In such circumstances net VAT rate for different rates of value addition comes to 1.5%, 2.25%, 4.5% and 9%. VAT at the wholesale and retail stage: In case of wholesalers and retailers, there is a special provision for a 1.5% percent VAT known as Trade VAT on the total sale, provided that the wholesaler/retailer do not avail the facility of input credit/adjustment. Such tax is also collected at the import stage from importers of finished goods as an advance trade VAT. Tariff Value for imposition of VAT: Under the VAT Law, the government is empowered to fix Tariff Value for some items for the collection of VAT. Example: tariff value for mild- steel products produced from imported/locally procured re-rollable scraps is TK 4000.00 per MT. Normal VAT input credit is also not available under this system. Deduction of VAT at source: As deduction at source is also practiced in case of VAT on certain services, Government, Semi-Government, Autonomous Bodies, NGOs, Banks, Insurance Companies and Limited Companies are authorized by the government to deduct applicable VAT on the services at source. Excise Duty: At present excise duty applies to only two items: bank deposits and domestic air ticket (Tk. 250 per journey). 17 | P a g e Registration for Value Added Tax Procedure for the registration of VAT: For the ease of administrating all procedure or suppliers of vatable goods or services or traders or importers of goods or exporters of goods or services shall have to be registered with the concerned divisional VAT office. The office allocates a particular number to each of the procedures, suppliers, importers or exporters or traders to identify as a VAT payer and this is registration. The certificate in which it is communicated (Mushak-8) is called registration certificate.  Compulsory Registration: Concerned divisional VAT office can register and inform a person under section 15(4), when he does not apply for registration though required by law to do so. He shall be deemed to be registered from the day condition for his registration becomes apparent. In orther words, he would be liable to pay output VAT after allowable adjustment of input tax not from the day of actual registration, but from the day he fulfills the condition for compulsory registration. Importers or exporters of any goods (other than listed for turnover tax and within the scope of cottage industry) producers, traders and suppliers of vatable goods or services must be registered as a compulsory requirement. Only one registration is necessary when more than one taxable goods are supplied or services provided or imported or exported from the place of production of vatable goods or supply of services.  Self- Registration For producers or suppliers of vatable goods or services with annual turnover below Tk. 20 lacs, and for those within the scope of cottage industry, registration is not a lawful requirement. Even then some of them want to register, they can and this is called self- registration. 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. 18 | P a g e Requirement for Registration Application in form ‗Mushak-6‘ shall have to be filed with concerned divisional VAT officer for registration, Name and address of the organization, taxpayers class, name of goods produced or procured, trade license No., TIN, if available IRC / ERC No. (where applicable) shall have t be mentioned in the application. Following documents shall be enclosed with the application:-  Trade licence  Tax Identification Number (TIN) certificate  IRC/ ERC certificate ( If any)  List of all related selling centres in case of central registration  Declaration in form-7 about the production or business premises, plant, machineries, fittings, finishes or tradable goods, stocks or inputs. Necessity of Registration When the annual turnover or sale of producer or trader of vatable goods or supplier of vatable services exceeds Tk. 20 lacs registration is a legal necessity. Turnover of any person, registered under turnover tax, when exceeds in any continuous 12 months Tk. 20 lac, he shall have to apply to the divisional VAT officer for registration within 30 days after the end of the tax period. In the case of a person carrying on his business where VAT has been newly imposed, he shall be required to be registered from the day of such imposition. The payment procedure of the Value Added Tax (VAT) The timing of the payment of VAT on goods and services as per section-6: 1. VAT on imported goods shall be paid at the same time and in the same manners as import duty is paid according to the customs act. 2. VAT on goods shall be paid at the time of the following activities, whichever happens first; 19 | P a g e   At the time of goods delivery or supply.  At the time of the issuance of the invoice  When goods are taken for the personal use or at the time of supplying for the use of other persons  When any part of the full payment is received. 3. VAT is payable on services at the time of one of the following activities, whichever happens first;  At the time of the rendering the services.  At the time of the issuance of the invoice  At the time of part or full payment. 4. VAT on imported service shall be paid at the rate in force of the payment of services. Necessary information in the certificate of VAT deduction or collection as per section 4 (B): 1. The registration number of Value Added Tax payers. 2. The total cost or commission paid for service received 3. Value Added Tax imposable on the cost or commission paid for services 4. Value Added Tax collected or deducted 5. Any other information required by the rules. The penalty for the Value Added Tax (VAT) The penalties applicable for the failure to deduct collect and deposit VAT: If the person paying the service cost or commission fails to collect, deduct or deposit VAT then; 1. VAT will be collected with 2% interest per month from him/her as he/she was a service provider. 2. VAT collected, deducted and deposited as per section-4 (AA) shall be considered as VAT paid under the provisions of this ACT on behalf of the concerned service provider and may subject to the validity of the certificate issued under the section 4 (B) be shown in the return of the concerned service provider. 20 | P a g e  3. If the deducted VAT has not been deposited within two (2) months from the date of deduction, the commissioner may impose a penalty not exceeding taka 25000 to the person responsible for the collection or deduction, the person responsible for deposit and the Chief Executive Officer (CEO) of the organization. 21 | P a g e Example for the calculation of VAT VAT payable on importation of a brand new 1649 cc car on 5th June 2012: Particulars Taka 1. C & F Value as per Bill of Entry US $15000.00 2. Value in Taka (If US$ = TK80) Taka 12,00,000.00 3. Add Insurance @1% of C&F Value Taka 12,000.00 or Actual 4. Add Landing Charge@1% of Taka Taka 12,120.00 12,12,000.00 5. Assessable Value (2+3+4) Taka 12,24,120.00 6. Customs Duty@ 37.5% on Taka 459,045.00 Assessable Value 7. Duty Paid Value ( 5+6) Taka 1,683,165.00 8. Supplementary Duty @ 65% of Taka 1,094,057.25 Duty Paid Value 9. Total Taxed Value Taka 2,777,222.25 10. VAT @15% of Total Taxed Value Taka 4,16,583.00 Total VAT Payable = Taka 4, 16,583.00 22 | P a g e Conclusion However, some of the states are still attempting to push forward the deadline as this will allow all states to effect the transition to VAT at the same time. This will also provide some more time to the central government to amend central sales tax act, bring legislative changes for implementation, taxation of services at state level and settlement of procedure for compensation to states on account of losses in revenue collection due to implementation of VAT. The delay would also give the states more time to put administrative arrangement into place and training employees for the new system. Clearly, there is a need to popularize the scheme of VAT through persuasion, allaying the genuine fears of all the parties. New regime will be theoretically superior to the existing regime known to all. If effectively implemented, it will ensure greater transparency. It will also have the great merit of being simpler to monitor. Even from the revenue angle, it should increase the revenue in the hands of the State Governments. 23 | P a g e Reference 1. www.nbr-bd.org/valueaddedtax.html 2. www.customsacademy.org 3. bdtaxsolutions.com/pdf/vat_act/vat_act_english_version.pdf 4. wikipedia.org/wiki/Taxation_in_Bangladesh 5. www.cpdbd.com/.../application-of-value-added-tax-vat-in-bangladesh 24 | P a g e