Posted on 16th Oct 2024 10:41:06 PM Accounting
1. Introduction
Value Added Tax (VAT) is imposed on value added by a manufacturer of a firm or distributors. "Value added" for a firm is nothing but its gross receipts from sales minus all expenditure on goods and services purchased from other firms. In the production and distribution process a firm buys materials from other firms. These materials may include principal raw materials, auxiliary raw materials chemical, electricity and capital goods such as machinery, equipment, buildings, furniture, vehicles, etc.
2. Historical Perspective of VAT
As an indirect tax VAT belongs to the group of sales tax which include turnover tax and sales at different levels of production and distribution. In such a case the oldest tax of this type, a turnover tax was first introduced in 1342. The manufactures sales tax was introduced in Canada in 1923, the wholesale sales tax was introduced in Australia in 1930, the retail sales tax was introduced in USA at sale level in Mississipi in 1933.
3. Reasons For Introducing VAT in Bangladesh
Accepting the recommendations of the Bangladesh Tax Mission, the Government set forth the following goals for the VAT:
a) To do away with the cascading effects that happens because of taxation of inputs.
b) To generate more internal resources than that Excise Duties and Sales Tax used to provide.
c) To introduce VAT as the main vehicle for resource mobilization.
d) To adopt a flat rate of taxation on a broader base, covering a wide range of goods excepting the primary agricultural products.
All these are ideal and theoretical assumptions. However for national interest some countries exempt local producs from VAT. But in Bangladesh this is not done.
VAT has a unique in-built arrangement of self-regulation and self-monitoring in the ideal form. It also discourages tax evasion and smuggling.
As regards administration of VAT, Bangladesh VAT administration polices all through a Price declaration, accompanying invoice with the transport carrying commodity up to the destination, conditions on taking tax credit etc.
Contribution of VAT in Tax Revenue of Bangladesh:
Bangladesh is unable to mobilize enough resources for administration and development expenditure. Its Tax-GDP ratio is law not only compared to developed countries but also developing countries. Its. Tax-GDP & Revenue GDP ratio at present centre around 8-9 percent and 10-11 percent. In 1990-91 tax GDP & Revenue GDP ratio wats 7.89 percent which rose to 8.72% percent in the following of the Introduction of VAT.
4. What is VAT?
Value added tax refers to the tax applied on value added as per prescribed rate. In this connection let us refer to the definitions advanced by different authorities and authors:
a) The Oxford dictionary of Current English: Value added Tax means “a tax on the amount by which the value of an article has been increased at each stage of its production”.
b) D. K. Stout: Value added tax “is a multiple tax imposed at a flat rate upon the annual sales proceeds of a company less all its purchases from other business (i. e., excluding direct imports.)
5. Arguments For & Against VAT
Proponents of VAT give a number of arguments as to the merits of VAT. For example Evans, Taylor & Hozman listed the merits of VAT. Some of the important points are as follows:
a) It increases the cost of consumption, thus stimulating savings and investment.
b) The Government gets its money earlier, it doesn’t have to wait until after the final sale.
c) It is used to stimulate exports, the exporter gets a rebate for the tax paid. Further different authors and concerned authorities provide the following arguments in favour of VAT:
d) It opens up avenues for collection of more revenue for socio-economic development of a country.
6. Computation of VAT
There are different procedures of computing Vat depending on situation and methods. The important formulae for commutation depending on situation are shown below:
Formulae for Calculating VAT Under Different Methods
Under Tax Credit Method: VAT payable = Output VAT– Input VAT,
where, Output VAT = Output Value exclusive of VAT×VAT Rate,
Input VAT = Input Value exclusive of VAT×VAT Rate.
On the basis of Value Added:
VAT Payable = Vat Rate ×Value Added,
Where, Value Added = Output Value exclusive of VAT
- Input Vale exclusive of VAT
In this connection, it may be noted that in Bangladesh for computing Vat liability of a tax-payer, the tax credit methods is followed. In Bangladesh now VAT is imposed at import level, wholesale level and Retail level.
7. Some important Features of VAT in Bangladesh
An analysis of Vat Act and Rules reveals the following features :
1) It has been framed by incorporating sales tax on imported goods and excise duty on domestic produced goods.
2) It is charged at flat rate of 15% on taxable goods. But for certain sectors and goods and for annual turnover lower than Tk. 15 lakh turnover tax and supplementary duties at some other rates instead of VAT is charged.
3) Some good and services have been exempted from VAT such as :
a) Agricultural products of the country.
b) Utensils from aluminum and materials produced from cotton and synthetics.
c) Ball pen produces, Books binding enterprises.
d) Cottage industry where investment in machinery, factory and other related items do not Exceed Tk. 3 lakh.
8. Tax Base of VAT in Bangladesh
Tax base means the object with reference to which tax is charged and payable. In the Value Added Tax, 1991 the base of VAT is the output vale addition of the assessee for concerned item. Here however input tax is to be credited or adjusted. Input tax means value added tax paid by a registered assessee on inputs imported or purchased by him.
9. Goods & Services Subject to VAT in Bangladesh
According to the Section 3 of the VAT Act, VAT is imposed on the following goods and services:
a) All goods imported in Bangladesh except those mentioned in the First Schedule of the VAT Act.
b) All goods supplied except those goods mentioned in the First Schedule of the VAT Act;
Under section 3 of VAT following services come within the orbit of VAT:
a) Hotel and Restaurant – big and medium ones situated in metropolitan city or District head quarters.
b) Decorators – situated in metropolitan cit or District head quarters.
c) Motor garage workshop.
d) Construction firm.
e) Go down serving on commercial basis.
f) Advertising firm.
g) Telephone, Telex and Fax – serving on commercial basis.
10. Goods and Services Exempted from VAT
In the First Schedule, following goods are mentioned as exempted goods:
1. All goods as specified in the First Schedule of the Excises and Salt Act, 1944 (1 of 1944), in case of manufacturing or production there of in Bangladesh.
2. All goods as mentioned in the Second Schedule of the Narcotics Control Act, 1990 (Act No. 20 of 1990), in case of manufacturing or production there of in Bangladesh.
11. Types of VAT & Rate & the Scope of VAT Law
(A) Types & Rates:
There are three types of Vat in Bangladesh. Rates differ according to types. This can be shown as below :
Type
Who will pay
Rate
1. Value Added Tax
It will be paid by importers, manufactures & service provides i.e. VAT assessee, if the annual turnover is Tk. 24 lakh or more
15%
2. Turn over Tax
It will be paid by importers, manufactures or service provides if the annual turnover is less than Tk. 24 lakh.
4%
(B) Scope of VAT law:
The orbit of VAT, exemption, rate, assessment etc. are being governed by concerned Act, Rules, Regulations etc. as follows:
1. Vale Added Tax 1991
VAT Act, 1991 is the governing law which came into force on 1st July 1991. It has 73 sections and many sub-sections & clauses. It sets out orbit, assessment procedures, registration, accounts keeping, payment & collection, penalty, appeal etc. Its schedule gives list of goods & services subject to tax or exemptions.
2. Vale Added Tax Rules, 1991
NBR under the orbit of VAT Act, prepares & circulates relevant rules. This rules are important for VAT administration, required forms and accounts materials.
3. Finance Act
Finance Act is passed in the budget session of parliament each year. This act provides tax rate & make amendments where Govt. & Finance Ministry thinks fit. It is a yearly feature.
4. VAT Case laws
In case of any dispute between VAT authorities & Assesses, the matter may go to court. The court examines the Act, provisions, circumstances & give a verdict which then became binding and act as a source of law.
VAT in Bangladesh is a consumption type tax, the ultimate burden is borne by the consumer. It is however a multi-stage tax payment system where initially tax payers are as follows:
Situation
VAT Payers
(a) Goods imported
Importer
(b) Goods produced or manufactured in Bangladesh
Supplier at production or manufacturing level
(c) Rendering of services
Service-renderer
(C) Valuation of goods & services for charging VAT.
Valuation will be made under the following methods:
a) For imported Goods: VAT will be charged on the vlue which is determined under section 25 & 25A custom Act. For charging import duty, plus import duty, supplementary duty and other duty and taxes charged on the goods.
b) Supplier of Goods: Valuation will be made based on price charged by producer manufacturer of the goods plus taxes, duties and rates paid on the goods.
c) Provider of services: Price charged by the provider of
12. Registration/Enlistment under the Value Added Tax in Bangladesh
Registration/enlistment under VAT may be obligatory or voluntary. It may take the following three forms:
a) Value Added (VAT) Registration,
b) Enlistment for Turnover Tax (TT),
c) Enlistment as Cottage Industry-except those which are exempted.
A) Compulsory Registration (U/S 15 Rule-9) for VAT
Persons liable to compulsory registration are :.
a) Supplier of taxable goods (if annual turnover is at least. Tk. 20 lakh),
b) Provider of taxable services (if annual turnover is at least Tk. 20 lakh),
c) Importer of any goods, and
d) Exporter of any goods or services.
Besides Provider of following eight (8) services also need compulsory registration U/S 15:
a) Construction Firm (Code of Service S004.00),
b) Clearing and Forwarding Firm (Code of Service S015.20),
B) Voluntary Registration : U/S-17 & Rule 10 for VAT
a) Any person exempted from compulsory registration U/S 16 (person whose annual turnover is less than Tk. 20 lakh is exempted from compulsory registration) can be registered voluntarily as a supplier of goods or provider of services.
b) Any person being a seller, transfer or leaseholder of any goods manufacture/produced or imported in Bangladesh, or the person being a provider of service which are not listed in the Second Schedule can be registered voluntarily as a supplier of goods or provider of services [U/S 17 (2)].
C) Procedure of VAT Registration:
a) Application in Form VAT – 6 to specified VAT office within time limit set.:
b) One registration form one place. If provision of service or place is more than one, then separate form is to be filled up for each place of registration.
c) A statement of declaration as a supporting document under form VAT-7 as to place, plant, capital machinery, goods to be produced/produced & major inputs of goods.
d) He stops manufacturing or selling taxable goods,
e) Informs that traded goods have been exempted from VAT.
f) Fails to start business that was intended and
D) Exemption from Registration (Section 16):
a) Exemption from Compulsory Registration on the basis of Annual Turnover through General/Special Order :
Manufacturer/producer of taxable goods or provider of taxable services having annual turnover below Tk. 20 lakh.
b) Exemption for any Importer/Exporter from Registration through General/Special order :
1. Passenger bringing goods accompanied/unaccompanied from foreign countries through sea customs port, customs airport and land customs station;
E) Enlistment as a Cottage Industry:
A number of specified goods, if they are produced in cottage industry may be exempted from VAT. In such a case these concerned industry must be enlisted as cottage industry with VAT authority. Such goods must be included in First schedule of custom Act, 1969. Cottage industry for this section will mean.
13. VAT Administration
Lake all other taxes, the apex body a VAT administration is the National Board of Revenue (NBR). It appoints the following required VAT officers for a specified jurisdiction through Official Gazette Notification:
a) Commissioner, Value Added Tax;
b) Commissioner (Appeal), Value Added Tax;
c) Commissioner large unit – VAT
d) Director General – Audit & Inspection;
e) Director Duty Rebate, Drawback – VAT
f) Additional Commissioner, Value Added Tax;
g) Joint Commissioner, Value Added Tax;
h) Deputy Commissioner, Value Added Tax;
i) Assistant Commissioner, Value Added Tax;
14. Duties & Responsibilities of Vat Assesses
A VAT assesses needs to pay tax, maintains account and document properly. To this end his Duties and responsibilities are as follows:
a) To ascertain tax liability through Current Account at the time of supply of goods and deposit relevant tax to the exchequer.
b) To fill up and make entry in current account, purchase and sale account and transfer the relevant items in concerned books and documents periodically.
c) To deposit relevant books and account to tax authority in due time.
d) To keep in safe custody all accounts and books relevant to VAT at least for six years.
e) To produce relevant books and account to tax authority on demand.
15. Books of Accounts under VAT Act & Rules
A) Under section 31 of the VAT Act 1991, following books and records are required to be maintained by the VAT Assesses:
a) Statement of purchase of taxable or exempted goods or services together with the invoices for the goods or services;
b) Statement of taxable or exempted goods or services supplied or statement of such goods or services exported and copies of the related invoices;
c) Current Account;
d) Statement of money deposited in the treasury or in any approved bank of the Government for this purpose in payment of any Value Added Tax or Supplementary Duty through Chalan;
e) Statement of stocks of inputs and produced and manufactured goods; and
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