VAT (Value Added Service) in Bangladesh
Suppose, you have just bought your favorite pack of Biscuit from a superstore, or you had a great meal at your favorite restaurant while paying the bill, you see “Included VAT” on the packet and additional charge named “VAT” in the bill slip. You might wonder, “what is this ‘VAT’ and why am I paying more money?” Value Added Tax (VAT) is an Indirect Tax that a consumer pays through a registered individual/organization. VAT on a specific product is determined by calculating how much value is added on different steps of the supply chain. That means, when a product is made from scratch, value is added on different steps and for these additional values, the incumbent has to give the government a small charge.
For instance, the biscuits you just bought started its journey from a wheat field. Suppose, someone bought that wheat for 10tk and processed them to get flour and sold the flour for 15 tk, adding a value of 5tk in the process. So he had to pay 0.75tk as VAT(15% of 5tk) to the government. The manufacturer bought the flour and added sugar and milk worth 10 tk and transformed them into biscuits. The manufacturer sold the biscuits for 40 tk, therefore, it created an additional value of 25tk. He had to pay the government 3.75tk as VAT. After packaging, he sold the pack of biscuits to the wholesaler from whom you bought the Biscuit pack. He charged 9 tk for the utility provided and added value for which he has to pay 1.35tk VAT. As the end-user, you will pay 51.35 tk for the pack of biscuits. In this process, whenever the value is added, tax is charged and you, as the end-user, paid the whole amount of Value Added Tax or VAT.
In 1991, VAT was introduced in Bangladesh for the first time instead of sales tax. In 2012, a new law: Value Added Tax and Supplementary Duty Act 2012 was legislated, and to implement that, Value Added Tax and Supplementary Rule 2016 was enacted. The law was implemented on July 1, 2019. The National Board of Revenue of the Ministry of Finance plays an authoritarian role in administering the VAT rules and regulations. In Bangladesh, the standard rate of VAT is 15%.
NBR Policy for VAT and VAT Software
In Bangladesh, the VAT registration threshold of annual turnover is BDT 30 Million. If the annual turnover of a company is below 5 Million TK, it does not have to enroll or register for VAT. If the turnover is between 5 Million and 30 Million, the company has to enroll in a Turnover Tax. For turnover of 30 Million or over, Companies have to register for VAT at NBR.
NBR has made it mandatory for big companies having annual turnover or sales of Tk 50 Million or more to use specialized software designated by the NBR to maintain records of sales and other transactions involving value-added tax. Companies need to procure the software from the selected firms or upgrade their own software according to the NBR-approved specifications.
Companies are testing VAT software and its features and considering using it. Soon we can expect that all the businesses will convert into full-fledged VAT Software to carry out their VAT related records and reports.
Contributor: Tanvir Ahmad