Flash book of VAT

A Flash Book of VAT 1

Prashanta Shaha | KPMG (RRH), 13th

Batch, AIS, University of Dhaka

A FLASH BOOK OF VAT




Preamble

Typically, VAT is a menace to the producers, manufacturers and suppliers. When the question of

amendment of VAT Act arises, everybody gets into panic. Previously in the year 2011, NBR announced

the revision of the VAT Act and posted a draft of the proposed VAT Act 2012 on the website and sought

opinion from the public at large as well as from the business community. However, later the government

engaged a committee to revise the Act as per requirement of the users particularly through simplifying the

language for easier understanding of the provisions.

Recently, the government has declared to pass the amended VAT Act 2013 by the parliament as the NBR

has finalized all necessary amendments following recommendation of the International Monetary Fund. A

copy of the Draft VAT Act, 2013 has been circulated to the different Institutions and organization. It is

proposed that this new VAT law will be effective from July 1, 2015 but it will be finalized this year in the

next budget session of 2013-2014.

Prashanta Shaha, BBA,MBA

KPMG (Rahman Rahman Huq)

Articled Student

(13th

Batch, AIS)

University of Dhaka




What is VAT?

Value Added Tax or VAT is an indirect consumption tax which is paid by consumer. A consumption tax

which is levied at each stage of production-supply chain. As per principle, VAT is imposed at each stage

of production-supply chain based on the value added to the product at that stage. From the perspective of

the buyer, it is a tax on the purchase price.

What is the VAT rate in Bangladesh

Standard Rate of VAT in Bangladesh is 15%. Other than Standard Rate there are some truncated value

based preferential rates on some services. At present (FY2011-12), following preferential rates are

applicable by Statutory Rules and Order 1.5%, 2.25%, 3%, 4%, 4.5%, 5.0025%, 5.5%, 6%.

History of VAT

Mr. Vaughn Simens, German Businessmen, thought about VAT in 1920

France Introduced VAT in 1954

Bangladesh Introduced VAT in 1991. Within South Asia Pakistan introduced VAT in 1990

Highest rate of VAT is in Sweden, Norway, Denmark (25%)

Variants of Value Added Tax

There are 3 variants of VAT such as:

Gross product variant

Income type variant

Consumption type variant

In Bangladesh and most of the countries use the consumption type variant. These are two types generally

such as:

Additive method

Subtractive method

Example: Value Added = Output - Input [subtractive method]

= Wages+ rent+ interest + profit [additive method]

So finally in Bangladesh the Indirect subtractive method or Invoice method is used.

Formula: VAT= (t x output) – (t x input)

Who Pay VAT?

The end consumer ultimately pays VAT.




Source of VAT Rules and Regulations

VAT Act 1991

73 Sections

3 Schedules

VAT Rules 1991

43 Rules

29 Forms

Finance Act/Ordinance

SRO

Definitions

Output Tax: Output tax means VAT imposed under VAT ACT 1991

Input: Goods and/or services used to produce VATable goods except labour, land, building,

office equipment & vehicle

Input Tax: Input tax means VAT payable or paid by a registered person on import or purchase

from another registered person.

Tax Period: Tax period is one month.

VATable goods: All goods except Sch-1 (P 549)

VATable service: All services except Sch-2 (P 549)

Account Current: VAT-18

Return: VAT 19

Challan: VAT 11

Turnover: Turnover means total amount received or receivable during a particular period for

supply of taxable goods or services.

Zero Rated Goods or Services: These are goods or services exported or deemed to be exported or

foodstuff on which no VAT or supplementary duty (SD) is payable.

Commercial importer: no change in shape and design of the product

Commercial documents: documents used for commercial transaction purpose.

Who Collect VAT

The `Person’ who supply goods or service to a `consumer’ are responsible to collect VAT with

value of that supply from the consumer and liable to deposit to the Treasury.

The `Person’ who supply goods or service to a `consumer’ are responsible to collect VAT with

value of that supply from the consumer and liable to deposit to the Treasury.

Who is the beneficiary

The money collected from people as VAT are used in Development activities of the country. The People

of the country. So the final beneficiary are the`People’ of the country.




How and whom VAT is imposed

VAT is imposed @ 15% on the value of all taxable goods and services excepting those mentioned in 1st

and 2nd schedule of VAT Act. Goods or services exported or deemed to be exported are taxable @ 0%.

VAT is imposed on the following persons:

Importers of goods or services

Manufacturers or producers

Service providers

In case of importer if service, the importer

Suppliers of goods/service providers

How Does Vat works ?

Figure: How does Vat works ?




How to start with VAT

An entrepreneur has to know the following matters before starting business:

Is his business VAT Exempt;

If not exempted, is the business under compulsory VAT registration without considering

registration threshold;

Is the yearly turnover equal or above Tk. 6 million;

If the answers of no. `2’ & `3’ are YES, the he needs to be registered under VAT;

If the answers of no. `2’ & `3’ are NO, the he needs to be enlisted for Turnover Tax;

He has to apply in VAT Form-6 [Link to: Mushak-6 form] to the concern Division Office for

VAT registration;

He has to start business after getting VAT registration.

What is the way of getting VAT registration?

At first, collect VAT Form -6 [Link to: Mushak-6 form].

After filling the form properly, you have to submit it to the concern Division Office [Link to:

Address of Divisional offices from the eVAT software] along with necessary documents.

You can apply Online [Link to: Online registration link] for VAT registration.

After getting correct application, Divisional Officer will issue a VAT Registration Certificate in

VAT Form-8 [Link to: Mushak-8 form]having a Business Identification Number (BIN).

What documents are needed for VAT registration?

The following documents are required to get a VAT registration:

Application in VAT Form - 6 [Link to: Mushak-6 form]

Up-to-date Trade License

2 Copy photographs of applicant

TIN Certificate

National ID of all directors/partners/ proprietor

Certificate of Bank Accounts

Import Registration Certificate (IRC) for importer

Export Registration Certificate (ERC) for exporter

Declaration in VAT Form – 7 [Link to: Mushak-7 form]

Lay-out plan of the area

Ownership/rental dead of the area

Authorization letter of authorized signatory

Article of Memorandum and Article of Association for the Company

Contract of partnership for partnership business

List of all branches including address for Central Registration.




Who are VAT Payees?

VAT Payees [Link to: section 3(3)] are-

Importer at import stage

Manufacturer or supplier at manufacturing stage

Service renderer in case of service

Service receiver in case of service import

Supplier and Service receiver in other cases.

VAT invoice

Registered Person will use one of the following VAT invoices depending on his business nature:

VAT – 11 [Link to: Mushak-11 form] : This form is the main sales invoice. All businesses can

use this form. Only this form is used as dependable invoice for VAT credit.

VAT – 11ka [Link to: Mushak-11ka form] : This invoice is used to supply goods and service to

end user. This invoice is not used for Credit.

VAT – 11ga [Link to: Mushak-11ga Form] : This invoice is used for sending raw materials from

the owner of goods to the contract manufacturer.

VAT – 11gha [Link to: Mushak-11gha form] : The law advisor, immigration advisor, coaching

center, English medium school, private medical and engineering college [Link to: Mushak SRO

598] use this form.

Economic Code for depositing VAT

Payment of Value Added Tax, Supplementary Duty, Turnover Tax and Excise Duty in domestic stage

should be done in the following Economic Code:

VAT on goods at domestic stage 1/1133/0000*/0311

Supplementary Duty on goods at domestic stage 1/1133/0000*/0711

Supplementary Duty on services at domestic stage 1/1133/0000*/0721

Turnover Tax 1/1133/0000*/0313

Excise Duty 1/1133/0000*/0601

Four digit Office code should be written in * marked level. The office code of the concern VAT

Commissionerate under which taxpayer is registered (other than LTU) should be used. The taxpayers

running under LTU should use LTU Code. Office codes are: # Customs, Excise & VAT

Commissionerate, Khulna: 0001 # Customs, Excise & VAT Commissionerate, h‡kvi 0005 # Large

Taxpayer Unit – VAT: 0006 # Customs, Excise & VAT Commissionerate, Dhaka (South): 0010 #

Customs, Excise & VAT Commissionerate, Dhaka (North): 0015 # Customs, Excise & VAT

Commissionerate, Sylhet: 0018 # Customs, Excise & VAT Commissionerate, Rajshahi: 0020 # Customs,

Excise & VAT Commissionerate, Chittagong: 0025 # Customs, Excise & VAT Commissionerate, Dhaka

(East): 0030 # Customs, Excise & VAT Commissionerate, Dhaka (West): 0035 # Customs, Excise &

VAT Commissionerate, Comilla: 0040 # Customs, Excise & VAT Commissionerate, Rangpur: 0045

Time & mode of payment of VAT




In case of imported goods, time and method of payment of VAT will be the

same as customs duty.

In case of goods manufactured, produced, imported, purchased or collected

VAT will be payable at the time of the following which occurs first:

When goods are delivered/supplied.

When challan is issued.

When taken for use.

Payment is received in full or part.

In case of services, VAT will be payable at the time of the following which

occurs first:

When service is provided

When invoice relating to service is provided.

Payment is received in full or part.

Payment against import of service

Price Declaration

2 copies VAT 1 to concerned divisional office (DO)

VAT payable and delivery from the date of declaration [ rule 3(1)]

VAT 1 need to be submitted if there is change in previous declared price

If the DO has any objection, this must be done within 15 working days of submission of price

declaration, otherwise VAT 1 is deemed to be approved [rule 3 (3)]

VAT is payable as per the approval given by the divisional office

The company can appeal to the concerend Commissioner within 30 working days of receiving the

approval from DO. [rule 3(7)]

The commissioner must complete the decision of the appeal within 15 working days after giving

the assessee an opportunity of being heard. rule 3(7)]

Types of price declaration:

• General price declaration

• Price declaration on the basis of retail price (SRO 388)

• Price declaration on the basis of MRP

• Price declaration on the basis of unique price

• Tender price

• Medicine

• Contractual price

• Tariff price

• Price declaration for trading price

• Services (General order no 06/Mushak/2012 dated 7 June 2012)

Debit note

• Shall issue Debit Note if less VAT shown in VAT Challan

• Shall use "Form VAT - 12KA" as Debit Note.

• Shall, deposit the Debit Note within next working day to the relevant Circle Revenue Officer

• Shall adjust the consequences in the current, account and other return




Credit Note

Circumstances of Issuance of Credit Note:

• Cancellation of Challan for any reason

• Sales Return - Partial or Full Quantity

• Changes in supplied goods or services

• Excess VAT shown in VAT Challan

• Shall use "Form VAT - 12" as credit note.

• Shall deposit the Credit Note within next working day to the relevant Circle Revenue Officer.

• Shall adjust the consequences in the current account and other return.

Exception-

Credit note shall not be issued under the following circumstances:

• If the goods return after 30 days of delivery.

• If the goods return due to bad quality

Time for submission of VAT Return

Every manufacturer or producer or trader of taxable goods and service shall submit his return of a

particular tax period within 15th day of the month following the tax period in the prescribed form and

manner, stating his tax liability thereon. In case of insurance companies, return is to be submitted within

20th day of the month following the tax period.

Disposal of unused or unusable materials

If a registered person considers later on that any input purchased by him on payment of

value added tax to be unusable, he shall, for the purpose of disposal of such goods,

submit an application in Form "Musak-26" to the local value added tax office.

The Revenue Officer shall, within seven (7) days after being informed as per sub-rule

(1), if satisfied on spot inspection that the goods mentioned in sub-rule (1) is unusable by

the registered person, send the application, with his opinion, to the Divisional Officer for

a decision as to the disposal of the goods through supply or destruction.

The Divisional Officer shall, subject to his satisfaction, give his decision as to the

disposal of the application received under sub-rule (1) within fifteen (15) working days

of its receipt.

The Revenue Officer shall, in accordance with the decision given under sub-rule (3),

direct the registered person to cancel the credit taken by him in respect of the input

mentioned in sub-rule (1) and to make necessary adjustment in the account current and

the subsequent return.

Disposal of goods manufactured or produced damaged or destroyed in accident:

Form "Musak-27" to be submitted within 24 Hours

The Revenue Officer shall, within three (3) days will report to the Divisional Officer

The Divisional Officer shall, subject to his satisfaction, give his decision




100% export

Form "Musak-11 to be used and second copy of Mushak-11 to be submitted within seven

(7) working days to circle office

Proceed Realisation Certificate (PRC) to be collected

VAT-16, 17 to be preserved and return to be submitted on monthly basis

Partial export

Year-wise numbers must be stamped in the packaging of the exportable goods

Name and seal of exporter must be printed in the packaging material

Each packaging material must be stamped with non-erasable seal marked as “ for export”

VAT-20 and VAT-11 must be submitted to circle office within seven (7) working days

upon receipt

Proceed Realisation Certificate (PRC) to be collected

VAT-16, 17,18 to be preserved and return to be submitted on monthly basis.

Refund

Refund due to (a) mistake, (b) wrong explanation, (c) non-careful or (d) others

The following taxes are refundable

• Import duty

• Supplementary duty

• VAT

• ATV

• Turnover tax

• Excise duty

Application for refund must be submitted within 6 months of payment

There are two ways:

• Application to concerned VAT or duty station

• Current Account

VAT Administration

Chief Commissioner, VAT

Commissioner, VAT

Commissioner (Appeal), VAT

Commissioner, LTU, VAT

DG, CIC

DG, Audit, Inspection & Investigation, VAT

DG, Duty, Rebate & Refund, VAT

Additional CT or Additional DG, VAT

Joint CT or DG, VAT

Deputy CT or Deputy DG, VAT

Revenue Officer, VAT




Assistant RO, VAT

Other officer

Issuance of certificate of VDS

Certificate shall include the following information:

• VAT registration no. of the service provider

• Total value of the service

• VAT payable value of the service

• Amount of VAT deducted at source

Points to note:

• Shall use Code no. 1-1133-0000-0311-for treasury deposit of VAT for

goods and services

• Shall deposit deducted VAT within 15 working days to Govt. exchequer

• Shall issue certificate within 3 days to service provider

• Shall provide a copy of the certificate to the commissioner of the

respective zone of the service provider registered with Mushak-12kha.

Who are the persons responsible for deduction of VAT at source?

The following persons are responsible for deduction of VAT at source:

1. Government

2. Autonomous body

3. Semi-autonomous body

4. NGOs

5. Banks

6. Insurance companies

7. Limited Companies

Consequence of non VDS

Consequences to fail deduction and deposit of VAT deducted at source:

• Payer shall pay 2% interest per month along with the amount of VAT deducted at source.

• Commissioner can penalize up to Tk. 25, 000.00 to the chief executive an person (s)

responsible for deduction and deposit of VAT if the organization shall not deposit VAT deducted

at sources within two months.

VAT deducted at source shall be treated as payment of VAT by service provider and shall

disclose in the periodic return of the company.




Books and records to be kept

A registered person should maintain the following books and records in the prescribed forms

specified by the VAT rule and keep them at the place of business: -.

Statement of purchase of taxable and non-taxable goods and services and relevant

invoices.

Statement of supply and export of taxable and non-taxable goods or services and relevant

invoices.

VAT Current Account.

Statement of deposit of tax to the treasury or to the bank approved by the Govt. through

challan.

Details of the input stock and the stock of goods manufactured or produced.

As per Rule –22, following books are to be kept:

– Mushak –16- Purchase Book

– Mushak-17 – Sales Book

– Mushak –11 – Challan Book

– Mushak –18 –Current Account Book

Appeal procedure

To the commissioner of Appeal

To the Appellate Tribunal

To the High Court Division of the Supreme Court

Appeal to be filed within 90 days – additional 60 days if there are genuine business

reasons

Appeal activities of CT/tribunal must be completed within 9 months of submission.

Penalty (u/s – 37)

The provision with regard to offences and prosecutions under section 37 of the VAT Act, 1991 are as

follows:

Sec. Key offense

Penalty

37(1)

If any person fails to:

��Apply for registration even it is necessary to do so;

or

��File return within the date;

��Inform any change relating to registration; or

��Comply any order u/s – 25 (power of issuing

summon)

Not less than 25,000/- but not

exceeding Tk. 50,000/-




��Comply any other provision of the law

37(2)

If any person

��fails to submit return or submit false return

��does not pay tax even or fails to submit return

within the specified time though notice has been served

twice upon him

��submits untrue return in the context of important

information

��tries to evade VAT by supplying goods without

recording sales-related information in Sales Account

Book (VAT –17) and without recording VAT payable

in Current Account Book (VAT –18)

��submits false or forged documents to evade tax

��does not keep proper records or destroy or later or

mutilate the records or make it false

��gives false explanation or declaration with the

knowledge it is false

��hinders the access of tax officer to inspect or seize

the records books or other documents in relation to

VAT

��takes tax credit by false invoices

- for more go to the book

��at last the amount

equivalent to tax and 2.5 times

the amount payable.

��imprisonment minimum 3

months maximum 2 year or

the amount equivalent to tax

(including VAT and SD) and

2.5 times the amount payable,

or with both if person is

adjudged guilty by a

Magistrate Court.

��at least Tk. 25,000 and not

more the for all non-

compliance except in the case

of tax evasion.

37(3)

If any registered service e provider fails -

��to submit the returns or

��pay off the VAT (including SD)

��have to pay unpaid VAT

or

�� interest @2% including

unpaid tax

37(4)

For registered person -

��failure to pay tax within 3 months after completion

of taxable period though notice received twice or

��commits such offence as specified in sub section 2

and section 38 twice in 12 months period or

��their business place will

be placed under lock and key

and their registration shall be

cancelled.

�� person who is required to registered failure to do

so within one month in spite of receiving order for

compulsory registration

�� their business place shall

be placed under lock and key

Except as imposed by a court or a magistrate no penalty shall be imposed upon any person

without a reasonable opportunity of being heard.




Summary of Mushak number & particulars:

Rules Particulars of Form Form Number

3(1) Price declaration ( input/ output) Mushak- 1

3(9) Price declaration on the basis of Tariff value Mushak-1Ka

3(1) Price declaration of Commercial importer or businessmen Mushak-1Kha

3(1) Price declaration of Exported or Exportable goods Mushak-1Ga

3 Price declaration on the basis of MRP Mushak-1Gha

4(2Ka) Annual Declaration of Turnover Mushak- 2 Kha

4(4), 4(5) Return of Turnover Tax Mushak- 4

7(3) Acknowledgement Receipt (Seize of Goods) Mushak-5

7(3Ka) Personal Muchleka Mushak-5Ka

Application form for Registration/Enlistment Mushak-6

9(5) Declaration of input for business(plant, machine, fittings,

goods)

Mushak-7

11, 4(2) VAT registration Mushak-8

12 Application for changing business place Mushak-9

15 Cancellation of VAT registration Mushak-10

16(1) Challan Mushak-11

16 Sales cash memo Mushak-11Ka

16(4),

17(3)

Verification of Challan Mushak-11Kha

16(3Ga) Challan for distributing goods from supplier to manufacturer Mushak-11Ga

16(1) Mushak Challan Mushak-11Gha

17(Ka) Credit Note Mushak-12

17(Ka) Debit Note Mushak-12(Ka)

18(Kha) Certification of VDS Mushak-12(Kha)

21 Declaration of Inventory Mushak-15

22(1) Purchase book Mushak-16

22(1) Sales book Mushak-17

4(16) Purchase & Sales book Mushak-17(Ka)

22(1) Current Account Mushak-18

24(1) VAT return Mushak-19

27(2) Application for Export Mushak-20

28 Application to be registered as Exporter Mushak-21

30(1) Application certification of tariff & taxes for Export Mushak-22

30(2) Application for certification sample of export Mushak-23

30(6) To provide information of certification of export (challan

basis)

Mushak-24

33 Certification of export in case of courier Mushak-25

40 Application for dismiss the unused product Mushak-26

41(1) Application for dismiss the damaged or destroyed goods Mushak-27

Act(56), Notice for collecting accruals of government Mushak-28




Rule(43) Act(56-1

Kha),

Rule(43)

Notice for freezing the bank account to collect taxes Mushak-29

Current VAT rates(2012-2013):

Sl. No. Heading Service

Code

Service Provider Rate of VAT

1. S002 S002.00 Decorators & caterers 15%

2. S003 S003.10 Motor car garage and workshop 4.5%

3. S003 S003.20 Dockyard 4.5%

4. S004 S004.00 Construction firm 5.5%

5. S007 S007.00 Advertising firm 15%

6. S008 S008.10 Printing press 15%

7. S009 S009.00 Auction firm 15%

8. S010 S010.10 Land developer 1.5%

9. S010 S010.20 Building construction firm 1.5%

10. S014 S014.00 Indenting firm 15%

11. S020 S020.00 Survey firm 15%

12. S021 S021.00 Plant or capital machinery rental

firm

15%

13. S024 S024.00 Furniture distributors 6%

14. S028 S028.00 Courier & express mail service 15%

15. S031 S031.00 Repair & maintenance service

firm

15%

16. S032 S032.00 Consultancy and supervisory firm 15%

17. S033 S033.00 Lessor 15%

18. S034 S034.00 Audit & accounting firm 15%

19. S037 S037.00 Procurement provider 4%

20. S040 S040.00 Security service 15%

21. S045 S045.00 Legal adviser 15%

22. S048 S048.00 Transport contractor 2.25%

23. S049 S049.00 Transportation service provider 15%

24. S050 S050.10 Architect, interior designer or

interior decorator

15%

25. S050 S050.20 Graphic designer 15%

26. S051 S051.00 Engineering firm 15%

27. S052 S052.00 Sound & lighting accessories

provider

15%

28. S053 S053.00 Board meeting participants 15%

29. S054 S054.00 Advertisement through satellite

channel

15%

30. S058 S058.00 Chartered air or helicopter rental

firm

15%

31. S060 S060.00 Buyer of auctioned goods 4%

32. S065 S065.00 Cleaning & maintenance services

of floors, compounds etc.

15%

33. S066 S066.00 Seller of lottery ticket 15%

34. S071 S071.00 Even management 15%




35. S072 S072.00 Human resource supplier or

management

15%

Prashanta Shaha, BBA, MBA

Articled Student

KPMG(Rahman Rahman Huq)

01726740017

13th Batch, AIS, University of Dhaka

Documents

Flash book of VAT