A Flash Book of VAT

A FLASH BOOK OF VAT

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

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of VAT

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.

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of 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.

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of VAT

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 ?

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of VAT

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.

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of VAT

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, hkvi 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 Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book 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

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of VAT

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. ExceptionCredit 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

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of VAT

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

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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
Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of 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.

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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.

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of VAT

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.

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Penalty (u/s 37) The provision with regard to offences and prosecutions under section 37 of the VAT Act, 1991 are as follows:

Sec. 37(1)

Key offense 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)

Penalty

Not less than 25,000/- but not exceeding Tk. 50,000/-

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of VAT

37(2) Comply any other provision of the law 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) sub mits 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 ins pect or seize the records books or other documents in relation to VAT takes tax credit by false invoices 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 noncompliance except in the case of tax evasion.

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37(3)

- for more go to the book If any registered service e provider fails to submit the returns or have to pay unpaid VAT pay off the VAT (including SD) or interest @2% including unpaid tax 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 person who is required to registered failure to do so within one month in spite of receiving order for compulsory registration their business place will be placed under lock and key and their registration shall be cancelled. their business place shall be placed under lock and key

37(4)

Except as imposed by a court or a magistrate no penalty shall be imposed upon any person without a reasonable opportunity of being heard.

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of VAT

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Summary of Mushak number & particulars: Rules Particulars of Form 3(1) Price declaration ( input/ output) 3(9) Price declaration on the basis of Tariff value 3(1) Price declaration of Commercial importer or businessmen 3(1) Price declaration of Exported or Exportable goods 3 Price declaration on the basis of MRP 4(2Ka) Annual Declaration of Turnover 4(4), 4(5) Return of Turnover Tax 7(3) Acknowledgement Receipt (Seize of Goods) 7(3Ka) Personal Muchleka Application form for Registration/Enlistment 9(5) Declaration of input for business(plant, machine, fittings, goods) 11, 4(2) VAT registration 12 Application for changing business place 15 Cancellation of VAT registration 16(1) Challan 16 Sales cash memo 16(4), Verification of Challan 17(3) 16(3Ga) Challan for distributing goods from supplier to manufacturer 16(1) Mushak Challan 17(Ka) Credit Note 17(Ka) Debit Note 18(Kha) Certification of VDS 21 Declaration of Inventory 22(1) Purchase book 22(1) Sales book 4(16) Purchase & Sales book 22(1) Current Account 24(1) VAT return 27(2) Application for Export 28 Application to be registered as Exporter 30(1) Application certification of tariff & taxes for Export 30(2) Application for certification sample of export 30(6) To provide information of certification of export (challan basis) 33 Certification of export in case of courier 40 Application for dismiss the unused product 41(1) Application for dismiss the damaged or destroyed goods Act(56), Notice for collecting accruals of government

Form Number Mushak- 1 Mushak-1Ka Mushak-1Kha Mushak-1Ga Mushak-1Gha Mushak- 2 Kha Mushak- 4 Mushak-5 Mushak-5Ka Mushak-6 Mushak-7 Mushak-8 Mushak-9 Mushak-10 Mushak-11 Mushak-11Ka Mushak-11Kha Mushak-11Ga Mushak-11Gha Mushak-12 Mushak-12(Ka) Mushak-12(Kha) Mushak-15 Mushak-16 Mushak-17 Mushak-17(Ka) Mushak-18 Mushak-19 Mushak-20 Mushak-21 Mushak-22 Mushak-23 Mushak-24 Mushak-25 Mushak-26 Mushak-27 Mushak-28

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of VAT

Rule(43)
Act(56-1 Kha), Rule(43)

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Notice for freezing the bank account to collect taxes

Mushak-29

Current VAT rates(2012-2013):

Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. Heading S002 S003 S003 S004 S007 S008 S009 S010 S010 S014 S020 S021 S024 S028 S031 S032 S033 S034 S037 S040 S045 S048 S049 S050 S050 S051 S052 S053 S054 S058 S060 S065 S066 S071 Service Code S002.00 S003.10 S003.20 S004.00 S007.00 S008.10 S009.00 S010.10 S010.20 S014.00 S020.00 S021.00 S024.00 S028.00 S031.00 S032.00 S033.00 S034.00 S037.00 S040.00 S045.00 S048.00 S049.00 S050.10 S050.20 S051.00 S052.00 S053.00 S054.00 S058.00 S060.00 S065.00 S066.00 S071.00 Service Provider Decorators & caterers Motor car garage and workshop Dockyard Construction firm Advertising firm Printing press Auction firm Land developer Building construction firm Indenting firm Survey firm Plant or capital machinery rental firm Furniture distributors Courier & express mail service Repair & maintenance service firm Consultancy and supervisory firm Lessor Audit & accounting firm Procurement provider Security service Legal adviser Transport contractor Transportation service provider Architect, interior designer or interior decorator Graphic designer Engineering firm Sound & lighting accessories provider Board meeting participants Advertisement through satellite channel Chartered air or helicopter rental firm Buyer of auctioned goods Cleaning & maintenance services of floors, compounds etc. Seller of lottery ticket Even management Rate of VAT 15% 4.5% 4.5% 5.5% 15% 15% 15% 1.5% 1.5% 15% 15% 15% 6% 15% 15% 15% 15% 15% 4% 15% 15% 2.25% 15% 15% 15% 15% 15% 15% 15% 15% 4% 15% 15% 15%

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka

A Flash Book of VAT

35. S072 S072.00 Human resource supplier or management 15%

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Prashanta Shaha, BBA, MBA Articled Student KPMG(Rahman Rahman Huq) 01726740017 13th Batch, AIS, University of Dhaka

Prashanta Shaha | KPMG (RRH), 13th Batch, AIS, University of Dhaka