The Institute of Chartered Accountants of Bangladesh
Seminar on the salient features of Draft VAT Act 2011
Date: 11th May 2011,
Venue: ICAB Auditorium, Kawran Bazar, Dhaka.
Resource Person: Mr. Abdul Khalek, FCA, Director- Finance, Berger Paints Bangladesh Limited
Sl. Subject/ Issues
1
Structure
2
Language used
3
Registration
4
Price declaration
5
Deduction at source
VAT Act 1991
Comprising of 73 sections
backed by 43 rules.
Not organized subject-wise.
Formulated in Bangla.
Authenticated English
version could not be
published even long after 20
years of enactment.
Different registrations for
branches and divisions at
different locations create
complexity and are difficult
to maintain.
Draft VAT Act of 2011
Consisting of 193 sections.
Structured in different chapters
according to the subject.
Formulated in English and
Bangla version is expected soon.
Comments
User friendly.
Provision for single registration of
all economic activities provided
that separately identifiable
records and accounts are kept
for the branches and divisions.
As per existing law, price
declaration referring the
value base for VAT and the
input-output co-efficient of
the products are required to
be submitted in prescribed
format (Mushak 1, 1 Kha 1
Gha), which the authority is
supposed to approve within
15 working days.
Price declaration has been
discarded.
Will reduce the hassle
of the tax payers.
However, specific
provision regarding
centrally registered
office of the tax payer is
strongly recommended.
A big relief for tax
payers from procedural
complexities.
Moreover, the tariff value
and the truncated base
system are distortions of
VAT system; as problems
arise in the value chain for
other stakeholders following
the credit methodology.
Applicable for only a limited
number of services.
1
Appreciable in view of
globalization.
Encouraging for FDI.
Instead, the base for taxation has
become the transaction price.
Tariff Value and truncated base
system do not exist.
Applicable for a broader range of
services including government
entities, NGOs, banks, insurance
VAT is an output tax.
Deduction of VAT from
the suppliers of input is
An additional 3% VAT is
deducted despite VAT
payment on delivery by
suppliers which stretches
the working capital and
creates hassle.
companies and other financial
institutions, limited companies,
post secondary institutions.
Imported services
comprising royalty and
technical know-how’s are to
be included in deduction at
source, but no clear
explanation has been
provided regarding the
payee- whether the service
provider or recipient is to
pay.
6
VAT payment/
Treasury deposit
Under the existing system,
the treasury is to be
deposited in advance and
the output VAT is to be
adjusted through the current
account when sold.
VAT payment is only
possible through treasury
challan.
Withholding mandatory in a
supply under:
-an agreement by tender
-a supply under an ongoing
supply agreement
-a supply or set of related
supplies for which consideration
exceeds Tk. 25,000.
a distortion from the
VAT principle. It is a
woe for honest tax
payers which would be
aggravated by the
proposed law.
Withholding entities are not
permitted to take supply unless:
-person is registered
-has a valid VAT honor card.
Obligation to withhold by a
withholding entity:
-one-third of the payable VAT
amount to withheld
-to issue a certificate
-withheld amount to be
accounted for in the VAT return.
Treasury deposit is to be
completed at the time of return
submission.
The proposed law is an
advancement towards
global standard
practice.
Provision for VAT payment
through electronic bank transfer,
credit card and certified bank
cheques.
Output tax to be accounted for.
Supplementary duty and withheld
amount should also be
accounted for and paid at the
same time and same manner.
Output tax to have adjustment
against increasing and
decreasing adjustment.
7
Determination of
VAT payable shall be
Assessable value of goods for
2
Determination of fair
price/Value of import/
Value of supply
ascertained by adding the
amount of import duty;
supplementary duty, all
other duties and taxes (if
any), except the advance
income tax payable.
customs duty is summation of-value, insurance, freight, cost of
services.
-customs duty, supplementary
duty, other taxes (excluding VAT
& AIT)
-levy, fee or fiscal charges
payable on imports.
market value in case of
importation may create
confusion.
Value of re-imported goods:
Amount increase in value, freight
and insurance.
Taxable supply:
-Supply made in Bangladesh by
a registered person.
-supply of imported services (not
made in Bangladesh) received in
Bangladesh by a registered
person.
-VAT on imported services is
reverse charged to recipient.
Value of supply is determined by:
Value of taxable supply (made in
Bangladesh):
-consideration, reduced by
amount of tax fraction
-consideration includes VAT
amount.
Value of imported services:
-fair market value (when
suppliers and recipient are not
associates)
-in other cases-consideration.
Value of supply for no
consideration is nil.
8
Recovery of VAT
from individuals
leaving Bangladesh
In the existing law, there is
no provision for recovery of
unpaid tax from the
3
Gifts to approved non-profit
bodies consideration is nil.
Provision where the
commissioner may issue a
certificate of non-compliance
The new law sounds
very tough. However,
the law should be
individual leaving
Bangladesh.
9
Offenses, penalties
and punishments
Penalty for Government
revenue loss and
punishment in case of an
offence of criminal nature.
10
Honor card
11
Extension of VAT
payment time and
VAT return at the time
of natural disaster
There is no provision in the
existing law.
There is no provision in the
existing law.
12
Outsourcing
Clear and detailed
explanation exists regarding
outsourcing.
13
Record and accounts
As per existing VAT act,
documents are to be kept
for 6 (six) years.
14
Alternative dispute
resolution
No provision for alternative
dispute resolution.
15
Tax invoices
Under the existing law,
there is incomplete
4
stating the outstanding tax debt
to the immigration officer for not
allowing the defaulter to leave
the country.
Severe proposal for penalty and
punishment for the offences
relating to registration,
enlistment, submission of return,
etc.
Honor cards will be issued to
good tax payers.
A registered person will be
allowed to pay VAT after due
time upon the permission of the
commissioner in case of
occurrence of natural disaster.
No clear explanation exists
regarding outsourcing.
Provision includes:
-a registered person to maintain
accounts, documents, other
records as prescribed by the
board.
-documents are to be maintained
at least 6 (six) years or until final
decision in relation to audit
recovery proceedings, disputes,
prosecutions, etc.
Tax payers aggrieved in
connection with any dispute in
relation to liability for tax,
entitlement to refunds, extent of
remittance of default surcharge
or penalty, quantum of increasing
and decreasing adjustment may
apply to the board for solution
through a committee (ADR).
Provision includes:
-tax invoice to be issued covering
restricted to agreed
VAT liability.
In consideration of the
background of mass tax
payer, penalty and
punishment should be
relaxed; particularly for
SMEs.
Tax payer-friendly
Tax payer-friendly
May create complexity
and confusion since
outsourcing is a
common practice nowa-days and clear
explanation is required
to ease tax payment.
Since space is scarce,
documentation in soft
copy should be allowed.
Quick settlement of
dispute.
Customer-friendly and
promoting better
information.
16
VAT refund
certain specific information
-a debit or credit note to be
issued as required for
adjustment.
Simplified and including:
Very multifaceted and
compound system.
Excess amount of (total
decreasing adjustment over the
total output and increasing
adjustment) in respect of:
-construction, building or
property development shall carry
forward indefinitely.
-an excess may be carried
forward or be deducted over 6
(six) tax periods.
understanding.
An advancement
towards standard
practice.
VAT paid in excess of payable
amount will have decreasing
adjustment instead of a refund.
17
Appeal division and
reference
Any appellant can appeal to
the commissioner or to the
tribunal within 90 (ninety)
days.
18
Post-supply
adjustments for
adjustment events
There is no provision in the
existing law. However, the
input tax credit is allowed
under certain condition.
Turnover tax paid in excess is
entitled to deduction instead of
refund.
Appeal to be made to the
commissioner (appeal or
tribunal):
-within 60 (sixty) days of the
order
Adjustment event occurs when:
-the supply is cancelled
-the consideration for supply is
altered
-the supplies are returned
-the nature of the supply is
fundamentally varied or altered
-VAT payable increases or
decreases.
Adjustments increasing the
amount payable include:
-withheld amount
-bad debts
-payments made outside banking
channels
-goods applied to private
5
Reduction of time range
scope of the tax payer
for appeal.
partners
-VAT paid before registration
-an increasing adjustment
required under section 72 on
cancellation of registration
-an increasing adjustment
required under section 76 where
there is a change in the VAT rate
-supplementary duty payable for
the tax period under section 90
-interest or a fine, penalty, fee or
other sum imposed and payable.
Adjustments decreasing the
amount payable include:
-advance tax
-adjustment under section 37
-withheld amount under section
61
-input tax credit amount
-bad debts
-adjustment under section 71 on
becoming registered
-adjustment in relation to second
hand goods
-adjustment in relation to
indemnity payment under a
policy of insurance
-adjustment in relation to
monitory price paid for a lottery,
lucky draw, raffle or similar
under-taking
-refund of supplementary duty
over paid.
19
Imposition of
supplementary duty
Luxurious goods, nonessential and socially
undesirable goods as
specified in the 3rd
schedule.
Supplementary duty is imposed
and payable on:
-an import of dutiable goods
-a supply of dutiable goods
manufactured in Bangladesh
-a supply of dutiable services
made in Bangladesh.
As decided by the Government,
no supplementary duty on:
-export
6
Supplementary duty on
locally manufactured
goods and services
should be withdrawn
unless those are
luxurious and socially
undesired.
-zero rated goods and services.
20
21
Assessment
Duties of
receivers/Directors
There is no provision in the
existing law.
There is no provision in the
existing law.
Supplementary duty is payable
only once.
The commission may make an
assessment of an amount
payable by a person if he is:
-not satisfied as to the accuracy
of the information of returns
-a person who fails to file a tax
return pays tax or has received a
refund which he is not entitled to
-person fails to pay payable
amount
-person has been paid refund
which he was not entitled
Original assessment may be
amended within 4 years.
‘Receiver’ means a person who,
with respect to an asset in
Bangladesh is:
-a liquidator of a company
-a receiver appointed out of court
or by a court
-a trustee for a bankrupt person
-a mortgagee in possession
-an executor of the estate of a
deceased person
-any other person conducting
business on behalf of a person
who is legally incapacitated.
A receiver shall notify the
commissioner in writing within 21
days.
A receiver shall set aside the
amount notified by the
commissioner-shall be liable to the extended
amount set aside.
A receiver shall be personally
liable to the extent of the said
amount.
7
The directors of the company are
also jointly and severally liable
depending on some specific
factors.
Commissioner is empowered to
instruct the tax payer to make
security deposit to secure
Government dues.
22
Security deposit
No provision.
23
Default surcharge
No surcharge.
Default surcharge @10% will be
imposed on the tax payer who
fails to pay tax on due date.
24
VAT practitioner
As per SRO 117-LAW98/178-MUSHAK of 14 June
1998 issued under section
46 (2), a qualified chartered
accountant needs to qualify
the prescribed examination
to get VAT consultant
license whereas an officer
of customs excise
department who served a
minimum of 15 years in the
position of superintendent
and above, is exempted
there from.
Section 178 contains the
provision for license VAT
consultant. The qualification is
apparently to be prescribed on
the implementation of the law.
8
Will create unwanted
burden on working
capital.
Risk of hassle and
harassment of tax
payers.
The default surcharge
at the top of 2% interest
for non-payment of tax
on due date seems
unreasonable.
Business experience,
knowledge of VAT laws
and accounting are
essential criteria for a
person to plead VAT
issues professionally. In
consideration of the
academic background
and professional
experience, chartered
accountants deserve
VAT consultant license
without any further
examination.
Worthwhile to mention
that the chartered
accountants are
qualified to practice
income tax under ITO
1984.