Compilation of vat act 1991 theory & math ICAB 2016

T A X A T I O N

Value Added Tax – Theory and Illustrative examples

Compiled by:

Md. Ibne Nayeem Hasan

Sagar Chandra Mondal

KPMG in Bangladesh

Rahman Rahman Huq, Chartered Accountants

Acknowledgement & Disclaimer: This study material is the compilation of theory and math based on Value added tax Act, 1991 of Bangladesh. Theories and Math are taken from synopsis provided by the renowned faculty. We are indebted to them. Reader should apply cautions while using any part of this study material as reference.

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Md. Ibne Nayeem Hasan, [email protected]

Sagar Chandra Mondal, [email protected]

Table of Contents

1. Definition of VAT ............................................................................................................................ 4

2. Identify the differences between VAT & Sales Tax ..................................................................... 4

3. Discuss the Advantages & Disadvantages of VAT ....................................................................... 5

4. Justification/reasons for introduction of VAT in BD: ................................................................. 5

5: Scope of VAT in Bangladesh ......................................................................................................... 6

6. Essential Features of VAT: ............................................................................................................ 6

7. Types of VAT: ................................................................................................................................. 6

8. What is VAT Mechanism? ............................................................................................................. 6

9. Formula/alternative of VAT calculation:...................................................................................... 7

10. Consequence of failure to pay VAT ............................................................................................. 7

11. Determination of Value at Import Stage ..................................................................................... 7

12. VAT Authorities ............................................................................................................................ 8

13. Changes of information relating to registration ......................................................................... 8

14. List of goods exempted from VAT ............................................................................................... 8

15. List of services exempted from VAT ........................................................................................... 9

16. Documents to be submitted for VAT registration ...................................................................... 9

17. Definitions: ................................................................................................................................... 10

18. Imposition of Value Added Tax. ................................................................................................ 11

19. Person required for registration ................................................................................................ 12

20. When registration is required? .................................................................................................. 12

21. What is compulsory registration?.............................................................................................. 12

22. What is self-registration? ........................................................................................................... 13

23. Registration cancelled for the purposes of VAT? .................................................................... 13

24. Transfer goods from central godown or from one center to another? ................................... 13

25. Offences and penalties. ............................................................................................................... 14

26. Mention the provision when submission carried on without VAT. ........................................ 16

27. Name the importers who are exempted from registration requirement? .............................. 16

28. Cottage industry in our VAT law. ............................................................................................. 16

29. VAT administration. ................................................................................................................... 16

30. Books and Documents Require to be Maintained for VAT Purposes: ................................... 17

31. Time Limit for Submission of Application for Drawback/Refund of VAT Rule 30(1). ....... 17

32. Registration under VAT: Sec 15. ............................................................................................... 18

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33. Exemption from Registration; Sec 16 ....................................................................................... 18

34. Time and mode of payment of VAT. ......................................................................................... 18

35. Description of deduction of VAT at source. .............................................................................. 19

36. Who will need to pay VAT? ....................................................................................................... 19

37. Determination of Value for imposition of VAT. ....................................................................... 19

38. Mention 10% sources of VDS. ................................................................................................... 20

39. Information relating to price Declaration: ............................................................................... 20

40. Provision relating to Trade Discount: U/r-3(6) ........................................................................ 21

41. Persons Responsible for Deduction of VAT.............................................................................. 21

42. Special treatment of Specified “Input Tax”.............................................................................. 21

43. Penalty for False Declaration of Input Tax .............................................................................. 21

44. What is meant by input? Input tax? .......................................................................................... 21

45. How input tax can be taken? ...................................................................................................... 21

46. Consideration to be fulfilled for rebate. .................................................................................... 22

47. Which tax payer cannot obtain rebate? .................................................................................... 22

48. Whether rebate on VAT, ID, SD and AIT can be obtained? .................................................. 22

49. Benefit of input tax rebate. ......................................................................................................... 22

50. Restrictions relevant to individuals enlisted for turnover tax payment. ................................ 22

51. Books and Records to be maintained by the Turnover Tax Payer. ........................................ 22

52. Whether turnover tax (TOT) can be deducted at source? ...................................................... 23

53. Tax period of people enlisted for TOT? .................................................................................... 23

54. In what process turnover tax of a definite tax period is to be paid? ...................................... 23

55. What is Turnover Tax (TOT)? .................................................................................................. 23

56. Penalty of nonpayment of Turnover Tax (TOT)? .................................................................... 23

57. Penalty for false declaration of Turnover Tax. ........................................................................ 23

58. Difference between VAT & Turnover Tax. .............................................................................. 23

59. Supplementary Duty? ................................................................................................................. 24

60. What is truncated value? ............................................................................................................ 24

61. VAT assessments/duties and responsibilities of VAT assesse. ................................................ 25

62. Discuss some important features of VAT in Bangladesh......................................................... 25

63. What are the different types of value added tax? .................................................................... 26

64. What do you mean by presumptive/Fixed VAT? ..................................................................... 26

65. Areas of registration is required for the purpose of VAT. ...................................................... 26


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66. Applicable rate of VAT deduction or collection at source for the following cases: .............. 26

67. Documents need to be submitted for VAT registration &Time of registration cancelled. ... 27

68. Under what situations, Input Tax Credit is not allowed VAT Act, 1991? ............................. 27

69. Duties and responsibilities of VAT assesse? ............................................................................. 28

Additional .................................................................................................................................................. 29

Examples of VAT Math ............................................................................................................................ 33

1. Sun Moon Company ..................................................................................................................... 33

2. Rahman Industries Limited ......................................................................................................... 34

3. A manufacturer ............................................................................................................................. 34

4. An importer ................................................................................................................................... 35

5. Shova Enterprise Ltd .................................................................................................................... 36

6. Importer Mr. Akbar ..................................................................................................................... 37

7. Unicom Bangladesh Ltd. .............................................................................................................. 38

8. ABC Ltd. ........................................................................................................................................ 39

9. Excellent Shoe Co. Ltd.................................................................................................................. 40

10. ABC Ltd. .................................................................................................................................... 41

11. Rahman International Pvt. Ltd. .............................................................................................. 42

12. Mr. Habib .................................................................................................................................. 42

13. AB Ltd. ("Company") .............................................................................................................. 43

14. Three persons ............................................................................................................................ 45

15. Tabia Limited ............................................................................................................................ 47

16. Exchange Rate ........................................................................................................................... 52

17. Biki (Bangladesh) Co. Ltd. ....................................................................................................... 52

18. XYZ Ltd. .................................................................................................................................... 53

19. A manufacturer ......................................................................................................................... 54

20. SOS Company ........................................................................................................................... 55

21. Manan Traders .......................................................................................................................... 56


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Historical Background of VAT

Value Added Tax is an indirect and consumption tax that is placed on a product or service when value is

added at each stage of production and final sale. The Value Added Tax Act, 1991 was introduced in

Bangladesh in July, 1991. It is in vogue in Bangladesh for the last 22 years. During this period, a

number of distortions gradually have crept into the system; namely: cascading effect, tariff value,

truncated value base, Maximum Retail Price-based value, price declaration, Advance Trade VAT

(ATV) at import stage, definition of services, deduction of VAT at source etc. In order to

eradicate such problem of VAT Act, 1991, a new law (Value Added Tax Act, 2012) has been

passed in the parliament although it is waiting for implementation. Therefore, we compiled this

manual on the basis of VAT Act 1991.

Value Added Tax covering FY 2016-17 1. Definition of VAT

Value Added Tax (VAT) is a tax, which is charged on the "increase in value" of goods and services at

each stage of Production and circulation.

The "value added" to a product by a business is the sale price charged to its customer, minus the cost of

materials and other taxable inputs. The consumer ultimately pays a higher price for the taxed commodity.

VAT is essentially a hidden sales tax or consumption tax. From the perspective of the

buyer, VAT is a tax on the purchase price;

seller, VAT is a tax only on the “value added” to a product, material or service.

The rates of VAT are as follows:

Particulars Rate of VAT

Standard Rate 15%

Export and Deemed Export 0%

Business (other than medicine and petroleum) 4%

Business (Medicine and Petroleum) 2%

Turnover Tax 3%

Service 1.5%, 2%, 2.5%, 4%, 4.5%, 5%, 5.5%,

6%, 9%, 10%, 15%

2. Identify the differences between VAT & Sales Tax

VAT: VAT is a simplified and transparent system of tax in which tax is levied on the value additions, at

each stage in the production-distribution with provision of set-off of tax paid on earlier stage.


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Sales Tax: Sales tax is the tax which is collected and remitted to the government only once, at the point

of purchase by the end consumer. It is levied on the total value of the exchange.

SL# VAT Sales Tax

1. VAT is multi point levy Sales tax generally single point tax.

2. In VAT full set-off of the tax paid at the earlier

stage is granted

In Sales Tax no tax is being levied on the

value addition on subsequent sales.

3. VAT eliminates tax cascading. Sales tax does not eliminate cascading effect

of tax.

3. Discuss the Advantages & Disadvantages of VAT

Advantages of VAT are as follows:

VAT system acts as a supplementary tax that can help make up for revenue loss due to income

tax evasion;

VAT may be selectively applied to specific goods or business entities as a control mechanism. It

may healthy economy – by taxing only consumption;

Compared with alternatives in indirect taxation, the VAT has more revenue potential;

It is more equitable and transparent.

Disadvantages of VAT are as follows:

The VAT has criticized as the burden of it relies on personal end-consumers of products and

therefore a regressive tax ( the poor pay more, in comparison, than the rich);

Revenues from a VAT are frequently lower than expected because they are difficult and costly to

administer and collect;

VAT increases inflation.

4. Justification/reasons for introduction of VAT in BD:

Accepting recommendations of the Bangladesh Tax Mission, the Government set forth the following is

for the VAT:

I. To do away with the cascading effects that happens because of taxation of inputs.

II. To generate more internal resources than that Excise Duties and Sales Tax used to provide.

III. To introduce VAT as the main vehicle for resource mobilization.

IV. To adopt a flat rate of taxation on a broader base, covering a wide range of goods excepting the

primary agricultural products.

Further the National Board of Revenue pointed out that the objectives behind introducing the value added

taxation were:

I. bringing transparency in the taxation system;

II. prohibiting cascading taxation at different stages of production;

III. thoroughly integrating the tax administration;

IV. activating the overall economy by mobilizing more internal resources and

V. Bringing the consistency in the Tax to GDP (gross domestic product) ratio.


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Moreover, it is argued by tax officials that the objectives of introducing VAT are also as follows:

I. It would augment tax revenue earning of the government.

II. It will abolish tax on tax.

III. It will ensure more simplification.

IV. It would facilitate improvement of equitable and efficient distribution of reserves.

V. It would facilitate broadening of tax base.

5: Scope of VAT in Bangladesh

The scope of VAT is as follows:

Value added Tax Act, 1991;

Value added Tax Rules, 1991;

Finance Act;

SRO (Statutory Regulatory Orders);

VAT Case Law.

6. Essential Features of VAT:

VAT is imposed on goods and services at import stage, manufacturing, wholesale and retail

levels;

A uniform rate of 15% is applicable for both goods and services;

VAT is compulsory for whole sellers/retailers (for selected item);

VAT is applicable for all goods and some listed services (except agricultural products and

exempted goods and services);

Exports are zero (0%) rated;

VAT is payable at the time of supply of goods and services;

Turnover Tax @ 3% is leviable where turnover amount is less than Tk. 80 lac;

Some industries like Agro-based, Cottage industries are exempted from VAT;

Tax paid on inputs are creditable against output tax;

Tax returns are to be submitted on monthly or quarterly or half yearly basis as notified by the

Government;

Luxurious and socially undesirable goods are subject to supplementary duties at different rate

ranging from 0% to 500%.

7. Types of VAT:

According to the provisions of the VAT Act 1991, three different types of taxes are charged:

Value Added Tax

Turnover Tax

Supplementary Duty

8. What is VAT Mechanism?

The value added, in turn, can be defined in two alternative ways:

First, value added is equivalent to the sum of wages to labour and profits to owners of the

production factors including land and capital.

Second, value added is simply measured as the difference between the value of output and the

cost of inputs.


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9. Formula/alternative of VAT calculation:

The two ways of definition of value added give rise to three major alternatives for computing the VAT

liability as described below:

a) The addition Method: The value added is computed by adding all the payments that is payable

to the factors of production (wages, salaries, interest payment etc.);

b) The Subtraction Method: The tax liability at any stage is equal to the tax rate multiplied by the

tax base or value added measured as the difference between the values of outputs and inputs;

c) Tax Credit Method: Under the tax credit method, a firm at any stage of the production-

distribution chain charges its customers the VAT on its output, submit the tax to the treasury, and

then claims for the VAT already paid on its input purchase. This is the most common method of

the VAT computation.

The final result of determining VAT liability will be all the same whatever the computing method is used

from the above mentioned alternatives.

10. Consequence of failure to pay VAT

In order to recover arrear VAT, the authorities can –

a) Take steps to deduct the amount from any other Custom, Excise, VAT or income tax owing

money to the defaulter;

b) Freeze bank accounts by serving notice;

c) Stop business transactions and seize vehicles until arrear is realized;

d) Take steps to realize the arrear by seizure of other goods of the person in default;

e) File certificate case.

11. Determination of Value at Import Stage

In Financial Year 2016-17 Government has imposed 25% Custom Duty (CD), 5% Regulatory Duty (RD),

20% Supplementary Duty (SD), 15% VAT and 5% AIT on Product “X”. Invoice value of the product at

import stage of Tk. 45,000 and Assessment Value (AV) of Tk. 50,000. The goods are imported by an

importer on the basis of Pre Shipment Inspection (PSI). What are the applicable Tax and Charges in the

importing stage of the goods?

Answer: The Applicable Tax and Charges in the importing stage of the goods are as follows:

Tax/Charge Basis of Tax/Charges Base Value Tax/Charge

Rate

Tax/Charge

(Tk.)

CD AV 50,000 25% 12,500

RD AV 50,000 5% 2,500

SD AV+CD+RD 65,000 20% 13,000

VAT AV+CD+RD+SD 78,000 15% 11,700

Advance Income Tax

(AIT) AV

50,000 5% 2,500


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Advance Trade VAT

(ATV) (AV+CD+RD+SD)*1.2667

98,803 4% 3,952

PSI Service Charge AV 50,000 1% 500

Since the goods are imported by the commercial importer and included for compulsory PSI, so ATV and

PSI is applicable @ 4% and 1% respectively for the above goods.

12. VAT Authorities

The following are the VAT Authorities under section 20 of the VAT Act, 1991 after the National Board

of Revenue:

1. Member, VAT;

2. Chief Commissioner, VAT;

3. Commissioner, VAT;

4. Commissioner (Appeal), VAT;

5. Commissioner, Large Tax payers’ Unit, VAT;

6. Director General, Central Intelligence Cell;

7. Director General, Audit, Investigation and Inspection Directorate, VAT

8. Director General, DEDO, VAT;

9. Additional Commissioners or Additional Director General, VAT;

10. Joint Commissioner or Director, VAT;

11. Deputy Commissioner or Deputy Director, VAT;

12. Assistant Commissioner or Assistant Director, VAT;

13. Superintendent, VAT;

14. Inspector, VAT;

15. Any VAT officer of another designation;

13. Changes of information relating to registration

If a registered person intends to change the name, address or any information given in the application for

registration, he shall inform the concerned officer of such change at least fourteen days before the date of

such change.

14. List of goods exempted from VAT

On VAT Act, 1991, following goods have been exempted from VAT:

All exports, deemed exports and foods for consumption outside Bangladesh and other goods

supplied to an outgoing conveyance.

Goods and services under the Turnover Tax.

All Goods as listed in the Second Schedule of the Narcotics Control Act, 1990 (Act No. 20 of

1990), in case of production and manufacturing thereof in Bangladesh. Some of the examples are

native liquor, Methane alcohol, Ratified spirit, Foreign liquor produced in Bangladesh, Denatured

spirit etc.

Goods listed against some specific Headings in the First Schedule of the Customs Act, 1969

under Harmonized Commodity Description and Coding System. Some of the examples are live

animals and meats thereof, Live fish (excluding ornamental fishes), natural honey, live tree plants

and seed, vegetables, fruits, Ivory, tortoise shell, whalebone and whalebone hair, horns, antlers,

hooves, nails, claws and beaks etc. subject to certain conditions.


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Besides this, different circulars and SROs are issued from time to time declaring names of new goods

exempted from VAT and SD.

15. List of services exempted from VAT

According to the Schedule Two of the VAT Act, 1991, certain services classified under 7 heads have

been exempted from VAT under categories:

1. Basic services essential to life;

2. Social Welfare Services;

3. Culture Oriented Services;

4. Finance and Finance Related Services;

5. Transport Service;

6. Personal Service;

7. Other Services.

The detail of the list is updated year to year through Finance Act and different SRO’s. The updated list

can be found from the website of the NBR.

16. Documents to be submitted for VAT registration

Application for VAT registration shall be made to the VAT Divisional Officer in Form VAT-6. The

following documents shall be submitted along with the application form:

a) Updated Trade License;

b) Passport size Photograph of Chairmen/MD/Owner & Authorized Signatory;

c) TIN Certificate (if any)

d) National ID Card

e) Bank Account Certificate;

f) IRC/ERC Certificate (if any)

g) List of all related Selling Centers in the case of “central registration”;

h) Declaration in Form VAT-7 of the production or business premises, plant, machinery, fittings,

finished or tradable goods, stocks and inputs.

i) Blue print of Business Premises

j) Documents related to Ownership/Rent of Land/Household/Building/Premises;

k) Authorization letter for Authorized Signatory;

l) MOA & AOA for Limited Company;

m) Partnership agreement in case of Partnership Business.

If the application is complete, the VAT Divisional Officer shall issue the Certificate of Registration in

Form VAT – 8 within 2 days of the application.

No fee is payable for registration for the purposes of VAT.

If a person carries out business from various premises, he may obtain “central registration” so as to pay

VAT; and complies with the requirements of the VAT laws “centrally”. However, no “group” (that is

various companies/entities under common management or ownership) registration is permissible under

VAT Act, 1991.

If “central registration” is not obtained, then separate registration for separate premises shall be required

for the purposes of VAT. However, if a registered person changes his premises or businesses, he will file

declaration with the VAT Circle Office in Form VAT-9 at least 14 days prior to such changes in his

premises or businesses.


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17. Definitions:

If there is nothing contradictory in the subject or context in this Act.,

a) ‘Exempted’ means goods and services exempted from paying Value Added Tax under this VAT

Act 1991.

b) ‘Output Tax’ means Value Added Tax imposed under the VAT Act 1991.

c) Input means-

i. All kinds of raw materials, packing materials, services and machinery but labour,

land, building office appliances and transport will not be included.

ii. In the case of traders, goods imported, purchased, acquired or otherwise obtained

in any way for sale, commercial transaction or transfer in any manner.

d) ‘Input Tax’ means payable Value Added Tax on imported input by registered person or the input

purchased from any other registered person.

e) ‘Commission’ means the turn-over tax fixation commission formed under section 8A of VAT

Act1991.

f) ‘Tax period’ means a term of one month or such term which may be fixed by the Government for

this purpose by Gazette notification.

g) Taxable good means the goods which are not included in first schedule of VAT Act 1991.

h) ‘Taxable service’ means a service which is included in the second schedule.

i) ‘Commissioner’ means a Commissioner, Value Added Tax appointed under section 20.

j) ‘Current Account’ means an account maintained with the (Collector) by the registered person in

which purchases, sales treasury deposit payable and deductible Value Added Tax and where

applicable, statement of other taxes will be entered.

k) ‘Invoice’ means an invoice provided under section 32 (and any supporting invoice provided with

it).

l) ‘Chairman’ means the chairman of the Commission.

m) ‘Turnover’ means all money obtainable or obtained for the supply of produced or manufactured

taxable goods or taxable services by any person for a particular period.

n) ‘Schedule’ means any schedule annexed to this Act.

o) Documents’ means a paper or anything expressed or stated such as letter, sum, sign or anything

expressed by sign upon any material and any kind of electronic data, computer program,

computer tape, computer disk or anything that contains data will be included.

p) “Commercial documents” means book of accounts, files, documents or papers maintained by a

person to record his commercial transaction showing financial condition of his business, namely:

- debit voucher, credit voucher, cash memo, daily accounts of purchase and sales cash book,

primary or journal book, bank statement and analyses, profit and loss account, profit and loss

appropriation account, bank account reconciliation and balance sheet and all related documents

including audit report.

q) ‘Return’ means the return required under Section 35 of this Act.

r) ‘Fixed date’ means the 15th day after taxable month in the case of return.

s) ‘Goods’ means all kinds of movable property excluding shares, stock, coin, security and

recoverable claim.

t) ‘Producer’ or ‘Manufacturer’ will include any person engaged with the following activity.

I. Any material exclusively or processed with other matter, material or components of

production being assembled or annexed with those creates or transformed it to a different

specific commodity or rendering this material into a changed, transformed, reshaped size

so that it becomes usable for a specific purpose.

II. Any related or incidental processing to complete the manufacture of a commodity.

III. Printing, publishing, lithograph or engraving processes.

IV. Addition, mixing, diluting / cutting, liquefying, bottling, packaging or re-packaging.


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V. The services of any person with power of attorney, trustee, executor, superintendent in

case of bankruptcy of any manufacturer or producer of services of any such person who

virtue of trustworthiness disposes of a taxable person’s assets.

VI. Manufacturing or producing any commodity by using own plant, machinery or equipment

in any other person’s ownership.

u) ‘Trader’ means a person or any organization who, without changing the nature, form or qualities

of any imported, purchased or otherwise acquired, puts them on sale, offers in exchange or for

supply in any other manner for a consideration.

v) ‘Rule’ means any rule made under this Act.

w) ‘Bench’ means bench formed comprised of one or more than one member.

x) ‘Board’ means the National Board of Revenue formed under the National Board of Revenue

order 1972 Order No. 76 of 1972.

y) ‘Person’ means any individual, business organization, group of persons and association.

z) ‘Value Added Tax Officer, means any officer engaged under Section 20 of this Act.

aa) ‘Zero’ rated taxable goods or services means goods or services which are exported or deemed to

be exported or any food or any material as described in sub section (2) of section 3 upon which

value added tax or where applicable supplementary duty will not be imposed and all other taxes

and duties paid on materials used for manufacturing export goods, which was fixed by the

Government according to gazette notification for the purpose shall be refunded.

bb) ‘Member’ means any member of the Finance Commission and also includes the Chairman.

cc) ‘Proper Officer’ means any value Added Tax Officer who has been authorized by the Board in

accordance with a Government Gazette notification issued by the Board to perform any

responsibility under this Act.

dd) ‘Total receipts’ means the total amount of money obtained or due which a provider of taxable

services received in exchange for their services except Value Added Tax.

ee) ‘Supply’ means sale, transfer or exchange for a consideration of goods manufactured or produced

by a manufacturer or producer of goods or of goods imported, purchased or otherwise acquired by

a trader.

18. Imposition of Value Added Tax.

Different requirements for imposition of VAT are presented below as per section 3 of VAT Act.

1) Value Added Tax will be imposed and payable @ 15% on all goods imported into Bangladesh

except the goods listed in the First Schedule and on all services listed Second Schedule.

2) Without prejudice to the above sub-section (I) Zero rate tax will be imposed on the following

goods or services;

a. Any goods or services exported or deemed to be exported from Bangladesh.

b. Food and other things supplied in transport leaving from Bangladesh for consumption

outside Bangladesh in accordance with section 24 of the Customs Act. 1969.

Provided that this sub-section shall not be applicable to the following goods:

a. Any goods re-imported or intended as being re-imported into Bangladesh.

I. Any goods or services or part of it supplied in exchange of foreign currencies for

consumption or use in Bangladesh.

b. Such goods which have been presented for export in accordance with section [3] of

customs Act but not exported within thirty days of the bill of export or such extended

time allowed by the Commissioner for this purpose.

3) Value Added Tax will be paid by:

a. The importer in the case of imported goods.

b. The supplier in the case of goods manufactured or produced in Bangladesh.


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c. The provider/renderer of services in the case of services; and

d. In other cases, the supplier and services receiver.

4) In the case of any imported or other goods the classification of the goods under the Customs Act

will apply for the calculation of payment of Value Added Tax under this section.

5) The Board may, in the public interest, by notification in the official Gazette:

a. Declare any taxable goods or class of goods as taxable services and any taxable service as

taxable goods, and

b. Provide clarification for the purpose of determining the extent of any taxable services.

19. Person required for registration

The following persons are required to be registered for the purposes of VAT:

a) Supplier of taxable goods and services;

b) Importer;

c) Exporter;

d) Producer;

e) Trader; and

f) Service provider.

The persons who are falling under the jurisdiction of “turnover tax” and “cottage industry” are not

required to register for the purposes of VAT. However, producer or service provider having turnover

below Tk. 80 lac, thereby falling under the jurisdiction of “turnover tax”, and “cottage industry” may

voluntarily register for the purposes of VAT.

If any person who ought to register for the purposes of VAT fails to do so, the VAT Divisional Officer

registers the person under section 15(4) of the Act effective from the date the person ought to have

registered; and informs the person accordingly.

20. When registration is required?

A person is required to register for the purpose of VAT at the following time:

a) Produce or manufacture of goods

b) Trading of goods

c) Rendering of services

d) Import of goods

e) Export of goods

Once registered, no renewal of registration is required.

21. What is compulsory registration?

The importer, exporter, manufacturer and supplier of taxable goods and services whose annual turnover is

not less than 80 lacs need to be registered with concerned Divisional Office of VAT. The steps of

registration are as under:

1. An application in the form of Mushak – 6, is to be submitted to the concerned divisional officer.

2. Documents to be submitted with the application:

a. Up to date Trade License

b. TIN certificate if any

c. Two Copy of Passport size Photographs of Owner/Managing Director

d. In case of Export; renewed copy of ERC

e. In case of Import; renewed copy of IRC

f. Bank Solvency Certificate


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g. In case of Limited company; Memorandum & Articles of Associations, Certificate of

Incorporation

h. In case of partnership firm; partnership0 deed

i. Ownership Deed/Rent agreement of Land/Building/Premises

j. For centrally registration

k. Lay out of Manufacturing/ Business places, the land & Building, the plant &

Machineries, Fittings, details products & the principle inputs as per Mushak – 7 Form.

3. Confirmation of Information by the divisional officer provided in the application through

inspection, cross checking with the original documents

4. Divisional officer shall issue Registration Certificate in the form of Mushak – 8 within 2 days of

the application.

5. No fee is required for registration for the purpose of VAT.

6. No renewal or registration is required.

22. What is self-registration?

1. The suppliers of Taxable goods or any renderer of Taxable services exempted from registration under

section – 16 can apply to the concern VAT officer for registration and the office will register the applicant

if he thinks fit by mentioning the register’s business identification number.

2. Notwithstanding anything contained in the VAT act, 1991

I. The seller of any goods which is produced, manufactured or imported in Bangladesh

II. The lessee or transferor

III. Any person rendering services mentioned in section 2 who is excluded u/s 15 and subsection-1

can apply for self-registration to the concerned officer and if he satisfied with the application ,

will register the applicant by mentioning his business identification number and such person

a. Will be register as tax payer and

b. Every concerned rules under this law will be applicable to determine and settle tax.

23. Registration cancelled for the purposes of VAT?

The registration may be cancelled for the purposes of VAT if:-

a) The registered person discontinues businesses;

b) The registered person’s businesses are exempted for the purposes of VAT;

c) The turnover of the registered person is below tk. 80 lac;

d) The registered person fails to commence business after obtaining certificate of registration;

e) The turnover of the self-registered person is below tk. 80 lac.

The registered person shall apply to the VAT Circle Office in VAT Form- 10 for cancellation of the

registration.

24. Transfer goods from central godown or from one center to another?

Centrally registered organization shall have to prepare three copies of special challan for transfer of goods

or material to and from central godown or from one sale center to another. First copy shall be sent where

the goods or materials are supplied which should be retained there. Second copy would be forwarded to

the circle in which the organization is centrally registered and third copy shall be retained at the address

where the organization is centrally registered. Copies of special challan must be retained for 6 years and

any lawfully authorized VAT officer shall have access to this for any examination. However, such special

challan can’t be used for transfer of goods to the buyer.


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25. Offences and penalties.

Non-compliance covers a wider range of situations starting from registration to the collection and

payment of VAT as per the provisions mentioned in VAT Act, 1991. According to Section 37 of the VAT

Act, 1991, and Rule 4 & 35 of the VAT Rules, 1991, an assessed any be penalized for the following

offences:

As per section 37(1), if any person:

Sl. Offences Penalties

1. Fails to apply for registration, even if it would have been

necessary to apply for registration under this Act

Fine of not less than Tk. 10,000

and not less more than Tk.

20,000.

2. Fails to submit any return within the specified date Fine of not less than Tk. 10,000

and not more than Tk. 20,000.

3. Fails to inform the Value Added Tax Officer about any

changes regarding registration



4. Fails to comply with any warrant under section 25 Fine of not less than Tk. 10,000


5. Fails to maintain documents, electronic cash register or point

of sales (POS) software or computer



6. Violation of any other provisions of this Act Fine of not less than Tk. 10,000


As per section 37(2), if any person:

Sl. Offences Penalties

7. (a) Fails to submit tax invoice or submits an untrue tax invoice

on important information, or

(b) Fails to pay Value Added Tax or, where applicable, VAT

and Supplementary Duty on goods supplied or service

rendered by him being directed twice by the concerned

Officer, or fails to submit the return for a tax period even after

lapse of the due time specified for such submission, or

(c) Submits untrue return in the context of important

information, or

(d) Attempts to evade VAT on supply of goods without

recording information regarding sales in the sales register

(Mushak-17) and in the Account Current register (Mushak-18),

(a) if tax evasion takes place,

then, he will be liable to

monetary penalty of minimum

half the amount or maximum of

equal amount of the tax payable

on the supply of concerned

goods or services relating to the

offence of tax evasion;

(b) If the offence is of any other

irregularities other than tax

evasion, then he will be liable to

a monetary penalty of a

minimum of 20 thousand taka


15



or

(e) Attempts to evade CAT by not entering information

regarding the purchase of inputs in the purchase register, or

(f) Evades or attempts to evade VAT or takes or attempts to

take duty drawback by submitting forged or false documents to

a VAT officer, or

(g) Despite being instructed by the concerned VAT officer, a

registered or worth of being registered person fails to furnish

any information or document, or

(h) Does not maintain any document or Electronic Cash

Register or Point of Sales (POS) Software or computer which

is required to be maintained under this Act or Rules; or

destroys or alters or mutilates such documents or demonstrates

it to be false of any account kept in computer through

Electronic Cash Register or POS Software or computer as per

the requirements of this Act, or

(i) Consciously makes a false statement or declaration; or

(j) Obstructs or prevents from entering into his business place

any VAT officer authorized under this Act to inspect or seize

any record, register or any other document. Electronic Cash

Register or computer relating to VAT, or

(k) Involve himself in receiving, taking possession or carrying

out transaction of such goods despite knowing fully well or

having sufficient reason to believe that VAT or as the case

may be VAT and Supplementary Duty payable on such goods

has been evaded, or

(l) Takes input tax credit through false or forged invoice, or

(m) Evades or attempts to evade VAT or Supplementary Duty

by any other means, or

(n) Issues Challanpatra stating therein the amount of VAT

even without being a registered person, or

(o) Does not do anything as required or does anything which is

not required under subsection (4A) of section 6, or

(p) Delivers goods or renders services under this Act or the

rule, without keeping sufficient balance required in the

Account Current Register by which adjustment or payment of

output tax can be made by accumulating the balance with

deposit money and the credit due on input tax, or

(q) Assists to do or does any activity described in clause (a) to

(p), then that activity shall be treated as an offence and shall be

penalized as maintained in opposite Column.

and a maximum of 50 thousand

taka.


16



26. Mention the provision when submission carried on without VAT.

As per VAT Act 1991, if any business is carried on disrespecting the registration requirement than the

consequences are as follows:

Registration can be made compulsory;

Place of business can be sealed off;

Goods produced can be forfeited;

Penalty may be imposed (Minimum Tk 20,000 and maximum Tk. 50,000) sec. 37 (2)

27. Name the importers who are exempted from registration requirement?

All educational institutions and Government officers;

Passengers carrying accompanied or unaccompanied goods from overseas through custom port,

custom airport and custom land station;

All embassies, UN and UN bodies, Organization of Islamic Co-operation (OIC) and its bodies

and other privileged institutions.

Any educational or Government and other organizations mentioned above shall have to register for import

when they produce or manufacture goods.

28. Cottage industry in our VAT law.

SRO no 168-Law/2003/376-Mushak has set four criteria for cottage industry. This are

It must not be a Joint Stock Company;

Capital investment therein on plant, machinery and equipment shall not exceed Tk. 40 lacs at any

time of the year;

Turnover of the industry shall not exceed Tk. 60 lacs annually;

29. VAT administration.

Like all other taxes, the apex body of VAT administration is the National Board of Revenue (NBR). It

appoints the following required VAT officers for a specified jurisdiction through official Gazette

Notification.


17



30. Books and Documents Require to be Maintained for VAT Purposes:

The following books and documents shall be maintained by a VAT tax payer:-

a) Purchases register in Form VAT-16;

b) Sales Register in Form VAT-17;

c) Current Account in Form VAT-18;

d) Invoices in Form VAT-11 or 11A;

e) Paid Treasury Challan;

f) VAT Return in Form VAT-19; and

These books and documents shall be maintained for at least 4 years.

31. Time Limit for Submission of Application for Drawback/Refund of VAT Rule 30(1).

A registered person who-

a) Export on commercial basis;

b) Manufactures or produces goods exempted from payment of tax;

c) Person who is exempted from registration.

Shall apply to Duty Exemption and Drawback Office (DEDO) within six months of the completion of

export for receiving drawback of taxes paid on inputs used in the manufacture or production of goods or

in the rendering of service. [SRO 637 of 2012]

VAT ADMINISTRATION

Administrative Authority Judicial Authority

1. NBR

2. Commissioner VAT

3. Commissioner large unit – VAT.

4. Director General-Audit & Inspection;

5. Director Duty Rebate;

6. Additional Commissioner, VAT

7. Joint Commissioner, VAT

8. Deputy Commissioner, VAT

9. Assistant Commissioner, VAT

10. Superintendent, VAT

11. Inspector VAT

12. Other VAT officer with any designation, which include

inspections.

1. Appellate Tribunal

2. Commissioner (Appeal), VAT


18



32. Registration under VAT: Sec 15.

1. A supplier of taxable goods, provider of taxable services, importer, exporter of goods and service

shall be registered with the concerned VAT officer in accordance with the procedures prescribed

by Rule of this VAT Act.

2. If any person supplies taxable goods or render taxable services or carries on import-export

3. If the concerned VAT officer is satisfied that the application for registration is in order in all

respects, he shall register the applicant and issue a registration certificate mentioning therein his

Business Identification Number (BIN);

4. Notwithstanding anything contained in this section, validation of this certificate to be determined

by the rules and such registration certificate may be renewed in accordance with the Rules itself;

5. Upon inquiring by the concerned VAT officer, if any person is found that he is not registered, but

he is required to be registered under this Act, the VAT officer shall register the person with effect

from the date wherefrom it is obligatory to him;

6. Every registered person shall be provided unified registration number.

33. Exemption from Registration; Sec 16

1) Government may, by general or special order exempt any person or class of persons from the

requirement of registration under section 1, on the basis of the annual turnover of taxable goods

or services as time to time determined by the Government.

2) The Board may, by general or special order, exempt any class of importers or exporters from the

requirement of registration.

34. Time and mode of payment of VAT.

As per Section 6 & 23 of VAT Act 1991; the procedures and time for payment of VAT are enumerated

below:

1. Imported Goods: In case of imported goods the methods and payment of VAT and

supplementary duty as the case may be will be same as custom duty as per Custom Act.

2. Goods Produced by a registered person: In case of goods produced by a registered person,

VAT shall be payable on the happening of the following events which occur first:

a. When the goods are delivered

b. Issuance of invoice, relating to the goods supplied

c. At the time when goods are transferred for personal or the use of others

d. Receipt of full or part payment

3. Service Rendered by the registered person: In case of service rendered by the registered

person, VAT shall be payable on the happening of the following events, which occurs first:

a. When service rendered

b. Issuance of invoice

c. Receipt of full or part payment

4. Direction of time and method by Board: Notwithstanding anything contained above, the board

may, in accordance with the prescribed rules direct any method and time for payment and system

of VAT, supplementary duty including advance payment in respect of any goods, class of goods

and services.

5. Attachment of any stamp or banderole: Notwithstanding anything contained in this act,

Payable by Value Added Tax for services which is ascertained by govt. notification in the gazette

for this purpose will deduct or collect at source according to prescribed manner by order of the

board, at the time of payment of service value or commission by concerned service received or

commission payer.


19



35. Description of deduction of VAT at source.

4a. Deduction at source: Notwithstanding anything contained in this act, Payable by Value Added Tax

for services which is ascertained by govt. notification in the gazette for this purpose will deduct or collect

at source according to prescribed manner by order of the board at the time of payment of service value or

commission by concerned service received or commission payer.

4b. Subject to the provision of sub section 4 (aa), a certificate in this regard shall be given by the payer to

the payee mentioning the following:

i. The registration number of the VAT payer;

ii. Total amount of payment for service;

iii. The amount of VAT deducted;

iv. Any other information warranted by rules

4c. Penalty: If the person concern fails to deduct VAT;

i. He shall pay interest @2% per month with the original amount due as VAT

ii. The amount deducted and paid shall be deemed to be paid by the party from which deduction has

been made

iii. Notwithstanding in clause (a) if VAT is not deposited within two months from the date of its

collection/deduction the person responsible shall be penalized by not exceeding tk. 25,000 by the

commissioner.

36. Who will need to pay VAT?

Value added tax will be paid by:

1. The importer in case of imported goods,

2. The supplier of goods manufactured or produced in Bangladesh

3. The provider/renderer of services

4. In other cases, the suppliers and services receivers

37. Determination of Value for imposition of VAT.

The value for the purpose of Value added tax payable, the value shall be the transaction value as

determined under section 25 or section 25A plus import duty and supplementary duty including other

duties and taxes if any excepting

Import stage: Customs Assessable Value + Customs duty + Supplementary Duty with other duties and

taxes (if any), except advance income tax.

Other duties and taxes means Safeguard Duty (SGD), Countervailing Duty (CVD), Antidumping Duty

(ADD) etc.

Calculation of VAT at import stage:

Based on: Value+CD+RD+SD

If assessable value for customs duty (CD) is Tk.100

If –

rate of CD is 25% on AV

rate of RD is 5%

rate of SD is 20% on (AV+CD+RD)

rate of VAT is 15% on (AV+CD+RD+SD)

Then amount of VAT is = Tk. (100+25+5+26) X

rate of VAT 15% or Tk. 156 X 15% = Tk. 23.40

[i.e., Base of VAT = Tk.150.00]


20



Local stage: Value of goods is determined by aggregating the cost of inputs, other costs & charges, profit

and commissions.

Goods (manufacturing): [{Value of inputs + Total expenses + Commission, charge, fee (if any) + all

duties and taxes (if any), excepting VAT + Profit} + Supplementary Duty (if any)].

Calculation of Taxes:

Value of inputs = Tk. 156.00

Total expenses = +30.00

Commission = +4.00

Profit = +20.00

Total = 210.00

SD @ 20% +42.00

Value for VAT = 210.00+42.00 = 252.00

So the amount of VAT = Tk. (252 X 15%) = Tk. 37.80

[Assessable value for SD: The amount or consideration received or receivable from the buyer excluding

the amount of SD and VAT]

Value for Services: Total receipts excluding VAT, but including SD (if any).

Total receipt means – Total money received or receivable including commission or charge, excepting

VAT by the taxable service renderer in exchange of his services. {sec. 2 (bha)].

Advanced Trade VAT (ATV): [{(Customs assessable value + Customs Duty) + Regulatory Duty (if

any) + SD (if any) + 26.67% (value addition0] X 4%.

Value to be declared under section 5(2) with the “form-1Kha” (rule 3) to the divisional Officer of

VAT for the next supply and taxes to be paid @ 15%.

Value declaration with input – output co-efficient in form “Musahak-1” to the Divisional Officer

of VAT.

38. Mention 10% sources of VDS.

The followings are the 10% sources of VAT deducted at source:

I. Motor car garage and workshop

II. Dockyard

III. Transport contractor other than transportation of petroleum product

39. Information relating to price Declaration:

1. Description of goods

2. Value of inputs and where applicable duties and taxes (other than VAT) paid on the inputs

3. All direct and indirect expenses of the organization (other than income tax).

4. Commission, charge fee paid.

5. Profit

6. Item wise value addition

7. Sale price including duties and taxes.


21



40. Provision relating to Trade Discount: U/r-3(6)

a) The registered person shall have to inform the concerned divisional officer

b) The price of the goods before and after discount

c) Publishing the information in the national daily

d) Discount amount shall not exceed 15% of the actual price

e) Allowed for 30 days in any twelve months periods.

41. Persons Responsible for Deduction of VAT

The following organization and establishment herein after referred to as VAT deduction at source

authority shall be responsible for deduction of VAT source:

a. Government

b. Autonomous Bodies

c. Banks

d. Limited Companies

e. Educational Institution

f. Semi-Autonomous Bodies

g. NGO’s

h. Insurance Companies and

i. Non-banking Financial Institution

42. Special treatment of Specified “Input Tax”

The Tax payer can claim 80% of the VAT paid as claim against input tax in respect of charges for

telephone, tele-printer, fax, internet, freight forwarders, clearing & forwarding agents, WASA, insurance,

audit and accounting firms, suppliers, security services, carrying agents, letter of credit services,

electricity and other related taxable services.

43. Penalty for False Declaration of Input Tax

If a tax payer makes false declaration relating to credit of input tax, he may be penalized under section 37

of the VAT Act, 1991 to the extent of minimum half of tax payable or maximum full of tax payable

amount; and also the credit of the input tax shall be cancelled.

44. What is meant by input? Input tax?

Under VAT Act 1991, Input means:

All kinds of raw material, packaging materials, services, machinery and spare parts thereof except

labor, land, building, office equipment and transport;

All goods imported, purchased, acquired or otherwise procured in any way for the purpose of

sale, exchange or transfer in connection with business.

“Input Tax” means the Value Added Tax paid on inputs imported by a registered person, or purchased by

him from any other registered person and also includes advance payment of VAT at import stage.

45. How input tax can be taken?

The registered person is to pay VAT on input at the time of acquisition and is to realize VAT from the

customers against output/sales. In this case he has the right to deduct input VAT from output VAT and is

required to pay excess amount of output VAT over input. This deduction procedure is called rebate of

input VAT.


22



46. Consideration to be fulfilled for rebate.

To take rebate under this section the following conditions are to be fulfilled:

1. The person must be registered under VAT Act.

2. The rebate is to be taken against output tax.

3. Valid papers are to be submitted for input tax.

4. Valid papers and the input must be in the possession of rebate taker. The name, address and

registration number must be mentioned in the input tax related papers.

5. Rebate is to be taken within the tax period.

6. In the price declaration the analysis of the cost of input must be shown.

47. Which tax payer cannot obtain rebate?

According to section 9, input VAT credit cannot be taken for VAT paid on inputs used in the production

of exempted goods or services. Earlier it was only applicable for exempted goods producers.

48. Whether rebate on VAT, ID, SD and AIT can be obtained?

Import duty, supplementary duty and AIT cannot be obtained as rebate but VAT can be. However, draw

back on import duty and supplementary duty can be obtained against output tax through adjustment in the

current account subject to the provisions of VAT Rule 19(4).

49. Benefit of input tax rebate.

The benefits of input tax rebate are as follows:

a) Rebate system removes the cascading effect of tax on tax as was the situation under earlier sales

tax regime. Theoretically it is the ultimate consumers bearing the incidence of VAT and at each

stage before that, the producers or sellers can adjust the input tax against output tax and thereby

transfer the incidence of tax to next stage or person until the goods or services are finally bought

for consumption;

b) Without the provision for input tax rebate, tax paid thereon would form part of cost of goods or

services and in that case the producers or service providers cannot compete locally and

internationally;

c) Rebate process ensures a kind of indirect check and balance between input outp0ut co-efficient

and can be a protective drive to check tax evasion.

50. Restrictions relevant to individuals enlisted for turnover tax payment.

a) People enlisted for turnover tax cannot pay tax on the base of tariff or reduced value;

b) Those people cannot achieve input rebate and VAT registered people purchasing from turnover

taxed people on the base of tax challan cannot also achieve input rebate.

51. Books and Records to be maintained by the Turnover Tax Payer.

1. Daily purchase and sales registered in the form of Mushak – 17A

2. Cash memo in serial order in self-designed

3. Paid Treasury Challan

4. Turnover Tax Return in the form Mushak – 4

5. VAT declaration of Turnover in the form Mushak – 2B


23



52. Whether turnover tax (TOT) can be deducted at source?

Turnover Tax (TOT) cannot be deducted at source against supply of goods or service. However, it is to be

ensured through presentation of treasury challan and certificate about deposit of due tax in advance for the

related tax period.

53. Tax period of people enlisted for TOT?

Tax period can be yearly, quarterly or monthly. It entirely depends on the convenience of the turnover tax

enlisted individual being to choose his tax period and mention the same while declaring yearly turnover in

form ‘VAT’ – 2B on the basis of his own selection, enlisted individual shall have to submit return to the

concerned circle.

54. In what process turnover tax of a definite tax period is to be paid?

In case of yearly declaration, within 30 days of declaration of turnover and for quarterly or monthly

declaration within 15 days of such declaration tax calculated @ 3% together with the main copy of

treasury challan have to be submitted to the related circle in form ‘VAT’- 4. Tax is payable from the date

of enlistment.

55. What is Turnover Tax (TOT)?

Turnover Tax (TOT) is a tax as an alternative to “full VAT” on the turnover of a manufacturer or

producer of taxable goods or provider of taxable services as case may be, who is not ought to register for

the purpose of VAT under section 15 of the VAT Act 1991.

Turnover Tax has been included in the VAT Act, 1991 to allow small traders, business man, manufacturer

to pay tax @ 3% on turnover, provided it does not exceed annual turnover tk. 80 lac.

56. Penalty of nonpayment of Turnover Tax (TOT)?

In case of failure of payment of turnover tax, VAT superintendent can impose fine up to Tk. 5,000 and

additional tax @ 2% per month for the delay of non-payment period.

57. Penalty for false declaration of Turnover Tax.

If the turnover tax payer makes false declaration for turnover tax by understating his turnover, he may be

penalized under section 37 of the VAT Act 1991 to the extent of at least the tax evaded and at best 1.5

times of tax evaded and also required to pay unpaid tax (Difference between CAT and turnover tax).

58. Difference between VAT & Turnover Tax.

SL. Particulars VAT (Value Added Tax) TOT (Turnover Tax)

1. Tax Rate Tax Payer pays VAT @15% of the

value added, which may be ‘full’

invoice value or a part there of as the

case may be.

Tax payer pays Turnover Tax @3%

of the ‘full’ invoice value.

2. Credit of Input

Tax

Tax Payer can take credit of input tax

paid by him.

Tax Payer cannot take credit of

input tax paid by him.

3. Credit of VAT

paid by purchaser

The purchaser can take credit of the

VAT paid by him.

The purchaser cannot take credit of

the VAT paid by him.


24



4. Tax payment The Tax payer pays before each

delivery of goods or rendering of

services.

The taxpayer pays monthly,

quarterly or annually as the case

may be.

5. Books and

Documents

The tax payer maintains purchase

register, sales, register, current

Account and Invoices.

The tax payer maintains Daily

purchase and sales Register.

6. Return Taxpayer submits Return in the form

VAT – 19 monthly within 15 days of

the end of the month.

The tax payer submit return in the

form VAT – 4 monthly or quarterly

within 15 days of the end of the

month/quarter, as the case may be.

7. Deduction at

source

VAT can be deducted at sources. TOT cannot be deducted at sources.

59. Supplementary Duty?

Supplementary duty is an output tax. In addition to VAT, supplementary duty is imposed on luxuries, not

essential and not socially desirable goods and services. The rate of supplementary duty varies from 10%

to 500% such as: 10%, 20%, 30%, 45, 48%, 60%, 61%, 63%, 100%, 150%, 200%, 250%, 350%, 500%;

and at a rate ranging from 5% to 35% for services such as: 5%, 10%, 25% and 35%.

Supplementary duty generally imposed on followings:

1) Luxury, non-essential and socially undesirable goods and services on which imposition of

supplementary duty is justified in the public interest, as specified in the Third Schedule

2) For the purpose of imposition of supplementary duty, the value of the goods or services shall be –

a. In case of imported goods, the values as determined under section 25 or 25A of the

Customs Act for the purpose of imposition of import duty;

b. In case of goods manufactured in Bangladesh and in case of other taxable goods, the

consideration charged to the buyer in which VAT or supplementary duty is not included;

c. In case of service provided in Bangladesh, the total receipts on account of service

excluding VAT and supplementary duty;

d. In case of goods on which VAT is charged on the basis of the retail price, shall be

considered as the value of the goods for the purpose of imposition of supplementary duty.

3) Time and mode of payment of supplementary duty shall be the same as applicable to VAT.

60. What is truncated value?

Truncated or short value system is one where VAT at standard rate (15%) is charged on the truncated

value or deemed or estimated value addition. This price is not the actual nor do the market prices of the

services not even the accurate amount of value addition. This may be nearer to the amount of value

addition and used for the purpose of VAT assessment. Since this is based on a fraction of the value, input

tax rebate cannot be obtained excepting on exports or deemed exports.

Sometimes, it becomes very difficult to avail VAT credit/adjustment facilities due to non availability of

invoices supporting the purchase of input. In order to remove this operational difficulty fixed bases such


25



as 15%, 25%, 30% and 60% value addition is taken into account for calculation of VAT for a number of

goods and services. Thus, truncated value is the percentage of value addition on which VAT is applicable.

Followings are some examples where truncated systems are applied.

SL# Taxable Services Value Addition VAT

1. Motor Vehicle garage and workshop 30% of total receipts 4.5%

2. Construction Contractors 30% of total receipts 4.5%

3. Building Developers 10% of total receipts 1.5%

4. Consultancy and supervisory firm 30% of total receipts 4.5%

5. Securities Service 30% of total receipts 4.5%

61. VAT assessments/duties and responsibilities of VAT assesse.

Duties & responsibilities of VAT Assesse: A VAT assesse needs to pay tax, maintains account and

document properly. To this end his duties and responsibilities are as follows:

i. To ascertain tax liabilities through Current Account at the time of supply of goods and deposit

relevant tax to the exchequer.

ii. To fill up and make entry in current account, purchase and sale account and transfer the relevant

item in concerned books and documents periodically.

iii. To deposit relevant books and accounts to tax authority in due time.

iv. To keep in safe custody all accounts and books relevant to VAT at least for six years.

v. To produce relevant books and accounts to tax authority on demand.

vi. To allow tax officials to enter into his business premise.

vii. To maintain in voice to ensure refund and rebate of tax.

viii. To supply invoice to purchaser at the time of supply of goods.

ix. To collect & deposit taxes as per provision of VAT act.

62. Discuss some important features of VAT in Bangladesh.

The main features of VAT in Bangladesh are as follows:

i. VAT is imposed on goods and services at import stage, manufacturing, wholesale and retails

levels;

ii. A single stage VAT is applicable for both imports cum manufacturing.

iii. A uniform rate is 15 percent is applicable for both goods & services.

iv. VAT is compulsory for whole sales/retailers (for selected items)

v. VAT is applicable for goods and services as mentioned the VAT Act.

vi. Exports are zero rated subject to fulfillment of some conditions.

vii. VAT is payable at the time of supply of goods and services.

viii. Turnover tax @ 4% is leviable where turnover amount is less than Tk. 80 lac.


26



ix. Some industries like Agro-based, Cottage industries are exempted from VAT.

x. Taxes paid on inputs are creditable against output tax as per provision of Section-9.

xi. Tax returns are to be submitted on monthly or quarterly or half yearly basis as notified by the

Government.

63. What are the different types of value added tax?

According to the provision of Value added Tax Act 1991 three different types of tax are charged which

are as follows:

i. Value Added Tax: Importers, manufactures and service providers, having minimum annual

turnover of Tk. 60 lac have to pay 15% tax on their value addition under Section 3 of the VAT.

ii. Turnover Tax: Turnover tax @4% is leviable on those persons and organizations whose

turnover amount is less than Tk. 80 lac under Section 8.

iii. Supplementary Duty: Luxurious, non-essential and socially undesirable goods are subject to

supplementary duties at different rates ranging from 20% to 500% under Section 7 of the VAT

Act.

64. What do you mean by presumptive/Fixed VAT?

Presumptive/Fixed VAT: Small traders and retailers are required to be registered and to pay flat rate of

VAT, which is known as presumptive/Fixed VAT. The actual rate depends upon the location, Taxpayer

residing in Dhaka North, Dhaka South & Chittagong City Corporation area are required to pay an annual

VAT of Tk. 28,000 while in other City Corporation areas pay Tk. 20,000. The corresponding rate for

taxpayer residing in municipal area of district town and other areas Tk. 14,000 and Tk. 7,000 respectively.

65. Areas of registration is required for the purpose of VAT.

A person needs to register for the purpose of VAT before commencement of the following business

activities:

a) Production or manufacture of goods;

b) Trading of goods;

c) Rendering of services;

d) Import of goods;

e) Export of goods

66. Applicable rate of VAT deduction or collection at source for the following cases:

i. Construction contractors.

ii. Indenting commission.

iii. Banking service.

iv. Audit fees.

v. Sale of goods on auction.

VAT is deductible at source from various services at rates as under

i. Construction contractors @ 5.5%

ii. Indenting commission @ 15%

iii. Banking services @ 15%

iv. Sale of goods on auction @ 4%

v. Audit & accounting firm @ 15%


27



67. Documents need to be submitted for VAT registration &Time of registration cancelled.

Application for VAT registration shall be made to the VAT divisional office in form VAT – 6. The

following documents shall be submitted along with the application form:

a) Trade license;

b) TIN Certificate (if any);

c) IRC/ERC Certificate (if any);

d) List of all related selling centers in the case of central registration; and

e) Declaration in form VAT – 7 of the production or business premises, plant, machinery, fittings,

finished or tradable goods, stocks, and imports.

If the application is completed, the VAT divisional officer shall issue the certificate of registration in the

form VAT – 8 within 7 days of the application.

No fee is payable for registration for the purposes of VAT.

If a person carries out business from various premises, he may obtain “central registration” so as to pay

VAT; and complies with the requirement for the VAT laws “centrally”. However, no “group” (that is,

various companies/entities under common management for ownership) registration is permissible under

the VAT Act, 1991.

If “central registration” is not obtained, then separate registration for separate premises shall be required

for the purpose of VAT. However, if a registered person changes his premises or businesses, he will file

declaration with the VAT Circle Office in form VAT – 9 at least 14 days prior to such changes in his

premises or businesses.

Registration may be cancelled for the purposes of VAT if:

a) The registered person discontinues businesses;

b) The registered person’s business are exempted for the purposes of VAT;

c) The turnover of the registered person is below Tk. 80 lac;

d) The registered person fails to commence business after obtaining certificate of registration;

e) The turnover of the self-registered is below Tk. 80 lac;

The registered person shall apply to the VAT Circle Office in VAT form 10 for cancellation of the

registration.

68. Under what situations, Input Tax Credit is not allowed VAT Act, 1991?

As per section 9 (1) of VAT Act 1991, the supplier and traders of taxable goods or services shall get

credit of input tax against payable of output tax except in the following cases:

a) VAT paid on input to produce exempted goods

b) Turnover tax paid on inputs procured from turnover tax payer

c) Supplementary duty paid on input

d) Value added tax paid on package reusable at any other time except for the first time

e) VAT paid for BMRE or repair purposes of building, in structure, establishment, furniture,

stationeries, A.C fan light and payments for architecture, designing and other products related

with such products or services.

f) Various goods and services specified by rules and value added tax in excess of the rate of

value added tax paid on such goods and service.


28



g) VAT paid on travel, entertainment, employee welfare etc.

h) In the case of –

i. Value added tax paid against inputs not included in taxable value base of

goods mentioned in of section 5(2).

ii. If value addition exceeds 7.5% without correction of declared price.

iii. Input tax paid on inputs purchased by traders mentioned in the second

provision of section 5(2).

i) VAT paid by service provider on input u/s 5(4).

j) Input tax paid on input purchased by traders mention in Section 5 (4a).

k) VAT on the input u/s 5(7) on tariff value.

l) VAT paid on bill of entry having registrations numbered other than person concerned.

m) VAT paid on goods under custody, or procession or occupancy of any other person.

n) VAT paid on materials which were not recorded in purchased book

o) VAT paid on materials for which bank guarantee was given.

p) VAT on purchase value, if payment (part or full) was not made by banking channel for

purchase exceeding taka 1 lac.

Rule – 19

(1A) Notwithstanding anything contained in the sub-rule (1), credit may be taken for the following

payments in respect of production or supply of goods surrendering of taxable service, namely:-

i) Eighty percent of the value added tax paid on the use of insurance in supply of gas and electricity;

telephone, teleprompter, fax, internet, freight forwarders, clearing and forwarding agent, WASA, audit

and accountant firm surveyor, security service, legal advisor, transport contractor and banking service.

Provided that the tax payer shall have to take credit on input tax within thirty days following the date on

which all inputs mentioned in the invoice or bill of entry enter the tax payer’s premises of production,

supply or service.

69. Duties and responsibilities of VAT assesse?

The duties and responsibilities of VAT assesse mentioned below:

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 submit relevant books and accounts 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 accounts to tax authority on demand.

f) To allow tax officials to enter into his business premise.

g) To maintain invoice to ensure refund and rebate of tax

h) To supply invoice to purchaser at the time of supply of goods.

i) To collect and deposit taxes as per provision of VAT Act.


29



Additional

Q# 1. Value addition is the important principle of VAT. Please explain the idea in context of VAT Act,

1991?

Answer:

Principle of Value Addition: Value Added Tax (VAT) means tax on value addition. The difference

between the input value and output value of any product and service at each stage of economic transaction

is known as value addition. VAT is charged on the value added at each stage of transactions of goods or

services from primary production to final consumption. So, every one, except final consumer, does not

have to bear any VAT from his own account. Because whatever the person other than the final consumer

has paid as VAT at the time of purchase he will collect that amount of VAT from persons who will buy

his goods or services and also collect tax on value which is added by him before selling. The standard rate

of VAT is 15%. The distinctive feature of VAT is that unlike erstwhile sale tax, it does not have any

cascading or tax on tax effect. Under sales tax regime there was no scope to adjust sales tax paid as input

tax against output tax payable and it used to be compounded at each intermediate stage. By introduction

of value addition concept the tax base has been expanded significantly with the expansion of

manufacturing and service sector in the economy.

Q# 2. Sunshine Ltd. submitted a price declaration to the VAT authority on 1 July 2016 showing the price

for levy of VAT at Tk. 50 per unit of VATable goods. On 20 July, 2016 the VAT authority approved the

price per unit at Tk. 80 rejecting the price declared by the company without giving any opportunity of

hearing to the company. As the Chief Accountant of the company, you are asked by the company

management to take necessary steps to protest the actions of the VAT authority. What are the legal steps

you would take and explain the grounds in support of your action plan?

Answer: Necessary legal steps to protest the ‘arbitrary’ actions of VAT authority:

i. As per Rule 3 of VAT Rules 1991 approval to the price declared by a registered person is due

within 15 working days. Sunshine Ltd. has declared the price on 01 July 2016 and considering 4

weekly holidays the approval is due by 19th July 2016 but the authority has accorded the same on

20 July 2016. Therefore, the price declared by Sunshine Ltd is “deemed to have been approved”.

Further, the authority has enhanced the price from Tk. 50 to Tk. 80 without allowing hearing

which is also unlawful.

ii. Also, an application should be preferred before the Commissioner of VAT within 30 (thirty)

working days of receipt of such “arbitrary” & “time barred” Price approval.

iii. The VAT Commissioner will have to dispose of such application, giving an opportunity of being

heard, within 15 (fifteen) days of such application.

Otherwise, it shall be deemed to have been disposed of favoring the Assesse.


30



Q# 3. Under which circumstances may a company cancel its VAT registration? What will they do to

cancel the VAT registration?

Answer: In pursuance with rule 15 of VAT Rules 1991, a Company, being registered person, can cancel

registration under the following circumstance:-

a) Being abstained from manufacture or production or sale of taxable goods or rendering of taxable

service, or import or export of any goods;

b) Taxable goods or services are declared as exempted goods or services;

c) Failing to start the business of production or manufacturing or supply of taxable goods or

rendering of services following being registered;

d) The turnover becomes less than Tk. 80 lac in the next one year from the date of registration of a

voluntarily registered person as per section 17 of the Act;

e) If the annual turnover of the registered person is less than Tk. 80 lac;

The Company shall apply to the VAT Circle Office in VAT Form-10 for cancellation of the registration.

Q# 4. X Ltd., pays Tk. 60,000 per month as office rent and Tk. 10,000 per month as other charges (lift

and security charges) to the landlord. The landlord wants that X Ltd. should pay 12% VAT along with the

above rent and charges to him, which will then be deposited by the landlord to the government treasury?

On the other hand X Ltd., wants to deduct 9% VAT from rent and 2.25% VAT from other charges, make

the payment (net of VAT) to the landlord and deposit such deducted amounts to the government treasury.

Both of them have now come for your advice.

Advise on the basis of the current provisions of VAT Act and its Rules.

Answer: There is no provision of VAT deduction at source on house rent. VAT on house rent is paid by

the tenant. X Ltd., as tenant, has made an agreement with the landlord regarding the terms and conditions

of rent. He pays the rent to the landlord; and he is also required to pay 9% VAT from his own fund on the

agreement amount to the government treasury, the tenant requires to submit the treasury Challan to the

local VAT Circle Office. While calculating VAT, charges for lift and security cannot be excluded. In our

VAT system of Bangladesh, the base for calculation of VAT is total receipt. Total receipt includes the

price of the service, all charges, fees, commissions etc. involved thereon. Total receipt remains defined

under section 2 of the VAT Act, 1991. In this case, total receipt Tk. 70,000. This amount is to be paid to

the landlord. On top of this amount, 9% VAT stands at TK. 6,300 needs to be deposited to the

government treasury as VAT on house rent. Here, VAT is being paid by the service receiver. This is not

VAT deduction at source.

Q# 5. In early June 2015 XY Ltd., offered to provide some engineering consultancy services to AB Ltd.,

at Tk. 850,000 which is the lowest bid price. Another bidder quoted Tk. 1,000,000. XY Ltd., has not

attained VAT registration. AB Ltd., intends to hire the services of XY Ltd., being cheaper. PQ Ltd., a

security service provider appointed by AB Ltd., i.e. 1 June 2015, is registered with VAT authority. PQ

Ltd., is unwilling to issue a valid VAT invoice (Mushak-11) and has asked the Company to deduct VAT

at source from the amount payable thereto. In this situation, AB Ltd., is not sure whether deduction of

VAT at source would be sufficient compliance with the provisions of VAT laws.

Requirement:

Advise AB Ltd., with consequences, if any, for entering into the above transactions.


31



Answer:

As per Section 19(Ka) of the Value Added Tax (VAT) Act, 1991, no person would be able to take part in

any tender if he is not registered with the VAT Authority or any work order cannot be issued in favor of

him. Moreover, as per Section 9(1) (T) of the Value Added Tax (VAT) Act, 1991 input Tax credit shall

not be allowed on any purchase if anybody makes the purchase from any person not registered with the

VAT authority.

In the given situation, XY Ltd., the lowest bidder to provide the engineering consultancy services to AB

Ltd., is not registered with the VAT authority. As per Section 37 (1) (6) of the VAT Act, 1991, the person

awarding the tender or work order may be penalized with a minimum of Tk. 10,000 and a maximum of

Tk. 30,000. Therefore, it is advisable to hire the consultancy services from an entity registered with VAT

authority instead of XY Ltd., to avoid the negative consequences as mentioned above. AB Ltd., should

include a provision of mandatory submission of a copy of the VAT Registration Certificate by intended

local suppliers in its vendor enlistment policy and ensure availability of valid Mushak-11 before receiving

commercial invoice from suppliers.

However, AB limited will not be eligible for input VAT credit on the engineering consultancy services

irrespective of availability of Mushak-11 from another bidder since as per Section 9 (1) (D) of the VAT

Act 1991, input VAT credit facility is not allowed on any service related with infrastructure. In the

absence of details it is assumed that the engineering service will be taken for infrastructural development.

However, in the event AB Limited enters into the transaction with XY Limited, the invoice of XY

Limited should be considered as inclusive of VAT as per Rule 23 (4) of the VAT Rules 1991. AB

Limited has the responsibility of determining the applicable withholding VAT by back calculation (i.e.

multiplying invoice amount by 15/115). In this case, the VAT amount becomes Tk. 110,870 (Tk.

850,000X15/115). AB Limited will be required to deduct the applicable VAT at source before making

payment and deposit the same to the Government exchequer within 15 working days of deduction.

The same process will apply if AB Limited hires the service from the other bidder and the bidder does not

mention VAT amount separately in the issued Mushak-11. However, since XY Limited is unregistered, it

appears that they did not consider VAT from its fee. In such case, AB Limited would be required to bear

the applicable VAT (i.e. Tk. 110,870) from its own exchequer.

As per SRO# General Order no.-03/Mushak/2014 dated 05 June 2014 issued by the National Board of

Revenue (NBR), a company has responsibility of mandatory deduction of VAT at source at the rate of

15% from a 'Security service provider' (service code SO 40) irrespective of the availability of Mushak-11

in exchequer using the relevant Commissioner Code within 15 working days of deduction. As per Rule 19

(1'K') of the VAT Rules 1991, 80% input VAT credit is allowed on security service. However, as per

Section 9(1) (U) of the Value Added Tax (VAT) Act, 1991 input VAT credit shall not be allowed on any

purchase without availability of valid VAT invoice (i.e. Mushak-11). Therefore, merely the deduction of

applicable amounts of VAT would not be sufficient to avoid the negative consequence of loss of input

VAT credit.

In the given situation, PQ Ltd., as appointed by AB Ltd., to provide security service, is unwilling to issue

the valid VAT invoice (i.e. Mushak-11). AB Ltd., is required to deduct applicable amount of VAT at

source and should deposit the same to the Government exchequer within due time. However, in the

absence of valid VAT invoice, AB Ltd., cannot take input VAT credit. Therefore, I would advise AB

Ltd., to discuss with PQ Ltd., to provide the valid VAT invoice.


32



Q# 6. AB Ltd., is now negotiating a deal with ST Ltd., for purchasing television sets. AB Ltd., intends

that ST Ltd., delivers the television sets to CD Ltd., a dealer of AB Ltd., wants that ST Ltd., issues

"Mushak-11" challan in favor of ST Ltd., so that they would be able to get input tax credit on the

purchase.

Requirement: Advice AB Ltd., on the above.

Answer:

Assumption:

In the given situation, AB Ltd., wants that ST Ltd., issues Mushak-11 Challan in favor of ST Ltd. As per

the current provision of the VAT law, a person cannot issue Mushak-11 Challan in favor of himself.

Therefore, it is assumed that the question intends to mean to issue Mushak-11 Challan in favor of AB Ltd

instead of ST Ltd., so that it can get input VAT credit.

As per Section 32 of the VAT Act 1991 read with Rule 16 of the VAT Rules 1991, any VAT registered

person has to issue Challan in form "Mushak-11" for supply of every goods and such Mushak-11 challan

has to be accompanied with the goods up to its final destination mentioned on it. Moreover, the

purchaser's and seller's name, address, registration number and destination of goods etc. have to be clearly

mentioned on the Mushak-11 Challan. As per Section 38 (2) (L) of the Value Added Tax (VAT) Act,

1991, the VATable goods shall be confiscated if such goods are removed from the business premises with

Mushak-11 Challan which does not accompany with the goods up to its destination. Moreover, as per

Section 9(1) (U) of the Value Added Tax (VAT) Act, 1991, the products purchased are required to be

brought into the premises of the registered entity in full to avail input VAT credit.

Therefore, for the given situation in the question, it is advisable to AB Ltd., to bring the televisions into

its own premises first from ST Ltd., for avoiding the risk of confiscation by the VAT authority and

availing input VAT credit. AB limited can then supply the purchased televisions to the CD Ltd. Provided

that the name, address and VAT registration number etc. of AB Ltd., and ST Ltd., have to be clearly

mentioned on the Mushak-11 Challan.

However, this suggestion may be impracticable to follow if the business premise of CD limited and ST is

adjacent or nearer and that of AB limited is far away from ST limited. In that case, once getting the

products from ST limited and then sending them back to CD may not be cost effective. AB limited in that

case may open a small branch near to CD limited with a separate VAT registration, receive the goods

from ST limited and immediately forward the same to CD limited. The branch will perform the necessary

documentation work to get input VAT credit, deposit VAT Current Account and then sell the televisions

to its dealer/customer.


33



Examples of VAT Math

1. Sun Moon Company

Math #1

Sun Moon Company has imported a consignment of 10,000 Tined Cookies from Malaysia on 15th July

2015. The C&F value and customs added value of the cookies are BDT 2 million and BDT 2.2 million

respectively. Mr. Karim the MD of the company requested you to ascertain the landed cost of

consignment on consideration of port charges, transport charges and miscellaneous expense equivalent

to 25% of C&F value. Under relevant HS code the rate of Customs Duty, Regulatory Duty and

Supplementary Duty are 25%, 10% and 15% respectively. You are also to ascertain AIT, ATV, VAT

and PSI charges and to appraise the MD on their inclusion and exclusion to landed cost.

Solution #1

BDT

2,200,000

550,000

220,000

2,970,000

445,500

3,415,500

512,325

110,000

173,057

[ATV for Commercial Investor/importer 4% and value addition 26.67%]

PSI :1% of assessable value: @ 1% on 2,200,000 = 22,000

Landed cost: CNF value+All non refundable duties+PSI+Other expenses

=2,000,000+550,000+220,000+445,000+22,000+(2,000,000*25%)

= 3,737,000

Custom's Assessed value (AV)

Particulars

Add: Custom's Duty (CD) (22,00,000 X 25%)

Regulatory Duty (RD) (22,00,000 X 10%)

Assuming Sun Moon Company follows price declaration basis, and pay vat on value addition at the time

of selling goods to their customer @ 15%.

ATV @ 4% on (AV+CD+RD+SD)*1.2667

SD leviable value

Add: Supplementary Duty (SD) (29,70,000 X 15%)

VAT leviable value

VAT @ 15% on 34,15,500

AIT @ 5% on AV that is 22,00,000


34



2. Rahman Industries Limited

3. A manufacturer

Math #2

Calculate VAT @ 15% payable at import stage & each stage of sales.

Rahman Industries Limited a vehicle assembly plant, has imported CKD parts and components for trucks

amounting to Tk. 25,00,000 in the month of July 2016. Rahman Industries Ltd. 'has assembled and manufactured 4

trucks from the above imported parts and components and then sold those 4 trucks to the dealer M/S Karim & Co.

@ Tk. 10,00,000 each. M/S Karim & Co then sold 3 trucks to M/S Chowdhury Transport & Co. @ 11,00,000

each.

Solution #2

Input Output

2,500,000 375,000 600,000

4,000,000 600,000 495,000

3,300,000 - -

Add: VAT 495,000

3,795,000

M/S Karim & Co.

M/S Chowdhury Transport & Co

Remarks

VAT Payable 225,000

Adjustable 105,000

Ultimate Consumer

VAT @ 15%Stage of sale

Price

excluding

Rahman Industries Ltd.

Alternative:

Stage of BusinessNo of

Sale

Input Price

(Taka)

Amount of

Value

Addition

Output

Price

(Taka)

Input

VAT

(Taka)

Output

VAT

(Taka)

Net VAT

payable

(Treasury

Deposit)

Rahman Industries Ltd.

(Manufacturer) 4 2,500,000 1,500,000 4,000,000 375,000 600,000 225,000

M/S Karim & Co. (Dealer) 3 3,000,000 300,000 3,300,000 450,000 495,000 45,000

M/S Chowdhury Transport &

Co. (Consumer) 3,300,000 - - 495,000 - 495,000

Math #3

Compute VAT at each stage and indicate the total VAT paid by the consumer.

A manufacturer sold goods worth Tk. 10 lac to the wholesaler by including to it VAT @ 15%. The wholesaler added 10% as

markup and sold the goods to the retailer by adding VAT who in turn sold the goods to the consumer by adding markup @

15%.

Solution # 3

Stage of

Business

Element of

value addition

Input Price

(Taka)

Amount of

Value Addition

Output Price

(Taka)

Input VAT

(Taka)

Output VAT

(Taka)

Net VAT payable

(Treasury Deposit)

Manufacturer Input 1,000,000 - 1,000,000 150,000 150,000

Wholesaler Input 1,000,000 100,000 1,100,000 150,000 165,000 15,000

Retailer Input 1,100,000 165,000 1,265,000 165,000 189,750 24,750

189,750


35



4. An importer

Math #04

Compute VAT assuming that retailers sold 70 pieces of cycle in the month of June 2015.

An importer imported 100 pieces of Motor cycle at C&F price Tk. 80,000 per piece. The

clearing and incidental charge amounted to Tk. 90,000 for the lot. He sold 90 pieces of cycle to

wholesaler at a margin of 10% exclusive of VAT which is 15% on the value of sale price. The

wholesaler charged 15% commission to sell it to retail seller to be sold from their sale center.

The retailers incur cost @ 1000 for maintenance and salary of persons of sale centre and

charge cost plus 10% margin.

Solution #04

Import Stage:

BDT

8,000,000

90,000

8,090,000

7,281,000

728,100

8,009,100

1,201,365

9,210,465

Add: Profit @ 10% of Tk 7,281,000

Selling price excluding VAT

Add: Output VAT of 90 Pcs @15%

Selling price including VAT

Particular

CIF value/imported price (100X80,000)

Add: C&F charge

Cost of 100 pieces

Cost of 90 pieces (8,090,000 X 90/90)

Wholesaller Stage:

BDT

9,210,465

(1,201,365)

8,009,100

1,201,365

9,210,465

1,381,570

10,592,035

Particular

Cost of purchase

Less: Input VAT

Purchase price excluding VAT

Add: Commission @ 15%


Add: Output vat @ 15%



36



5. Shova Enterprise Ltd

Retailer Stage:

BDT

10,592,035

8,238,249.25

(1,074,554.25)

7,163,695

70,000

7,233,695

723,370

7,957,065

1,193,560

9,150,624

Particular

Cost of 90 Pieces

Cost of 70 Pieces (10,592,035 X 70/90)

Less: Input VAT (1,381,570 X 70/90)

Add: Output VAT of 70 Pcs @ 15%


Purchase price of 70 pieces excluding VAT

Maintenance (1000 X 70)

Total cost

Add: Profit @10%


Working:

Importer Wholesaler Retailer

100 Pcs 90 Pcs 70 Pcs

1,201,365 1,381,570 1,193,560

(1,201,365) (1,381,570)

(1,201,365) (1,074,554)

1,201,365 180,205 119,005

934,395 140,159 92,560

= 934,395+140,159+92,560

= 1,167,114

Total VAT for 70 pcs (70/90)

Particular

Output VAT

Input VAT

Input VAT rebateable @ proportionate

VAT payable (Net VAT)

Match #05

BDT

200,000

50,000

50,000

60,000

40,000

The company sells all of its goods adding 25% profit with total expenditure. Its starting stock of raw

materials and ending goods are Tk. 60,000 and Tk. 40,000 respectively. The quantity of ending stock

goods and raw materials are Tk. 80,000 and Tk. 20,000 respectively. If VAT is imposed @ 15%,

calculate the total amount thereof.

Expenditure for Sale

At 30th June, 2016 the information regarding production and sales of Shova Enterprise Ltd. areas follows:-

Purchase of Raw Materials

Net wages

Excess Industrial Expenditure

Excess Administrative Expenditure

Particulars


37



6. Importer Mr. Akbar

Solution #05

BDT

60,000

200,000

(20,000)

50,000

290,000

50,000

60,000

40,000

40,000

(80,000)

400,000

100,000

500,000

Calculation of VAT:

Output VAT 500,000 @ 15% 75,000

Less: Input VAT 240,000 @ 15% 36,000

39,000

Particulars

Selling Price

Less: Closing stock of finished goods

Cost of Sale

Add: Profit @25% on cost

Add: Purchase of raw materials

Less: Closing stock of raw materials

Add: Net wages

Prime cost

Add: Excess Industrial Expenditure

Excess Administrative expense

Opening Stock of Raw Materials

Expenditure for sale

Add: Opening stock of finished goods

Math #06

Determine VAT in each stage.

An electronic goods importer Mr. Akbar purchased electronic parts at the cost

of Tk. 35,00,000 on the month of December 2016 and sold it to Khair & Co.

for Tk. 40,00,000. Using these parts Khair & Co. assemble 400 pcs of color

TV and sold it to East West Electric Co. for 56,00,000 who is a whole seller.

East West co. sold that goods (TV) to retail seller Lemo Int. for Tk. 80,00,000.

In each case and each stage 15% VAT was counted.

Solution #06

1) Account Mr. Akbar

Particulars

Paid Received

3,500,000 525,000 -

4,000,000 600,000

75,000

Imported electric goods

Sold to M/S Khair & Co.

VAT Payable

VAT @ 15%Amount


38



7. Unicom Bangladesh Ltd.

2) Account M/S Khair & Co.

4,000,000 600,000

5,600,000 840,000

240,000

3) Account East West & Co.

5,600,000 840,000

8,000,000 1,200,000

VAT Payable 360,000

Total VAT payable = 525,000+75,000+240,000+360,000 1,200,000

Purchased from Mr. Akbar

Sold to M/S East West

VAT Payable

Purchase from M/S Khair & Co

Sold to Lemo Int.

Math #07

The following information has been taken from the accounting records of Unicom

Bangladesh Ltd. for the year 2016.

BDT

90,000

60,000

180,000

100,000

260,000

210,000

750,000

Finished Goods inventory, January 01

Finished Goods inventory, December 31

Purchase of raw materials

Raw Materials inventory, January 01

Raw Materials inventory, December 31

Work in progress inventory, January 01

Work in progress inventory, December 31

Direct Labor 150,000. Manufacturing overhead 640,000. Selling expenses 140,000.

Administrative expense 270,000. Markup 15% on cost. Determine VAT.

Solution #07

Unicom Bangladesh Ltd

Particulars BDT

Opening Stock Raw materials 90,000

Add: Raw Materials Purchase 750,000

840,000

Closing Stock of Raw materials (60,000)

780,000

Add: Direct Labor 150,000

Manufacturing Overhead 640,000

Prime Cost 1,570,000

Add: Opening WIP 180,000

Less: Closing WIP (100,000)

Add: Opening finished goods 260,000

Less: Closing finished goods (210,000)

Total Cost 1,700,000


39



8. ABC Ltd.

Add: Profit @ 15% on Cost 255,000

Selling Price 1,955,000

VAT Calculation:

VAT on Output 1,955,000 15% 293,250

Less: Input VAT 780,000 15% (117,000)

VAT Payable 176,250

Math #08

ABC Ltd. provides the following information about its production and sales:

BDT

2,300,000

250,000

63,000

11,500

30,000

40,000

70,000

20,000

Requirement:

The company sells its products by adding 25% margin on cost. A trade discount of

5% is allowed. Other production and administration overheads and selling expenses

do not include any VAT. There were no opening & closing stock of raw materials.

Determine VAT payable if the rate is 15%, assuming that opening & closing stock of

finished goods were Tk. 30,000 and Tk. 20,000 respectively.

Other administrative overhead

Selling expenses

Particular

Purchase of raw materials (Including VAT Tk. 300,000)

Direct wages

Electricity (Including VAT Tk. 3,000)

Telephone (Including VAT Tk. 1500)

Depreciation of machinery

Other production overhead

Solution #08

BDT

-

2,000,000

-

2,000,000

250,000

2,250,000

Add: Direct labor/wages

Prime Cost

ABC Limited

Calculation of VAT payable

Particulars

Opening raw material

Add: Purchasing of raw material (excluding VAT)

Less: Closing stock of raw material

Raw material used


40



9. Excellent Shoe Co. Ltd.

60,600

10,300

30,000

40,000

70,000

20,000

30,000

(20,000)

2,490,900

622,725

3,113,625

(155,681)

2,957,944

443,692

3,401,635

VAT payable = Output VAT - Input VAT

= 443,692 - (30,000+2400+1200)

= 140,092

Note: 80% of VAT on Electricity bill & Telephone bill is rebatable.

Other administration overhead

Add: VAT @ 15%

Selling Price

Selling Expense

Add: Opening stock of finished goods

Less: Closing stock of finished goods

Total cost

Add: Profit @ 25% margin on cost

Less: 5% Rebate

VATable price

Factory Electricity (60,000+3000 X 20%)

Telephone (10,000+1500 X 20%)

Depreciation of machinery

Other production overhead

Math #09

Excellent Shoe Co. Ltd. had the following transactions in September 2016.

Shoes delivered to customers in the month at approved price as follows:

Raw materials aggregating to Tk. 500,000 were purchased on 5 September, 2016,

VAT on the same paid and the VAT challan along with the goods were received on

10 September, 2016.

Date Taka

8-Sep-16 300,000

9-Sep-16 200,000

10-Sep-16 500,000

15-Sep-16 600,000

The following deposits were made to the Govt. Exchequer through treasury challan:

7-Sep-16 20,000

12-Sep-16 30,000

15-Sep-16 70,000


41



10. ABC Ltd.

Balance of deposit at 1 September 2016 in VAT-18 was Tk. 50,000.

You are required to:

i) Enter the above transactions in VAT-18 of company;

ii) Write a letter to the management on the irregularities noted by you in

completing the VAT current account (VAT-18) and implications of the same on

the company.

Solution #09

Excellent Shoe Co. Ltd.

VAT Current Account

Mushak-18

SL. Date Description Treasury

Deposit Rebate Due

Closing

BalanceRemarks

1 2 3 4 5 6 7 8 9 10

1 1-Sep-16 Opening 50,000

2 7-Sep-16 Treasury Deposit 20,000 70,000

3 8-Sep-16 Sales 45,000 25,000

4 9-Sep-16 Sales 30,000 (5,000)

5 10-Sep-16 Purchase 75,000 70,000

6 10-Sep-16 Sales 75,000 (5,000)



9 15-Sep-16 Sales 90,000 5,000

Purchase/Sales

Book Ref.

Account Current

Irregularities: As per Rule 22 (Gha), VAT current account should always have deposit or debit balance. In this case,

VAT current account has credit balance in two dates (9 & 10 Sept) which is incompliance with the rule.

Math #10

ABC Ltd. Produces Duplex Board, declaring its price at Tk. 100,000 per metric ton.

Received an order on 20 June, 2015 from Lafaz Surma Cement Ltd. 'to deliver 500 metric

tons of duplex board on 25 June, 2015. It intended to deliver the goods on 25 June, 2016 if

VAT could be paid by then. The company had a VAT deposit balance on the morning of 25

June, 2015 in amount of Tk. 10,00,000. Calculate the amount to be deposited by the

company 25 June, 2015 to enable it to dispatch the goods on that date.

Solution #10

7,500,000.00

1,000,000.00

6,500,000.00

VAT Chargeable and payable on 500 MTs 100,000 X 500 X 15%

Less: VAT deposit balance on the morning of June 25, 2015

Further VAT deposit to made through Treasury Challan on June 25, 2015


42



11. Rahman International Pvt. Ltd.

12. Mr. Habib

Math #11

On January, 2015, Rahman International (Pvt.) Limited imported raw materials for school

bags amounting to Tk. 1,00,000 and sold it to Agfa Limited for Tk. 1,20,000. Using these

materials, Agfa Limited made 150 pieces of school bags and sold it to Yousuf & Sons, a

wholesaler, for Tk. 1,70,000. Yousuf & Sons sold the gabs to a retail seller Jaman

International for Tk. 2,00,000. Jaman International sold all the bags to various customers

for tk. 2,50,000. In each case and at each stage 15% VAT is to be considered. Compute

VAT in each case.

Solution #11

Value of Input

(A)

Value of

Output (B)

Value Addition

C=(B-A)

100,000.00 - 100,000.00 15,000.00

100,000.00 120,000.00 20,000.00 3,000.00

120,000.00 170,000.00 50,000.00 7,500.00

170,000.00 200,000.00 30,000.00 4,500.00

200,000.00 250,000.00 50,000.00 7,500.00

37,500.00

So, the total value of VAT amount is Tk. 37,000/= which is ultimately borne by the final consumer.

Retailer (Jaman International)

Total VAT paid at different Stages

VAT Paid By

Amount Amount of VAT

Payment

D=(C*15%)

At Import stage by Rahman

International (Pvt.) Ltd.

Sale of Imported Products by Rahman

International (Pvt) Ltd.

Producer Agfa Ltd.

Whole Seller (Yousuf & Sons)

Math #12

a) Goods purchased for Tk. 57,500 including VAT

b) The above goods have been sold for TK. 80,500 including VAT.

c) Tk. 3,000 deposited to Bangladesh Bank for VAT Current Account.

d) Out of the sold goods Tk. 4,600 have been returned

e) VAT return submitted after adjusting the input and output VAT.

Compute the balance of VAT Current Account and give the journal entries of these transactions.

Mr. Habib is a VAT registered trader. He has the following transactions in the month of July 2015

Solution #12

The transactions that took place in 2015 by Mr. Habib are as under:

Particulars Amount VAT

a) Purchase of goods 57,500.00 7,500.00

b) Sales of goods 80,500.00 10,500.00


43



13. AB Ltd. ("Company")

c) Deposit of VAT 3,000.00 3,000.00

d) Return of sold goods 4,600.00 600.00

Balance of VAT Current Account 600.00

Journal Entries Debit Credit

1) Purchase of goods Account 50,000.00

Input VAT Account 7,500.00

Trade Payable Account 57,500.00

2) Trade receivable Account 80,500.00

Sales Account 70,000.00

Output VAT Account 10,500.00

3) VAT Current Account 3000

Bank Account 3000

4) Sales Return Account 4,000.00

Output VAT Account 600.00

Trade Receivable Account 4,600.00

5) VAT Current Account 600.00

Bank Account 600.00

Math #13

Question (a)

You are a VAT consultant licensed by National Board of Revenue and have been newly appointed

as a VAT outsourcing service provider of a manufacturing company, AB Ltd. ("Company").

Immediately after your appointment, submission of VAT return for the month of January 2015 has

become due. The Chief Financial Officer ("CFO") of the Company provides you with the following

particulars for the period from 01 January 2015 to 31 January 2015.

Raw materials worth Tk. 500,000/= were purchased and Tk. 1,500,000/= worth of finished goods

were sold during the month of January 2015. Applicable VAT rate is 15% in the case of

procurement of raw materials and sale of finished goods. 15% VAT was paid on procurement of

spare parts worth Tk. 100,000/= in January 2015. In addition, the amounts of VAT paid on various

expenditures incurred for the month of January 2015 are as follows:

Electricity Tk. 10,000/=

Audit Fee Tk. 30,000/=

Advertising Firm Tk. 15,000/=

Import of Machineries Tk. 25,000/=


44



You had a discussion with the CFO of AB Ltd. and came to know that the invoices raised by the

providers/suppliers of aforesaid services/goods are complaint with the provisions of VAT laws.

However, the advertising firm did not raise an invoice in Mushak-11 or invoice approved by the

competent VAT authority. All of the applicable VAT Registers, including Current Account, are

maintained by AB Ltd. Opening balance of the Current Account as of 01 January 2015 was Tk.

100,000/= and during the month of January 2015, Tk. 200,000/= was deposited in the government

treasury.

Requirement

Provide the CFO of AB Ltd. With computation of the following:

(a) Output VAT

(b) Input VAT credit

('c) Closing balance of the Current Account as of 31 January 2015

Solution #13

Answer (a)

Computation of VAT for the month of January 2015

Tk. Tk.

Add: Deposited in the government treasury 200,000.00

300,000.00

Less: Output VAT 1500000 15% 225,000.00

75,000.00

Opening Balance of Current Account of 01

January 2015

Particulars

100,000.00

Add: Input VAT Credit:

Raw materials 500000 15% 75,000.00

Spare Parts 100000 15% 15,000.00

Electricity Bill 10000 80% 8,000.00

Audit Fee 30000 80% 24,000.00

Import of Machineries 25000 25,000.00 147,000.00

222,000.00 Closing Balance of Current Account as of 31

January 2015

Note:

(i) Input VAT Credit shall not be allowed for the VAT paid on expenditure for

repair of Building as per Section 9 (1) of the VAT Act, 1991.

(ii) Input VAT Credit shall not be allowed for the VAT paid on Advertisement

expenditure due to want of a valid VAT invoice (Mushak-11)


45



14. Three persons

Math #14

Three persons, as follows are in the process of starting new business and approach you for advice under Value

Added Tax Act 1991 considering the current provisions in force

i) A Chartered Accountant is obtaining 'Certificate of Practice' from ICAB to begin professional practice in

accounting and auditing with an estimated annual fee income of Tk. 7,500,000/=.

ii) A retired Biman Airlines Manager in the process of setting up a Tour Operator business. Estimated annual

commission income is Tk.6,500,000/=

iii) XYZ Ltd., a private limited company, operating from Kaptan Bazar, Dhaka, and already a VAT-registered

assesse, engaged in product distribution got a new national distributorship agreement from a Chinese

Manufacturer to import, stock and sell mobile handset in Bangladesh. Estimated annual turnover of XYZ Ltd.

from new handset dealership is Tk.25,000,000/=. Company plans to appoint District Distributors (DD) to sell

mobile handsets through selected retailers in major cities.

Requirement:

a) Please brief on the three persons shown in (i), (ii), (iii) above in connection with the compliance under VAT

law considering the provision now in force with respect to initial compliance obligation and statutory VAT

records. Examiner shall take into account mention of Codes, prescribed VAT Forms, Records and

Sections/Rules.

b) XYZ Ltd., the company in (iii) above requires additional advice on the formulation of the handset price at

various stages using the system of 'input VAT rebate claims' at each stages of delivery chain u/s 9 of the law.

Please make detailed computation of the PRICE in each stage up to MRP(Price to Distributor, Price to Retailer

and MRP) clearly showing input-output VAT adjustment and net VAT payable amount in each stage of

National Distributor (ND) and District Distributor. Your answer should also contain a reconciliation of the

'VAT (15%) on cost to retail' and summation of the VAT at earlier stages beginning from the import.

[Assume: Per unit landed cost of XYZ Ltd is Tk.5,500/= including import stage VAT (15%=650/=), AIT

(5%=165/=) and Advance Trade VAT (4%=220/=). ND margin 15% on Landed cost, Trade Promotion

expense, estimated damage recovery total 14% on 'value after ND margin'; DD margin 5% and Retailer margin

15%]

c) XYZ Ltd., the company in (iii) above may soon run out of space at the present rented premises upon

addition of new set of employees for handset dealership. The company has own bigger floor space in Uttara,

Dhaka. Management is considering option of moving from current rented space from Kaptan Bazar to own

space in Uttara, two being separate VAT divisions, Please advise Company on steps within the purview of

VAT law (mentioning Section, Rule and prescribed From) if the company decides to change office/store to

Uttara.


46



Solution #14

Answer (a)

(i) Chartered Accountants Firm:

a) VAT Registration

Initial compliance obligation is VAT registration under service Code S034 using Form VAT-6. Obtain VAT registration

certificate (VAT-8). Although it may appear that the firm will not be require to obtain VAT registration certificate rather

will be required to obtain turnover tax registration since their estimated annual turnover is less than the threshold i.e., Tk

80 lacs, as per the SRO# 641 of 2012, the firm must apply for the VAT registration irrespective of its annual turnover.

b) VAT payment

c) VAT return

VAT return (Mushak-19) must be filed to the respective circle within 15th day of the next month.

d) VAT record keeping

VAT-11, VAT-19, VAT-12 Kha, Treasury Challan, etc.

In most of the case the payer is responsible for deduction of VAT at source at the time of making payment to the CA firm.

The firm will be required to collect Mushak-12 (Kha) from the payer. VAT paid to the firm must be deposited to the

Government Exchequer before submission of the VAT return. VAT withheld from the service provider should also be

deposited to the government exchequer.

Calculation of landed cost:

Total cost 5,500

Vat (650)

AIT (165)

ATV (220)

Landed cost 4,465

Price computation at each stage:

Margin Expense

Vat paid at

import stage 870

XYZ 4,465 - - 4,465 870 870 5,335 -

ND 4,465 670 719 5,854 870 878 6,732 8

DD 5,854 293 - 6,146 878 922 7,068 44

Retailer 6,146 922 - 7,068 922 1,060 8,128 138

Customer 7,068 - - - - - - -

Total 1,060

Total cost to be paid by customer: =7,068+(7,068*15%)=8,128

Value additionStage Input Output

Input

vat

Output

Vat

Invoice

price Net vat

(ii) Tour Operator:

(iii) XYZ Ltd:

a) VAT Registration

Tour operator is exempted from VAT. Reference: SRO # 176-Ain/2016/752-Mushak, dt. 02.06.2016. Therefore, no need

for VAT registration.

XYZ is already a VAT registered person. Their type may be trader. However, we need to review the VAT registration

certificate as to whether their types also includes "importer" or not. If not then XYZ will be required to amend the VAT

registration to include importer in their VAT registration.

b) Price declaration

c) VAT payment

If the deemed value addition is 26.67%, XYZ will not be required to submit price declaration, otherwise they will be they

will be required to submit price declaration through Mushak-1Kha.

VAT is payable @15%. If the Value addition is 26.67%, XYZ will not be required to pay any VAT at the time of selling

goods to their customer since 4% ATV has already been deposited to the Government Exchequer at the time of

importation of the mobile handset.

If XYZ follows price declaration basis, they will be required to pay VAT on the value addition at the time of selling goods

to their customer @15% on value addition.

d) VAT return

VAT return (Mushak-19) must be filed to the respective circle within 15th day of the next month.

e) VAT record keeping

VAT records (as existing) are VAT-16, 17, 18. VAT-11 or 11Ka or 11Gha. VAT return-19. Other related documents to

support information in the statutory records.


47



15. Tabia Limited

Answer (b):

Calculation of landed cost:

Total cost 5,500

VAT (650)

AIT (165)

ATV (220)

Landed cost 4,465

Price computation at each stage:

Margin Expense

VAT paid at

import stage 870

XYZ 4,465 4,465 870 870 5,335 -

ND 4,465 670 719 5,854 870 878 6,732 8

DD 5,854 293 - 6,146 878 922 7,068 44

Retailer 6,146 922 - 7,068 922 1,060 8,128 138

Customer 7,068 - - - - - - -

Total 1,060

Total cost to be paid by customer: =7,068+(7,068*15%) = 8,128

Output Input VAT Output

VAT Invoice price Net VAT

Value additionStage Input

Answer (C)

- Application for change of location in Form VAT-9 to present VAT Circle.

- VAT inspector shall visit the location to inspect stock-in-trade/other information of the XYZ Ltd.

A new VAT registration is required to be obtained from the new transferee VAT division.

-Information of such change and a copy of the application for change should also be filed with the new VAT circle under

new VAT division (as the change to a separate division, Uttara).

-After scrutiny and satisfaction, present VAT circle shall cause to transfer the VAT file of the assesse to the new VAT

Circle.

Rules 12 of the VAT Rule 1991 provides for formalities as to the change of business location and situation. This is,

however, not for ownership change. Application for 'change' of business location and nature should be done 14 days prior

to the change. All pending VAT must be paid off before the application or an undertaking on stamp paper to settle the

VAT or other liabilities with the VAT law. Any work stoppage at the present location must be informed to the respective

VAT circle. Physical change of the location and transfer of the stock-in-trade should not be done without clearance from

present VAT circle. Steps to be taken are as follows:

[Together with the attested copies of Trade License, Lease Agreement, NID, original VAT registration certificate,

application in plain paper, copies of pervious four months' VAT return.]

Math # 15

Tabia Limited is a cement manufacturing and marketing company. The company has two manufacturing

plants located at Chittagong and Dhaka and five depots located at Dhaka, Chittagong, Rajshahi, Khulna

and Sylhet. The company is maintaining three VAT registrations: one for each factory and one central

registration covering all sales outlets. You have been appointed as Manager-VAT and CFO of the company

requested you to prepare a report containing solutions to the following issues:


48



1. The output value of 1 bag cement produced and sold by the company is Tk. 300. The input cost of

cement is 60% of output value and the contribution of manufacturing and marketing activities towards

value addition is 60:40? Identify the amount of VAT to be paid by the company and treatment thereof

at each stage.

2. Clinker is one of the key raw materials for the manufacturing of cement. On May 1, 2016 the head of

supply chain informed that there is no clinker in Dhaka Factory and recommended transfer of 10 MT

clinker from Chittagong factory. The landed cost of each MT clinker is Tk. 150,000. What is the

procedure to be obliged by the company to ensure compliance with the VAT law for the transfer of

said clinker from Chittagong factory to Dhaka factory?

3. The head of sales informed that Messrs Yan Chu, a 100% exporter located at Chittagong EPZ, has

placed an order for 1000 bags of cement to consume as an ingredient of exportable products. What are

the formalities to be obliged by the company to enjoy the export benefit available under VAT Act

1991? What price the company can offer awarding said benefit to Messrs Yang Chu.

4. The head of Chittagong factory warehouse informed that 1 MT clinker involving a landed cost of Tk.

150,000 including input VAT leviable value of Tk. 100,000 was totally damaged by an accident and

needs immediate removal. What are the procedure to be obliged under VAT laws for the removal of

said material?

5. Messrs Yang Luck, a company based in Thailand has been providing technical service to the company

at an annual fee of USD 100,000. What are the provision of VAT laws in this regard?

6. The head of marketing informed that the company has introduced one special category of cement which

attracts 10% supplementary duty (SD) at manufacturing stage. The input cost of one bag such cement

is 70% of the output value of Tk. 400 and the contribution of manufacturing and marketing activities

towards the value addition is 50:50? Identify the amount of VAT and SD and treatment thereof at each

stage.

a)

The procedure for the disposal of tax paid damaged input has been prescribed under Rule 40 of VAT Rules

1991. Accordingly, the company should follow the following procedure:

An application in prescribed proforma “Mushak–26” to the local Value Added Tax office requesting

approval for the removal of damaged clinker. “Mushak–26” has 8 columns and all information should

be filled therein properly.

Solution # 15

Tabia Limited

Category - Manufacturing & Marketing Company

VAT Reg No.

Factory Dhaka 1

Mfg stage Separate

registration for two

Chittagong 2


49



Depot Dhaka 3 Central Depot

Chittagong

Raj

Khul

Shl.

BDT

1) Output Value per Bag 300.00

Input cost 180.00

Value addition 120.00

Mgf. Stage 72.00

Mkt. Stage 48.00

Computation of VAT

Mfg. Stage Input Cost 180.00

Value add 72.00

Output value 252.00

Vat payable 37.80

Input vat rebate 27.00

Treasury Deposit 10.80

Mkt. Stage Input Cost 252.00

Value add 48.00

Output value 300.00

Vat payable 45.00

Input vat rebate 37.80


Note:

a) Company's all depots are to be taken under central registration - Section

15 & Rules - 9 of VAT Act 1991

b) Musuk - 11 Challan to be issued at two stages of value addition -

Section 32 & Rules 16 of VAT Act 1991

c) Price to be declared from both Mfg. and Mkt. stages (Central Depot)

section 5 & Rules 3 of VAT Act 1991

d) Output Tax Mfg. stage will be considered as Input VAT of Mkt. stage

(central depot)

2) RM Clinker

Transfer 10 MT from Ctg Factory to Dhaka

VAT Reg.


50



Factory BDT per MT BDT - 10 MT

Ctg Factory 150,000.00 1,500,000.00

Value addition @ 26.67% 40,005.00 400,050.00

VATable value 190,005.00 1,900,050.00

VAT payable 28,500.75 285,007.50

Dhaka Factory input value 190,005.00 1,900,050.00

Input VAT 28,500.75 285,007.50

Note:

c) Transfer through Musuk-11 Challan by Ctg factory.

d) Main document bill of Entry or Musuk-11 challan.

a) Price declaration Musuk - 1 by Ctg factory, section 5 & Rules 3 of

VAT Act 1991.

b) Value addition minimum 26.26% or actual value addition - SRO

242/Aine/2012/659Mushok.

3)

BDT Per Bag BDT-1000 Bag

Value 300.00 300,000.00

VAT at Zero rate - -

Invoice value 300.00 300,000.00

Less: Input VAT rebate 27.00 27,000.00

Quoted price 273.00 273,000.00 Further

reduction

Note:

a) Price to be declared in prescribed proforma Musuk-1Ga.

b) Price to be negotiated and recovered in Foreign Currency

c) Opening of L/C or Contract agreement

d) Commercial Documents to be approved by Bank & VAT authority

e) Musuk-20 to be approved by VAT Authority

f) Proceed Realization Certificate (PRC) from Bank

4) 1 MT Clinker RM damage

BDT

VAT livable value 100,000.00

Input VAT @ 15% 15,000.00

Note:a) As per

VAT Rules

b) Deduct from Purchase Register (M-16) both Qty. and Value.c) Report

to the VAT


51



5) Tabia Ltd. Will deposit an amount equivalent to USD 15,000 at the

time of the remittance of annual fee of USD 100,000. The amount of

VAT deposit amounts to USD 15,000 is considered as input VAT and

rebatable in the account of Tabia Ltd. Under section 9 and rule 18 of

VAT Act-1991. This annual technical service fee should be shown as

service cost by Tabia Ltd. in their price declaration from (Mushak-1).

Otherwise said rebate could not be taken.

6) Computation of VAT & SD of special category of Cement

Determination of Value addition

BDT

Output Value 400.00

Input Cost 70% thereof 280.00

Value Addition 120.00

Value Addition at Mfg stage 60.00

Value Addition at Mkt stage 60.00

*Mfg Stage:

A. Input Cost 280.00

B. Value Addition (D-A) 29.09

D. SD Leviable price (E-D) 309.09

D. SD @10% thereon (340X10/110) 30.91

E. VAT leviable price (280+60) 340.00

VAT @15% 51.00

Less: Input VAT 42.00

Treasury deposit 9.00

*We have VAT leviable price. So here back calculation is the simplest

method

Mkt Stage:

Input Cost 340.00

Value addition 400.00

VAT thereon 60.00

Input VAT 51.00


VAT is leviable also on SD and SD is not rebatable. Therefore, SD has

been considered as an element of value addition.


52



16. Exchange Rate

17. Biki (Bangladesh) Co. Ltd.

Math #16

Invoice value shown on proforma invoice USD $ 100 (exchange rate

USD $ 1= Tk. 80). Taxes and duties charge on it respectively CD

25%, RD 5% & SD 10%. All are paid at import point. VAT and

advance income tax also suffered at prescribed rate.

Solution #16

USD 100

Tk 80

8,000

80

8,080 Assessed Value (AV)

Invoice value (proforma invoice)

Exchange rate

Invoice value in BDT

Add: Adjustment @ 1%

2,020

404

10,504

1,050

11,554

1,733

585

404

81

AIT @ 5% on AV

PSI @ 1% on invoice value

ATV [(AV+CD+RD+SD) X 1.2667]*.04

CD @ 25% (on 8080)

RD @ 5% (on 8080)

SD @ 10% (on 10504)

VATable Amount

VAT @ 15%

Math #17

Date ImportPurchase from

Local Market

Jul-11 USD 500,000 2,000,000

Oct-16 USD 400,000 3,000,000

Goods Purchased locally were sold to five customers - A, B, C, D & E

All the imported goods were sold to one special customer. The customer did not deduct any income

tax at the time of making payments to Biki (BD) Co. Ltd.

Biki (Bangladesh) Co. Ltd. Engaged in trading business of consumable goods. In the income year

ended 31 December, 2015 the company procured the following goods for commercial purpose:

Description

Goods imported at C&F price goods purchased

Goods imported at C&F price goods purchased

Assuming import duty @25%, supplementary duty @25% and regulatory duty @5% was paid at

import point. VAT and advance tax was also suffered at applicable rates at import stage. Custom's

assessed value for goods imported in July 2015 and October 2015 was USD 550,000 and USD

440,000 respectively.


53



18. XYZ Ltd.

A B C D E

10-Jul-15 200,000 150,000 300,000 80,000 400,000 1,130,000

24-Oct-15 400,000 500,000 300,000 700,000 500,000 2,400,000

28-Nov-15 500,000 300,000 400,000 400,000 400,000 2,000,000

Sales to CustomerDate Total

[Exchange Rate to be used USD 1 = Tk. 80]

From the above, you are required to -

i) Calculate AIT, CD, SD, RD, VAT and ATV suffered by Biki at import point.

ii) Calculate AIT deducted at source by each customer.

iii) Compute income tax liability of Biki Ltd. Under section 82 of ITO 1984 (Corporate tax may be considered as

35%)

Solution #17

i) Calculation of AIT, CD, SD, RD, VAT & ATV

1 2 3 4 5 6 7 8 9 10

Date of importC&F Value

USD

C&F Value

BDT

($1=Tk. 80)

Custom's AV

USD

Custom's AV

USD to Tk

($1=Tk. 80)

CD

@25%

RD

@ 5%

SD

@ 25%

ATV

@ 4%

AIT

@ 5%

VAT

@ 15%

(4X25%) (4X5%) (4+5+6)X25% (4+5+6+7)X4% (4X5%) (4+5+6+7)X15%

15-Jul 500 40,000 550 44,000 11,000 2,200 14,300 3,623 1,760 10,725

15-Oct 400 32,000 440 35,200 8,800 1,760 11,440 2,898 1,408 8,580

Total 900 72,000 990 79,200 19,800 3,960 25,740 6,521 3,168 19,305

ii) Calculation of Income Tax deducted at source

A B C D E Total

Total 1,100,000 950,000 1,000,000 1,180,000 1,300,000 5,530,000

TDS @2.5% 27,500 23,750 25,000 29,500 32,500 138,250

iii) Calculation of Total Income and Tax Liability:

Goods Sold to TDS (Tk.)Applicable

Tax Rate

Total income

u/s 82C

Imported Goods

($9.9lacX80X5%) 3,960,000 35% 11,314,286

Local Purchased

goods 138,250 35% 395,000

11,709,286

Tax Liability

= 3,960,000+138,2504,098,250 Already paid

Math #18

Blue and White soap

XYZ Ltd. is selling two types of soap named 'Blue' and 'White'. Blue is manufactured in its own plant and

white is in the plant of its outsourcing partner ABC Ltd. The cost of the Blue soap is tk 12 & selling price

including VAT is tk 20. The cost of the White soap including processing charge of tk 2 paid to ABC is tk 10

which they sale to customer with 10% margin.


54



19. A manufacturer

Compute the price to be declared to the VAT authority by XYZ Ltd. and ABC Ltd. and intimate the

justification of your computation to the CFO of XYZ Ltd.

Solution #18

A. Computation of price of blue soap Taka

Selling price including VAT 20

VAT considering the rate u/s 3 ( 20*15/115) 2.61

Price to be declared 17.39

B. Computation of the price of White soap Taka

Cost of the soap 10

Profit (10%) (10*.10/.90) 1.11

Price to be declared 11.11

C. Justification to the CFO

In presence of section 5 (2) (Ka) of VAT act 1991, read with Govt. order #5/ MUSHAK/2012 dated

07.06.2012, the company will declare taka 2.00 as processing cost received from the owner ABC

Limited to the VAT Authority & pay tax there as.

Math #19

A manufacturer sold goods worth Tk. 10 lakh to the wholesaler by including VAT @ 15%.

The wholesaler added 10% as mark up and sold the goods to the retailer by adding VAT who

in turn sold the goods to the consumer by adding markup @ 15%. Compute VAT at each

stage and indicate the total VAT paid by the consumer.

Solution #19

Manufacturer Whole Saler Retailer Consumer

TK. TK. TK. TK.

(a) Cost of goods 1,150,000 1,265,000 1,454,750

(b) Input VAT Recoverable 150,000 165,000

(c') Net cost of goods sold 1,000,000 1,100,000 1,454,750

(d) Mark-up 100,000 165,000

(e) Selling price Net of VAT 1,000,000 1,100,000 1,265,000

(f) VAT chargeable 150,000 165,000 189,750

(g) Gross selling price 1,150,000 1,265,000 1,454,750

Gross VAT due 150,000 165,000 189,750

VAT recoverable - 150,000 165,000

Net VAT payable 150,000 15,000 24,750

189,750

Particulars

VAT borne by the Consumer =


55



20. SOS Company

Math #20

SOS Company provides the following information about its production and sales:

Taka

2,000,000

250,000

70,000

20,000

30,000 Depreciation of Machinery


Direct wages

Administrative expenses

Selling expenses

The company sells its products by adding 25% margin on cost. The opening and

closing stock of Raw Materials recorded at Tk. 50,000 and Tk. 40,000

respectively.

Determine VAT if the rate is 15% assuming that opening and closing stock of

finished goods were Tk. 30,000 and Tk. 20,000 respectively.

Solution #20

Tk. Tk.

50,000

2,000,000

2,050,000

40,000

2,010,000

250,000

30,000

2,290,000

Opening Stock of Raw Materials


Sub-total

Less: Closing Stock of Raw Materials

Raw Materials Consumed

Direct Wages

Depreciation on Machinery

SOS Company

Determination of VAT

Factory Cost

Particulars

70,000

2,360,000

30,000

2,390,000

(20,000)

2,370,000

20,000

2,390,000

597,500

2,987,500

448,125

301,500

146,625 Addition VAT paid on output stage

Selling Expenses

Cost of Goods Sold

Add: Profit @ 25%

Selling Price

VAT on Selling Price (2,987,500 X 15%)

VAT paid on Raw Material Consumed

(20,10,000 X 15%)

Sub-total

Less: Closing Stock of Finished Goods

Administration Expenses

Production Cost

Add: Opening Stock of Finished Goods

Sub-total


56



21. Manan Traders

Math # 21

Manan traders, an importer, imported 200 of AC at CIF price @ TK 100,000 per piece. The clearing and other

incidental charges amounted to TK 100,000 for the total consignment. He sold 80 pieces of AC to a whole seller at a

markup of 10% (exclusive of VAT). The whole seller charge 10% markup to sale it to retailers. The retailers incurred a

cost @ TK 2000 for maintenance and other expenses and added 10% markup to the price.

Required:

Compute VAT assuming that the retailers sold 60 pices of AC in a trade fair among various customers in the month of

June, 2015.

Solution# 21

Tk.

20,000,000

Add:

Clearing and other charges 100,000

Total cost of input 20,100,000

Input VAT recoverable 0

Net COGS (for 200 units) 20,100,000

Net COGS (for 80 units) 8,040,000

Add: Profit 804000

Selling price excluding VAT 8,844,000

Add: Output VAT @ 15% 1,326,600

Selling price including VAT 10,170,600

CIF price of imported goods

Stage 1: Importer

Tk.

Cost of purchase from importer 10,170,600

Less:

Input VAT recoverable (1,326,600)

Net COGS 8,844,000

Add: Profit @ 10% 884,400


Add: Output VAT @15% 1,459,260


Stage 2: Whole seller


57



Tk.

Cost from wholesaler (80 units) 11,187,660

Cost of 60 units 8,390,745

Less: Input Vat recoverable (1,459,260X60/80) (1,094,445)

Net COGS excluding VAT 7,296,300

Maintenance and selling (2000X60) 120000

Total COGS 7,416,300

Add: Profit @ 10% 741,630


Add: Output VAT @15% 1,223,690


Stage 3: Retailer

Tk.Stage 4: Final Consumer

Cost of purchase from Retailers (60 units) 8,381,620 Input VAT recoverable

Importer

(200 units)

Wholesaler

(80 units)

Retailers

(60 units)

Consumer

(60 units)

Output VAT 1,326,600 1,459,260 1,223,690

Less: Input VAT - (1,326,600) (1,094,445)

Gross VAT Payable 1,326,600 132,660 129,245

994,950 99,495 129,245 1,223,690

Particulars
