VALUE ADDED TAX

Taxation Assessment for Companies

(ACT4135)
Definition of VAT

◻ VAT is a tax which is charged on the

“increase in value” of goods and services at
each stage of production and circulation. It is
levied on the added value that results from
each exchange. It is also chargeable on the
value of all imported goods. It differs from a
sales tax because a sales tax is levied on the
total value of the exchange.
Definition of VAT

◻ VAT is 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.
Characteristics of Value Added
Tax

◻ VAT is general tax that applies on goods and services

both.
◻ It is collected at every point of sale and the tax
already paid by the dealer at the time of purchase of
goods (input tax) will be deducted from amount of
tax paid at the next tax (output Tax).
◻ It is a consumption tax because it is bourn ultimately
by the final consumer. It is not a charge on a
businesses.
Characteristics of Value Added
Tax
◻ It is charged as a percentage of price, which means
that the actual tax burden is visible at every stage in
the production and distribution chain.
◻ VAT is paid to the revenue authorities by the seller
of the goods, who is the “taxable person”, but it is
actually paid by the buyer to the seller as part of the
price. It is thus an indirect tax.
◻ It is transparent and easier.
Rationales Behind Introducing VAT in
Bangladesh
1. VAT requires computerized records so it provides
greater simplicity, transparency, and authenticity.
2. VAT removes cascading effect of the traditional
sales tax system;
3. To consolidate the tax administration through
proper integration among various tax collecting
activities;
4. To mobilize more internal resources which helps
to encourage personal savings and investment;
Rationales Behind Introducing VAT in
Bangladesh
5. To bring revenue neutrality in the long run to
ensure consistent improvement in tax-GDP ratio;
6. Introduce better-administered tax system that
deters tax evasion;
7. Value added to all stages of production and
distribution are subject to tax;
8. Input tax credit method ensures better tax
compliance;
9. Ensure fiscal consolidation in bringing steady
source of revenue to reduce debt burden.
Scope of VAT
◻ The Value Added Tax and Supplementary Duty
Act, 2012
◻ The Value Added Tax and Supplementary Duty
Rules, 2016
◻ Finance Act
◻ SROs
◻ VAT case law
Features of VAT in Bangladesh
1. VAT is imposed at import stage, production stage,
trading stage of rending services and on immovable
property, lease, grant license, permit, rights, facilities
etc.;
2. Bangladesh VAT law sets the four-tier VAT
rates(15%, 10%, 7.5% and 5%) for different sectors
for different sectors. The 15% rate will be applicable
only for the imported and luxury items, while
wholesalers retail sellers have to pay at the rate of 5%.
Other businesses have to pay VAT at 7.5% and 10%
rates.
Features of VAT in Bangladesh
3. Only those who will pay VAT at 15% rate will
enjoy rebate or refund facility.
4. Turnover tax @4 per cent is leviable where annual
turnover amount is more than Tk. 50 lac but less than
Tk. 3 crore.
5. There is no provision for tarrif value and truncated
value base;
Features of VAT in Bangladesh
6. Tax returns are to be submitted on monthly or
quarterly basis as notified by the government;
7. The new VAT law stipulates maintenance of
input-output co-efficient by the VAT-payers on the
basis of which audit will be done later by the VAT
authorities.
8. Luxurious and socially undesirable goods are
subject to supplementary duties at different rates
ranging from 5 per cent to 500 per cent.
Difference Between Sales Tax & VAT
Sales Tax
Complex system
Different slabs of tax
Collected at one point i.e, first or last
No tax levied on value addition on
subsequent sales
Problems of multiple taxation
Discouragement to disclosure
VAT
Simplified tax system
Only four slabs of tax
Charged at each stage
Tax on each value addition
A set off is given for future purchase
Encouragement to disclosure