Class 1

●​ History of VAT
In Bangladesh, Value added tax was introduced in 1991 enacted by former finance minister Saifur
Rahman.Then, VAT and SD Act was enacted in 2012.However it was not implemented before July 1,
2019 primarily because of resistance by business people.Currently, VAT is regulated by VAT & SD act
2012, VAT and SD rules 2016 and various other notifications issued under this act.

●​ Is VAT good for the economy?

Value-Added Tax (VAT) creates deadweight loss by preventing prices from reaching the equilibrium
level depending on supply and demand.

Deadweight loss refers to the loss of economic efficiency when the equilibrium outcome is not
achievable or not achieved.When VAT is imposed,consumers pay more for goods or services.As a
result, some transactions that would have happened at the original price no longer occur.It reduces the
demand for the goods.Thus, producers have to sell less.This leads to a reduction in total
welfare—loss of consumer and producer surplus.
(Illustrate the effect on demand supply curve.)

●​ Tax revenue may go down if the tax rate is high? How?​

When tax rates are low, increasing them slightly usually increases tax revenue because people and
businesses are still willing to work and invest, and the government collects more per unit of income or
sales.
However, at some point, higher tax rates start to reduce incentives to work, invest, or produce. People
may work less, hide income, or even move to lower-tax regions or countries.At this point, increasing tax
results in lower tax revenue.

The Laffer Curve is a theoretical economic concept that illustrates the relationship between tax rates
and the amount of tax revenue collected by the government. It suggests that there's a point where
increasing tax rates actually leads to a decrease in total tax revenue, due to negative impacts on
economic activity
(draw half circle on a graph)

●​ Why is it difficult to evade VAT? or Why VAT is most suitable in BD?

Evading Value Added Tax (VAT) is difficult due to the structure of the VAT system, which is designed
to track transactions at every stage of production and distribution.
How it works:​
In a VAT system, businesses can claim a credit for the VAT they paid on their purchases (input tax). To
do this, they need to show proper invoices (Mushak 6.3) from their suppliers.Every seller must issue
proper invoices to allow their buyer to claim input tax. This means each transaction is documented to
both seller and buyer. If a seller tries to avoid VAT by not recording a sale in its VAT return,he may get
caught as his sale is recorded in the buyer's input section of the VAT return.
Tax authorities may use digital systems to match invoices between supplier's VAT return and buyers’
VAT return, to flag discrepancies.

●​ VAT vs Sales tax (26th batch mid& final)

 VAT Sales Tax

Tax is imposed on the value added at each level Tax is imposed on the sale price of a good or
of production and distribution. service

Has an input tax credit system. Does not have an input tax credit system

Difficult to evade VAT. Easier to evade VAT

Comparatively difficult to maintain accounts. Easier to maintain accounts

●​ Why did VAT replace sales tax?

Because of its unique features such as
1)​ Prevention of tax avoidance
Evading Value Added Tax (VAT) is difficult due to the structure of the VAT system, which is designed
to track transactions at every stage of production and distribution by both sellers and buyers.
2)​ Improvement of revenue stability
Since it is difficult to avoid tax, the government can generate more revenue from the taxes.
3)​ Avoidance of cascading effect
VAT has an input tax credit system that prevents the “Tax on Tax” phenomenon.

Class 2
Schedule 1 of VAT and SD act 2012 (Exempted goods/services)
It lists the goods and services that are exempted from VAT. For example, egg, onion,milk and milk
powder, life insurance premium,medical services etc.

Schedule 2 of VAT and SD act 2012 (Supplementary duty)

Supplementary duty is extra tax charged on socially undesirable goods.Goods that are subject to
supplementary duties along with the rates are mentioned in schedule 2.Example :........

Schedule 3 VAT and SD act 2012 (Reduced rate)

Goods that are subject to reduced rate of VAT (Below 15%) along with their rates are mentioned in
the schedule 3. In the 3rd schedule, there are 4 tables where the rates and the amount of VAT
applicable on certain goods are mentioned. For Example: 2.4% VAT on LPG cylinder.

Class 3
●​ Zero rated vs exempted
1)​ In zero rated goods, the taxpayer is eligible for input tax credit.In exempted goods, the taxpayer is not
eligible for input tax credit.
2)​ VAT registration is required for supply of zero rated goods.However, no VAT registration is required for
supply exempted goods under first schedule of VAT and SD act 2012.
 ●​ How Positive Discrimination is created by VAT?
Positive discrimination can occur when VAT policies are designed to favor certain groups or goods
to promote social equity or economic development.For example, the government of Bangladesh
exempted or applied lower VAT rates to basic necessities like food, public transportation or other
necessities.​
This benefits low-income households who spend a greater proportion of their income on essentials.
On the other hand, the government imposes higher VAT rates on non-essential or luxury goods such
as: jewelry,high-end cars,Alcohol etc to shift the tax burden more toward wealthier consumers, which
is a form of positive discrimination in favor of the less wealthy.

●​ (26th batch : Who should register, enlist for VAT? )

●​ Section 4 ( Entities subject to VAT)

A person is required take enlistment registration if,

-​ Annual turnover is more than 50 lakh but less than 3 core
A person is required to register for VAT if,
-​ Annual turnover is more than 3 core or,
-​ Estimated annual turnover exceeds 3 core.

Class 4
●​ Following businesses will have mandatory VAT registration regardless of turnover:
1)​ Engages in export-import
2)​ Trades supplementary duty chargeable goods
3)​ Participates in tender or supply goods under contract ( procurement provider).
4)​ Appointed as VAT agent
5)​ Branch office
When a foreign banking company opens a branch in BD to do business such as Standard Chartered
Bank.
liaison office of a foreign organization
ACCA has a liaison office in Bangladesh.They incur expenses but don’t generate revenues.
Project office
Foreign companies create project offices in BD to undertake infrastructure projects.
VAT agent
FB,Google appoints VAT agents in BD to pay VAT.These VAT agents need to register themselves.

On top of that, products mentioned in ( সাধারণ আদেশ নং-১৭/মূসক/২০১৯ ) such as

-​ Manufacturer of
chocolate, noodles, biscuits, soap,detergent, plastic goods,leather goods,wooden
goods,ceramic and porcelain goods,electric bulb
-​ Service provider
Construction firm,consultancy firm and Supervisory firm,procurement provider,human
resources supply or management organisation, ITES
-​ Supershop or shopping mall irrespective of place.
 -​ Trader of the following (if within district town and city corporation)
Cement, ceramic and porcelain goods,GP sheet/Cl Sheet,MS
products,sanitaryware,aluminium fittings, all kinds of electronic and electric goods including
AC,fridge,TV etc.

●​ Central registration vs separated registration

If a person conducts its economic activity by supplying identical or similar goods or
services from two or more places and preserves all the accounts and records in a Central
unit in NBR approved VAT software, he may take one central registration.

●​ VAT registration cancellation

VAT registration can be cancelled if
1)​ Economic activity is closed down.
2)​ Economic activity has been declared exempted.
3)​ Annual turnover falls below the limit for 2 consecutive years.
To cancel the registration, the registered person should apply in Mushak 2.4

●​ Is VAT inclusive in price or exclusive?

Section 32 of VAT and SD act 2012 states that the value of a taxable supply shall be the consideration
for such supply, reduced by an amount equal to the tax fraction of that consideration. It implies that VAT
should be included in the price.

Class 5
●​ Who is eligible for 0 rate?
( sir randomly discussed only a few, but It's better to cover all)

Zero rated
(Section 23) 0 rated goods ( Section 24) 0 rated supplies

Supply of materials, parts to a machine Service of repair, maintenance, cleaning to

temporarily imported in Bangladesh or to goods temporarily imported in Bangladesh or
ships or aircraft engaged in international to an aircraft or ocean going ship engaged in
transport. international transport.
For example:Z ltd. provided spare parts to a
crane was temporarily imported for Padma
bridge construction.

Supply of stores or spare parts to an aircraft Supply of insurance to international transport

or ocean going ship engaged in international of goods
transport ( stores are for consumption during
flight or voyage)
Supply of goods for repair or replacement Supply of telecommunication service to a non
under warranty resident telecommunication supplier.
For example: Green Line imported 10 buses For example: Roaming service provided by
from Malaysia and the maintenance services Robi to Vodafone when an Indian visits
under warranty period will be provided by Bangladesh.
‘Innovative Motors’, a Bangladeshi Entity for
which it will be compensated from
Malaysia.These services by Innovative
motors will be ‘0’ rated.

Goods located outside BD at the time of Supply of service outside Bangladesh

supply, if such goods are not assembled, For example, cyber security services in the
installed or imported in BD by supplier. US from BD.
For example: I have a house in the UK, I sold
it from Bangladesh and received foreign
currency here.

Supply of any goods to a tourist or visitor if A supply of service to a non-resident and

the seller holds a license to sell duty free non-registered entity directly connected with
goods. operation or management of an ocean going
ship or aircraft.

Supply of goods outside Bangladesh on

lease,hire for usage.
For example: AB ship Ltd. transported from
Bangladesh to New Zealand on lease.The
lease payments will be subject to 0% VAT.

●​ Back to Back LC
Normally, banks don't create LC without margin ( deposit of Money)
But in back to back LC, manufacturers of export oriented garments industry creates LC without any
margin.They just show master LC (that confirms order from buyer) received from the buyer to the bank
and the bank provides the LC.

●​ Bonded warehouse
Government of BD. introduced a bonded warehouse system under which export oriented garment
manufacturers import raw materials without any payment of duty.The raw materials are kept in
custom's warehouses. The manufacturers take materials as per need under supervision of customs
authority to produce garments intended for export.

●​ Section 2(62) mentions a deemed export includes following supplies

a)​ Supply of goods or service in a prescribed manner against foreign currency and destined for
consumption outside Bangladesh.
(Goods provided by local company to garments manufacturer against Back to Back LC)
b)​ Supply of goods or service within the territory of Bangladesh against foreign currency through
international tender.
(For example AB, a chinese company, was hired to build a road. When supplies are made to AB, they
are deemed export.)
Class 6

●​ Mushak 6.3
It is the tax invoice that a seller issues to the buyer when taxable goods are supplied. Buyer must have
Mushak 6.3 to claim input tax credit.It's contents include seller's and buyers name, their BIN,
description of goods or services,value of goods or services, rate of VAT, amount of VAT etc.

●​ Mushak 6.6
Mushak 6.6 is the form of issuing certificate for VAT Deduction at Source (VDS). This is used to certify
that VAT has been deducted at source from the supplier having VAT deduction at Source power (VDS
or Withholding Entity).Ijt is required to claim decreasing adjustments for VDS.

●​ Mushak 9.1
Form used to submit VAT return at the end of each month. It includes total output tax, input
tax,increasing adjustments and decreasing adjustments that eventually lead to net VAT payable amount
for the month.

●​ Extracts of Mushak 9.1

Section 3: Supply-Output tax

Nature of supply Note Value SD VAT

Standard rated goods/services

Exempted goods / services
zero rated goods / services
-​ Direct export
-​ Deemed export

Section 4: Purchase-Input
Nature of supply Note Value VAT

Standard rated goods/ service

-​ Local purchase
-​ Import
Exempted goods/services
-​ Local purchase
-​ Import
Zero rated goods/services
-​ Local purchase
-​ Import

Section 5: Increasing Adjustments (VAT)

 Adjustment details Note VAT amount

Due to VAT deducted at source

Payment not made through banking channel
Issuance of debit note
Others

Section 6: Decreasing Adjustments (VAT)

Adjustment details Note VAT amount

Due to VAT deducted at source

Advance Tax paid at import stage

Section 7: Net Tax Calculation

Items Note Amount

Net VAT payable for the tax period

Treasury deposit for VDS

Class 7
●​ Source
SRO 240-AIN/2021/163-Mushak

●​ (26th: Name VDS entities. Write in details how VDS should be done)

●​ Withholding Entity:- (section 2(7))

-​ Persons with turnover above 10 core (Under finance act 2024)
-​ Government entities ( ministries and its divisions or attached departments,semi government or
autonomous body,state owned enterprise, local authority, council or similar organisation)
-​ NGO approved by NGO affairs Bureau or the Directorate-general of social welfare.
-​ Company
-​ Educational Institutions of secondary level or above.( it excludes primary schools)

●​ When not to withhold?

-​ For a trader, when VAT invoice 6.3 is provided and 15% VAT is shown

-​ Invoice 6.3 is issued by the manufacturer at any VAT rate.

-​ Payment of fuel,gas,water.

-​ Exempted goods and services under 1st schedule of VAT & SD act,2012
 -​ Zero rated supplies.

●​ When to deduct?
-​ If VAT is not 15% or Mushak 6.3 is not issued for traders.
For example, VAT for transport service is 10%. Therefore if a company takes transport
service, it will deduct VDS.
-​ VDS must be deducted for services mentioned in SRO 240-AIN/2021/164

●​ Deposit of Withheld VAT (Rule 40)

●​ Shall be deposited within 7 days of the next tax period.
●​ VAT 6.6 should be issued in 3 copies.
1.​ Main copy to the respective VAT circle office
2.​ 2nd copy to the supplier.
3.​ 3rd copy for preservation for 5 years.
●​ Certificate in 6.6 should be issued to the supplier within 3 working days of deduction
to the supplier.

●​ Adjustment for withholding VAT

For Supplier 1)​ VDS must be made as “Decreasing adjustment" in the same tax
(Rule 39) period in which VAT is deducted on the supply of goods or within
the next three months following the month of payment.(within 4 tax
period including the period when VDS certificate is received)
2)​ VAT-6.6 (Withholding certificate) is required to make a decreasing
adjustment.

For 1)​ Deposit the VAT separately through treasury challan.

Withholding 2)​ Make an increasing adjustment
entity 3)​ Adjust the VDS deposited with relevant month's net VAT liability

●​ Trader vs Procurement provider

Traders usually have inventory, procurement providers never have inventory, they are
middlemen. You can check trade license/BIN to see if the person is Importer,manufacturer,
trader or procurement provider

●​ When a withholding entity is unregistered to VAT, it has to submit the VDS amount through treasury
challan within 15 days and issue Mishuk 6.3 to the supplier within 3 days of deduction.

Class 8
●​ (26th batch: What are inputs, what are not inputs, what are conditions to claim input tax credit)
Section 2(18ka) mentions the following inputs:-
1)​ Raw materials,packing materials
2)​ Machines and parts of machines
3)​ Fuel, Gas, Electricity
4)​ Laboratory reagent, laboratory equipment,laboratory supplies.
5)​ Service ( transport, insurance, advertising etc.)
(If your expenses are on these specific inputs,only then you can claim input tax credit)

Following are not input:

1)​ land,building,labor,maintenance of building or infrastructure.
2)​ Interior design,architecture planning and design.
3)​ Office equipment,supplies,stationery materials,furniture,AC,refrigerator,fan,lighting, generator
purchase and their repairs.
4)​ Development works of factories.
5)​ Rentals for office premises, showrooms or similar place of business establishments
6)​ Entertainment expenses, traveling,goods and services related to employee welfare activities
7)​ Vehicle purchase, lease or rental payments.

●​ Conditions for input tax credit (section 46)

●​ Full payment made Through banking channel if taxable supply exceeds 1 lakh.
Example: If 2 lakh made Through bank, 1 lak through cash, credit can be taken for 1 lakh.

●​ Must have a valid tax invoice (Mushak 6.6) issued by the supplier.

●​ Input has to be mentioned in Mushak 4.3 input output coefficient

●​ Input needs to be recorded on Mushak 6.1. purchase register.

●​ Name address and BIN should be mentioned tax invoice (6.3)

-​ Importer must issue a sales invoice with a bill of entry number , if goods are bought from the
importer.

●​ Must be claimed within the same tax period or next four tax periods.

●​ 80% tax input is applicable on transport.(Applicable VAT on transport is 10%)

So,effective input tax credit rate is (10% x 0.8) = 8%

●​ Output tax is 15%. ( Except for 0% rate)

●​ VAT paid on goods or services under custody of another person.

●​ No credit without settling bank guarantee

-​ If imported goods are mortgaged against loan and they are inaccessible, no rebate.
-​ Example 1
A product arrives at port but the company has no money, in that case, the bank takes out the
goods and keeps its ownership. The more the company pays, the more goods the bank
releases. In that case, VAT input can be claimed only on released goods.
-​ Example 2
 A chemical is imported but it has to be sent to test whether the right chemical is bought.
However,in the meantime to avoid disruption in production, the company uses bank
guarantee to see if further payment occurs and get their products before the test is
executed. VAT credit is applicable up to the amount paid to date. If further payment is
required, VAT credit is claimed for the extra amount of payment.

●​ No credit if the price of goods or services are below the input price.​

●​ Neither buyer nor seller gets credit for turnover tax

-​ Supplementary duty can not be rebated.​
-​ Input tax on exempted products can not be rebated.

●​ No rebate for applicable for:

-​ Land, Building, office equipment, furniture, infrastructure (sewage,wire for electricity,mobile
tower)
-​ Office suppliers, stationary materials, AC, fridge, fan, lights, generator purchase and repair
-​ Purchase of vehicles, payment of lease and rent for transportation
-​ Traveling, entertainment, goods and services for employee welfare
-​ Rentals for office premises, showrooms or other business establishments.

●​ Other Information
Input tax credit on vehicle purchase is applicable when the business itself is a transportation
business.

●​ Documents required for input tax credit -

-​ A bill of entry bearing the name of the importer and the BIN, if the goods are collected from
imported.
-​ A withholding certificate (VAT 6.6) issued to the supplier

●​ (26th batch: Critically explain the importance of bill of entry for getting input tax credit)

A bill of entry is a legal document that is filed by importers or customs clearance agents on or
before the arrival of imported goods. It’s submitted to the Customs department as a part of the
customs clearance procedure

-​ If a VAT registered entity buys goods from an importer, the buyer must collect the bill of entry
from the importer to avail input tax credit.
-​ The problem is that the importer might not be willing to share the bill of entry since it may
contain confidential Information about price or margin.
●​ Method of payment of VAT (26th final)
1)​ The taxpayer should browse at Automated Challan System from www.ibas.finance.gov.bd
2)​ From the option “All deposits of NBR”, Mushak should be selected.
3)​ Then, the taxpayer should enter its BIN (if any), the payable amount of VAT and other information
required.
4)​ A payment option should be selected among mobile banking, internet banking, card payment or bank
counter etc.
5)​ After the payment is made, a treasury challan will be generated from the system including a challan
number.

Prepared and coordinated by:

Sayem & Jabir