The reduced VAT rate and tariff value system are to be revoked in order to implement the single VAT rate system. However, it has been reported that the National Board of Revenue may implement multi-tier VAT rates instead of a single rate.

 

What will change?

 1. Breadth of supply widened

• Services physically provided by non-residents to entities in Bangladesh that are not VAT registered
• Electronic services provided by non-residents to an unregistered person in Bangladesh
• Goods, services or immovable property offered by an employer to an employee
• Agreement to the obligation to refrain from, accept or tolerate an act or situation
• Supply of immovable property

 

2. VAT Agent

The Concept of a VAT Agent has been introduced. Non-resident people who do not have a fixed place of business in Bangladesh shall be required to appoint a VAT agent in respect of prescribed services provided to a VAT unregistered person.

 

3. Valuation

• The concept of fair market value has been introduced in respect of transactions between related parties.
• “Transaction Value” would be the basis for the payment of VAT on domestic supplies with unrelated parties.
• Unlike under the current regime, the concept of price declaration will be eliminated, enabling manufacturers and traders to supply goods at a lower rate than the cost price.

 

4. Compliances

Registration

Centralized VAT registration with respect to all business locations would be introduced. A separate registration may be obtained where each location individually maintains their books of accounts.

Return:

• Concept of revised and belated return introduced.
• Online return filing to be introduced in phases.
• Information pertaining to the purchase / sale of over 2,00,000BDT shall be filled out by the registered person on or before filing the monthly VAT return.

Debit and credit notes:

• The supplier can make a decreasing adjustment in the return, subject to acceptance of the credit note by the recipient of supply.
• The recipient of supply will be required to make a decreasing adjustment within three months from the date of receipt of a debit note.

 

5. ATV replaced by AT

Advance Trade VAT (ATV), payable at 5% under the present law, that is applicable only to the commercial importer, has been substituted by a compulsory payment of “Advance Tax (AT)”, payable by every importer at 3% on the value of the taxable import.

Various issues

Bad Debt

Suppliers can make decreasing adjustments if any amount remains outstanding for more than 12 months.

High sea sale

The concept of high sea sale has been introduced. The place of supply in case of a high sea sale is deemed to have been made outside of Bangladesh and the supplier will not be required to pay any VAT in respect of such a supply.

Refund

A refund mechanism has been introduced in cases where the input tax credit exceeds output taxes.

Input tax credits

• Negative list of input tax credits has been cut back.
• Unlike the existing VAT law, the maintenance of the current account register has been withdrawn. This would result in better cash flow as the sustenance of a positive balance in the current account register is no longer required.

The impact on your business

• Change in tax rate may increase or decrease input and output costs.
• Seamless credit flow is expected to decrease tax costs: Negotiation with vendors to capture benefit of enhanced credit
• Business and operating model structuring to bring efficiency
• Structuring of sourcing model for capital goods, inputs and raw materials to reduce cost
• Statutory registers, including tax invoices, will be allowed to be maintained and issued through own IT systems. Therefore, such IT systems need to be aligned with the new VAT law to maintain statutory records and to issue tax invoices.

 

For more information, please contact:

Mamun Rashid, Managing Partner – Bangladesh
Tel. +880 1711525428
E-Mail: mamun.rashid@bd.pwc.com

Sushmita Basu, Partner and Leader – Bangladesh Tax and Regulatory Practice
Tel. +91 (0) 98 3005 1065
E-Mail: sushmita.basu@pwc.com

 

Image source: unsplash.com