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| Development Surcharge |
Apply payable of Development Surcharge for VAT adjustment
In Bangladesh, the Development Surcharge is typically a levy imposed to fund specific development projects or general government revenue, and it generally does not have a direct mechanism for VAT adjustment (input tax credit).
Here's why and how it generally works:
- Nature of Development Surcharge:
- The Development Surcharge is not a part of the Value Added Tax (VAT) or Supplementary Duty (SD) framework under the VAT and Supplementary Duty Act, 2012.
- It is usually imposed under separate legal instruments, such as the Petroleum Products (Development Surcharge) Ordinance, 1961, or through provisions in the annual Finance Act.
- Common examples include a surcharge on petroleum products, or, in some cases, a wealth surcharge on high-net-worth individuals.
- No Input Tax Credit for Development Surcharge:
- The VAT system in Bangladesh, as in most countries, operates on an "input tax credit" mechanism. This means that a registered person can deduct the VAT paid on their taxable purchases (inputs) from the VAT they collect on their sales (output).
- The Development Surcharge isn't classified as "input tax" for VAT purposes.
- . Therefore, businesses that pay a Development Surcharge on their purchases (e.g., on fuel) cannot claim it as an input tax credit against their output VAT liability.
- The VAT and Supplementary Duty Act, 2012, specifically defines what constitutes "input tax" eligible for credit, and Development Surcharge is not included in this definition.
- Treatment by Businesses:
- For a business, the Development Surcharge paid on any goods or services becomes an additional cost component of those goods or services.
- This cost is then incorporated into the overall cost of operations and subsequently into the selling price of their products or services. It's treated like any other non-recoverable expense.
- It is not reported in the VAT return (Mushak-9.1) as an adjustable tax.
Example:
If a manufacturing company purchases fuel for its factory, and that fuel is subject to a Development Surcharge, the company pays the fuel price plus the Surcharge. When the company sells its manufactured goods, it charges VAT on its sales. However, any Development Surcharge paid on fuel cannot be deducted from the output VAT collected on the manufactured goods. It's simply considered a cost of production.
In summary:
The Development Surcharge is a distinct levy that is separate from VAT. It does not operate under the input tax credit system of VAT, and therefore, you cannot apply payable Development Surcharge for VAT adjustment purposes in Bangladesh. Businesses must treat it as an additional cost.