How does apply Interest on overdue SD for VAT adjustment purpose?
In Bangladesh, just like with overdue VAT, interest is also applicable on overdue Supplementary Duty (SD). The principles are very similar, as both VAT and SD are governed by the same overarching legislation, the VAT and Supplementary Duty Act, 2012.
Here's how interest on overdue SD applies:
Core Principle: Interest on Unpaid or Underpaid SD
If a taxpayer (importer, manufacturer, or service provider) fails to pay the correct amount of Supplementary Duty by the due date, interest will be charged on that overdue amount. This applies regardless of whether the underpayment was an initial error, a subsequent adjustment, or simply late payment.
How Interest Applies to SD Adjustments in Mushak-9.1:
The monthly VAT return (Mushak-9.1) includes sections for both VAT and Supplementary Duty. When adjustments related to SD are made, they can also lead to interest implications.
- Increasing Adjustments for SD:
- Scenario: If an "increasing adjustment" for SD is required in a subsequent tax period (e.g., due to a debit note issued for an undercharge of SD, correction of an error in calculating SD, or reversal of an incorrect SD claim). This increases the net SD payable for that period.
- Interest Implication: If this increasing adjustment means that the total SD payable for the original tax period was higher than what was actually paid by its due date, Interest will accrue on that underpaid SD amount, calculated from the original due date until it's fully paid.
- Example: A manufacturer understated the SD on a batch of goods sold in January. When they discover this error in February, They'll make an increasing adjustment for the underpaid SD in their February Mushak-9.1. Interest will then be calculated on the SD amount that should have been paid in January but wasn't, from January's due date until the date the adjusted amount is paid.
- Decreasing Adjustments for SD:
- Scenario: If a "decreasing adjustment" for SD is made (e.g., due to a credit note issued for sales returns where SD was previously charged, or SD paid on inputs against exports that can be claimed back through drawback). This reduces the net SD payable for the current tax period.
- Interest Implication: Similar to VAT, decreasing adjustments for SD do not directly trigger interest on overdue amounts, as they reduce a liability. However, if a business made an incorrect decreasing SD adjustment in an earlier period, leading to an underpayment of SD, and that error is later fixed (resulting in an increasing adjustment), then the interest rules will apply to that corrected underpayment.
- Rate of Interest:
As per Section 127 of the Value Added Tax and Supplementary Duty Act, 2012, if a person fails to pay any payable tax (which includes SD) or tax deducted at source by the specified date, they are liable to pay simple interest. The rate is typically 1% per month on the tax payable, calculated from the day after the due date until the payment is made.
It's important to cross-verify the current exact rate and any specific conditions in the latest SROs from the NBR.
Key Points Specific to SD Interest:
- Separate Calculation: While both VAT and SD are reported in Mushak-9.1, their liabilities and associated interest are calculated and reported separately within the form. Mushak-9.1 includes dedicated lines for "Interest on Overdue VAT" and "Interest on Overdue SD."
- No Input Credit for SD (Generally): As discussed previously, SD generally doesn't have an input tax credit mechanism like VAT. The focus of SD adjustments and interest is primarily on ensuring the correct SD amount is paid at the point it is due (import or first supply).
- Importance of Accuracy: Due to the severe implications of overdue payments (interest and potential penalties), accurate calculation and timely remittance of SD are crucial. Any errors that lead to underpayment, even if rectified later through adjustments, will incur interest from the original due date.
In essence, the NBR enforces timely payment of both VAT and SD, and any underpayment, even if discovered and adjusted later, will attract interest from the original due date, ensuring the government is compensated for the delay in receiving its due revenue.