Declaration authentication by responsible persons for (VAT Return 9.1)

Confused about SD's role in VAT adjustments?

How does supplementary duty (SD) applicable for VAT adjustment in Bangladesh?

In Bangladesh, Supplementary Duty (SD) and Value Added Tax (VAT) are distinct taxes, and Supplementary Duty paid cannot generally be adjusted against VAT liability.

Here's why and how they interact:

1. Nature of the Taxes:

• VAT (Value Added Tax): This is a consumption tax levied on the value added at each stage of the supply chain. Businesses typically collect VAT from their customers (output VAT) and can deduct the VAT they paid on their inputs (input VAT) from this amount. The net difference is remitted to the government. This is known as the "input tax credit" mechanism.
• SD (Supplementary Duty): This is an additional, selective tax imposed on specific goods and services, often considered luxury items or harmful products. It's usually collected at the first stage of supply (e.g., import, or manufacturing for domestic goods/services).

2. No Direct Adjustment/Input Tax Credit for SD:

• The VAT and Supplementary Duty Act, 2012, and associated rules primarily define input tax credit for VAT. This means a registered person can take credit for VAT paid on their taxable inputs against their output VAT liability.
• Supplementary Duty does not operate on an input tax credit system. If you pay SD when importing or manufacturing a product, you generally cannot deduct that SD amount from your output VAT liability when you sell that product or render the service. It's essentially a cost component for the business that then becomes part of the final selling price to the consumer.

3. How SD is Handled by Businesses:

• Cost Component: For a business, the SD paid on imported goods or manufactured products becomes part of the cost of those goods or services. This cost is then factored into the selling price.
• Not a Credit on Mushak-9.1: Unlike input VAT, there isn't a specific section in the monthly VAT return (Mushak-9.1) where you would directly claim "SD paid" as a decreasing adjustment against your VAT payable. The Mushak-9.1 form clearly differentiates between VAT and SD sections.

4. Exceptions/Related Concepts (not direct SD-VAT adjustment):

• Zero-Rated Supplies (Exports) and Duty Drawback: If goods subject to SD are subsequently exported (zero-rated), the SD paid on inputs used in those exported goods might be refundable through a duty drawback scheme. This is a refund mechanism for duties and taxes paid on inputs for exported goods, not an adjustment against domestic VAT liability. The NBR's Customs wing handles duty drawback.
• Impact on Taxable Value for VAT: While SD isn't adjustable against VAT, the value on which VAT is calculated often includes the Supplementary Duty. For instance, at the import stage, VAT is calculated on the assessable value which generally includes Customs Duty, Regulatory Duty, and Supplementary Duty. This means SD indirectly increases the base on which VAT is levied.

In essence, Supplementary Duty is an additional layer of tax that, once paid, is generally considered a final tax on the specific goods or services and does not create an entitlement to an input tax credit against your general VAT obligations. Businesses need to understand that SD adds to their cost of goods and services, and they must factor this into their pricing.