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| VAT Deduction at Source (VDS) on supplies |
How does VAT deduct at Source from the supplies delivered?
VAT Deduct at Source (VDS) from delivered supplies in Bangladesh involves the following steps for the supply receiver (who is obligated to deduct VAT):
1. Determine if VDS is Applicable to the Specific Supply:
- Type of Goods: Identify the nature of the goods delivered. VDS rules differentiate between supplies by manufacturers, traders, and procurement providers. Certain goods with reduced VAT rates always attract VDS.
- Status of Supplier: Ascertain the supplier's category (manufacturer, trader, procurement provider).
- Withholding Entity Status: Confirm if your entity falls under the categories mandated to deduct VAT at source (e.g., government bodies, limited companies, large turnover entities).
- Invoice Review: Examine the supplier's invoice (preferably a valid Mushak-6.3). If a manufacturer supplies goods with a 15% VAT rate mentioned in Mushak-6.3, generally no VDS is needed. However, for traders or procurement providers, VDS often applies.
2. Identify the Correct VDS Rate:
- Goods from Manufacturer (with 15% VAT in Mushak-6.3): Generally no VDS.
- Goods from Trader (with 5% VAT): VDS is usually 7.5% (treated as a procurement provider for VDS).
- Goods from Procurement Provider: VDS rate is typically 5% or 7.5% depending on the specific scenario outlined in SROs.
- Goods with Reduced VAT Rates (below 15%): The entire VAT amount at the reduced rate is usually deducted at source if the receiver is a withholding entity.
3. Calculate the VDS Amount at the Time of Payment:
- Once the applicable VDS rate is determined, multiply this rate by the taxable value of the delivered goods (excluding VAT).
- The result is the amount of VAT to be deducted from the payment to the supplier.
4. Withhold the VAT Amount:
- When making the payment to the supplier for the delivered goods, deduct the calculated VDS amount from the total invoice value (including VAT).
- The supplier receives the net amount (invoice value minus VDS).
5. Pay the VAT you've deducted to the government. The supply receiver (withholding entity) is responsible for depositing the withheld VAT to the government treasury using the prescribed challan, typically within 15 days of the payment date.
6. Provide the supplier with a VAT Deduction Certificate (Mushak-6.6).
After depositing the VAT, provide the supplier with a VAT Deduction Certificate (Mushak-6.6) as proof of the deduction and deposit. This should be done within three working days of the deposit. The certificate is usually issued in three copies.
7. Maintain Records:
- Keep proper records of the invoices, payment details, VDS calculations, treasury challans, and Mushak-6.6 certificates.
In essence, when supplies are delivered and VDS is applicable, the supply receiver acts as an agent of the government to collect VAT at the source of payment. They must understand the rules for applicability and the correct rates based on the nature of the goods and the supplier's status. Non-compliance can lead to penalties for the withholding entity. For the most accurate and current information, always consult the latest VAT laws and SROs (Statutory Regulatory Orders) published by the NBR..