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| Corporate Practice bd |
What are different types of VAT applying in Bangladesh?
In Bangladesh, the Value Added Tax (VAT) system isn't strictly divided into "types" in the same way some other countries might differentiate (e.g., VAT on goods vs services as distinct groups, each governed by different core principles. Instead, the application of VAT in Bangladesh is characterized by different rates and specific mechanisms for certain businesses. Here's a breakdown of what could be considered the different aspects of VAT application
1. Standard VAT Rate:
The standard VAT rate in Bangladesh is 15%. The 15% rate covers most goods and services sold in Bangladesh and also applies to imports.
2. Reduced VAT Rates:
Lower VAT rates are applicable to certain goods and services in Bangladesh. These rates are lower than the standard 15% and are implemented for various socio-economic reasons or for specific sectors.
Certain goods and services are presently subject to reduced VAT rates of 5%, 7.5%, and 10%.
Examples of goods and services that may have reduced rates (these can change, so always refer to the latest NBR regulations):
5%: Some essential food items, agricultural inputs, certain locally manufactured goods, specific services like restaurants (non-AC, excluding those in higher-category hotels).
7.5% VAT applies to:
Certain stages of furniture manufacturing and non-air-conditioned (non-AC) hotels.
10% VAT applies to:
Motor vehicle garages and workshops, dockyards, printing presses, the repair or servicing of taxable goods, transport contractors (excluding those dealing with petroleum goods), and non-AC hotels (in a higher category than those at 7.5%).
3. Zero-Rated VAT:
A zero-rated VAT means that the supply is taxable, but the applicable VAT rate is 0 Notwithstanding that their supplies are subject to a zero VAT rate, businesses remain eligible to claim input tax credits.
Common examples of zero-rated supplies include:
Export of goods.
Export of services (services rendered outside Bangladesh, services to international transport, repair/maintenance of goods under warranty sent abroad).
4. Exempted Goods and Services:
Certain essential goods and services are exempted from VAT altogether. This means no VAT is levied on their supply, and businesses dealing exclusively in exempted items generally do not need to register for VAT.
Examples of commonly exempted items and services (again, subject to change):
Basic agricultural produce (e.g., unprocessed food grains, vegetables).
Healthcare services.
Educational services.
Books and newspapers.
5. Turnover Tax (TT):
This is not strictly a type of VAT but rather a simplified tax regime for smaller businesses.
In Bangladesh, an Enlistment Certificate and a 4% turnover tax on total turnover are mandatory for businesses with an annual turnover ranging from BDT 3 million to BDT 5 million. As they operate outside the standard VAT framework, these businesses are not entitled to claim input tax credits
6. VAT Deduction at Source (VDS):
This is a mechanism where the VAT is deducted at the time of payment for certain types of supplies or services by designated entities (withholding entities)
The rates for VDS vary depending on the nature of the supply or service (e.g., different rates for AC hotels, construction contractors, advertisement agencies)
The deducted VAT is then deposited with the government, and the supplier can adjust this amount against their output tax liability.
In summary, while Bangladesh primarily uses a standard VAT rate of 15%, there are crucial variations through reduced rates, zero-rated supplies, exemptions, and a separate turnover tax for smaller businesses. Additionally, the VDS mechanism affects how VAT is collected for specific transactions
For accurate and up-to-date information on applicable VAT rates and rules for specific goods and services, it is always best to refer to the official website of the National Board of Revenue (NBR) of Bangladesh (https://nbr.gov.bd/) or consult with a tax professional in Bangladesh. The specific schedules and regulations outlining these rates and exemptions are subject to change by government decree.