%20How%20it%20is%20Applied%20in%202025.png "What is Supplementary Duty (SD)? How it is Applied in 2025?")
What is Supplementary Duty (SD)? How it is Applied in 2025?
Supplementary Duty (SD) is a type of indirect tax levied in Bangladesh on the import, manufacture, or supply of certain specified goods and services. It is imposed in addition to Value Added Tax (VAT) and other import duties, and its primary purpose is often to discourage the consumption of luxury goods, harmful products, or to protect local industries.
Here's a breakdown of key aspects of Supplementary Duty in Bangladesh:
1. Legal Basis:
Supplementary Duty (SD) is imposed as per the VAT and Supplementary Duty Act, 2012, alongside any relevant rules and Statutory Regulatory Orders (SROs) issued by the NBR.
2. What is it applied to? SD is applied to:
- Import of specified goods: Many imported goods are subject to SD to manage imports, protect domestic industries, or control the consumption of certain items.
- Supply of goods manufactured in Bangladesh: Certain domestically manufactured goods, particularly those considered luxury items or harmful products, also attract SD.
- Supply of specified services: A range of services, often those perceived as luxury or non-essential, are also subject to SD. Examples often include mobile phone services, restaurant services, and some types of entertainment.
3. Key Characteristics:
- Selective Application: Unlike VAT, which is a broad-based consumption tax, SD is highly selective Supplementary Duty applies only to the specific goods and services listed in the Second Schedule under the VAT and Supplementary Duty Act, 2012.
- This schedule is divided into three tables: goods subject to SD at import stage, goods subject to SD at supply stage (domestic manufacturing), and services subject to SD at supply stage.
- One-Stage Collection: While VAT is generally collected at each stage of the supply chain, Supplementary Duty is typically payable at only one stage – usually at the import stage for imported goods, or at the manufacturing/first supply stage for domestically produced goods and services.
- Rates: SD rates vary significantly, ranging from 5% to much higher percentages (e.g., up to 65.5% or more for certain items like tobacco products or alcoholic beverages). The rates are specified in the Second Schedule of the VAT Act and can be changed by NBR SROs, particularly during annual budgets.
- Purpose:
- Revenue Generation: It contributes significantly to government revenue.
- Discouraging Consumption: A key objective is to discourage the consumption of certain goods and services, such as luxury items, tobacco, or alcoholic beverages, for social or health reasons.
- Protection of Local Industries: By imposing SD on imported goods that compete with domestically produced ones, the government can provide a degree of protection to local industries.
- Fiscal Policy Tool: The government uses SD as a fiscal tool to influence consumer behavior and economic activity.
4. Calculation and Payment:
- Import Stage: SD is calculated on the assessable value of imported goods (which usually includes the CIF value plus Customs Duty, Regulatory Duty, and any other duties). When goods are imported, customs authorities collect it as part of the total import duties and taxes.
- Domestic Supply: For domestically manufactured goods or services, SD is calculated on the value of the supply and collected by the manufacturer or service provider at the point of first supply.
Tobacco and alcohol products often have SD and VAT payable on their Maximum Retail Price (MRP) directly from the manufacturing stage.
5. Non-Applicability:
- SD is generally not applicable to goods imported for export purposes (not for home consumption) or on zero-rated supplies of goods or services.
Example: If a luxury car is imported into Bangladesh, it would typically be subject to:
- Customs Duty (CD)
- Regulatory Duty (RD)
- Supplementary Duty (SD) (which could be a very high percentage)
- Value Added Tax (VAT)
- Advance Income Tax (AIT)
- Advance Tax (AT) under VAT
Importance: Understanding Supplementary Duty is crucial for businesses involved in importing, manufacturing, or supplying goods and services in Bangladesh, as it directly impacts pricing, competitiveness, and overall tax compliance. Due to frequent changes in rates and applicable items, it is always essential to refer to the latest VAT laws and NBR SROs for the most accurate and up-to-date information.