Document Classification: Highly Confidential · GP, Robi, Banglalink, etc.) Telco Intermediary...

1

Document Classification: Highly Confidential

kpmg

Rahman Rahman HuqChartered Accountants

Technical Seminar on

New VAT Act 2012 and Rules 2016

8 March 2017

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Value Added Tax Act, 1991

&

Value Added Tax Rules, 1991

Value Added Tax and

Supplementary Duty Act, 2012

&

Value Added Tax and

Supplementary Duty Rules, 2016

4


New VAT Act in the context of difficulties

and challenges in current VAT Law

5


New VAT Law in Current Context

Price

Declaration

System

Truncated

VAT

Tariff VATLimited

rebate

system

Administrative

difficulties

Collection

complexities

More

clarity

needed

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Clarity and New Concepts

Economic activity

Recurring activity for supply of goods, services

or immovable property

One-off initiative of a commercial

activity or enterprise Supply of goods,

service or property made under any lease or license

Business, profession or

vocation

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Economic Activity does not include

Service rendered by employee to employer

Recreational pursuit or hobby carried on a

non-commercial basis

Services (other than for purpose of company’s

business) rendered by director of a company

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Goods Service

Immovable

Property

Supply

Any

combination

of the three

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Supply of Goods

Sale or Exchange

or Disposal of

goods

Goods on lease,

rent or otherwise

Transfer of rights

Rights to use

BuyerSeller

CurrentNew

10



Grant, assignment or

right

Making available a facility or

opportunity

Performing an act

License permit and

such

Supply other than goods or

immovable property

Supply of service

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Interest or right

over land

Right to acquire

or the option to

exercise right

License to

occupy land

Supply of

Immovable

Property


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Resident v Non-resident

Resident

Lives in Bangladesh

Stays in Bangladesh over 182 days in a

fiscal year

OR

Individual

OR

Stays in Bangladesh over 90 days and 365

days in pervious 4 year in a fiscal year

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Resident v Non-resident

Company, trust

or association of

persons

Government

Entity and

Property

development

joint venture

Mandatory

Resident

Incorporated in Bangladesh

Centre of control and

management in Bangladesh

OR

Any other person is a non-resident

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If non-resident provides any supplies

carrying on an economic activity

from or through a fixed place in

Bangladesh, it would be considered

as a supply in Bangladesh.

Why Resident v Non-resident?

A fixed place of business includes branch office, factory,

workshop, mine, gas well, location of construction or

installation project

15


Registration vs Enlistment

Supply goods or service subject

to supplementary duty?

NO

Turnover exceeds BDT 8 million?

YesNO

Turnover exceeds BDT 3 million?

YesNO

Yes

Voluntary or

temporary

registration maybe

obtained

VAT @ 15%

VAT Registration

VAT @ 3%

Turnover Tax

Enlistment

No VAT or Turnover Tax

No VAT Registration or

Enlistment

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Defining Turnover for Registration/Enlistment

Turnover does not include for the purpose

of registration/enlistment threshold

Exempted

supply

Transfer of

capital asset

Value of sale of an

organization

Permanently closing down

an economic activity

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VAT Registration under New Act

Distribution Center

Branches

Sales points

Factories

Central Registration

If maintains its records and accounts

independently and separately from the central unit


is Mandatory!Branch Registration is optional.

VAT Registration under Current Act


is Optional!

18


VAT Registration under New Act

A new VAT registration under the new Act will be

necessary

Registration

regulation is

already effective

Old registration will need to be converted into a

new VAT registration under the new Act

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Advance Payment of VAT

through Current Account System is removed

Concept of VAT Payment –Current Account under Current Law

Advance Payment of VAT

through Current Account System

The balance of VAT Current Account (advance VAT

payment and input VAT) must be positive before

raising any sales invoice

20


Concept of VAT Payment –Through Return under New Act

Total payment through VAT Return

Goods can be sold

without depositing

VAT to Government

Treasury

21


Output VAT

Concept of VAT Payment –Through Return under New Act

New System of payment through Return

at a glance

Sales

Input VAT

Net payable:

Through Treasury Deposit

Or

Refund to be carried

forward

Less

Purchase/

Expenses

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Types of VAT

Turnover Tax at 3%

on turnover.

Standard VAT at 15%

on each transaction.

• Input tax credit not allowed

• Advance tax can be adjusted

• Input tax credit is allowed

• Advance tax can be adjusted

Tariff VATTruncated VAT Trade VATPackage

VAT

CurrentNew

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Types of Supplies

• Goods,

• Services,

• Immovable properties

• Any combination

• Taxable Supplies

• Zero rated Supplies

• Exempted Supplies

On the basis of

nature

On the basis of VAT

imposition

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Imposition of VAT on Taxable Supplies

Taxable

ImportTaxable Supply

Goods

Services

Immovable Property

Imported Service

By a registered person

in Bangladesh through

economic activity

Services imported by

the registered person

Only

goods

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Zero Rated Supplies

Zero Rated

Supplies

Supply of goods for export

Supply of zero-rated services

Supply of immovable

property relating to overseas land

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Supply of goods for export also includes

Supply of goods for ocean – going

ship or aircraft

Supply of goods for temporarily

imported machinery

Purchase by tourists from listed

duty free goods seller

Deemed Export

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Supply of zero-rated services

Supply of service to a recipient outside Bangladesh

Supply of service for ocean – going ship or aircraft

Provision of services for temporarily imported goods

Provision of physical services to any land or any goods which is situated in

outside Bangladesh

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Exempted Supplies or Imports

Supply or import mentioned in First ScheduleBasic

Necessities

Immovable Property

Culture Intermediation

Special cases

AgricultureActivities of charitable

institutions

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Exempted Supplies or Imports

Right or option to receive exempted supply

If a good or

service is both

exempted and

zero-rated, it will

be regarded as

zero rated.

e.g.

export of

medicine

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VAT implication on sales of running business

Sale of running

business

Also includes

any segment

which can

operate

separately

Is not a

taxable

supply

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Imported Service – VAT Mechanism

While the recipient will make the VAT payment, it is

termed as a Reverse VAT Charge

As per Current VAT Law As per New VAT Law

Service importer normally pays

VAT at the time of payment of

imported service

No Impact except cash flow!

Subsequently claims as Input

VAT via Current Account

through VAT Return

Service importer must show

Output VAT on the value of

service in the return

No Impact! Not even cash flow!

In the same Return the service

imported Input VAT Credit for

the value of imported services

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Imported Service – VAT MechanismCurrent VAT Act

Value of Imported

Service

Normal Consideration paid

or to be paid is the value

of imported service

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Imported Service – VAT MechanismNew Act

Value of Imported

Service

Normal Consideration paid

or to be paid is the value

of imported service

Fair Market Value if

service imported from a

related party

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Imported Goods – VAT MechanismCurrent VAT Act

VAT @ 15%For Commercial

Importer

All taxable import

Advance Trade VAT

4%

•Can be adjusted if commercial

importers use Standard Rate of 15%

Output VAT on sales.

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Imported Goods – VAT MechanismNew VAT Act

VAT @ 15%For supply of

taxable imports

•Registered or enlisted person can

adjust against VAT payable

•Non-registered or non-enlisted

person can claim refund

All taxable import

Advance VAT 3%Supply of

taxable

import?

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Goods and Services – VAT Mechanism

Consideration

of Supply

inclusive of VAT

VAT as per Tax

Fraction

Value of

Taxable

Supply

Tax Rate /(100+Tax Rate)

Price

Declaration

is not

required

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Goods and ServicesActual Consideration vs Fair Market Value

Fair ValueConsideration of

Supply inclusive of VAT

No consideration or lower

than fair value consideration?

NO

YES

YES

NO

YES

NO

Transaction between

associates/related party?

Can associate take full input

credit?

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Current System for supply

without consideration

VAT on free goods is required to be paid

Declared price is considered value of supply

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Free

goods

Buy 1

get 1

Bonus

Goods

New System for supply

without consideration

Value of taxable supply is zero i.e. no VAT

Supply as sample is limited to BDT 20,000

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Clarity Given on Supply of Telco Products & Services

Telco Services

Service relating to transmission, emission, or

reception of signals

Projection of images, sounds, or similar

information by electromagnetic or electronic signaling

system

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Telco Product

Phone card, prepay card, recharge card, or

prepayment for acquisition of telecommunications

goods

Airtime for telecommunications

services, including internet access time, or download

capacity

42



Telco Supplier

Other than intermediary (e.g. Telco operator –

GP, Robi, Banglalink, etc.)

Telco Intermediary

Person who acts as a distributor,

representative, VAT agent, or an intermediary

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Taxable Supply

Supply by Telco supplier

Non Taxable Supply

Supply between two Telco suppliers

Sale by Telco intermediary

Distribution of prepaid Telco products by a Telco supplier or Telco intermediary

44


VAT determination for Certain Cases

Value of sale of residential building

50% of consideration

Others

50% of fair market value

Land Owner

First sale of residential premises is exempted

Subsequent sale after 2 years of first use is exempted

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Any excess amount paid to exercise the option, right or

vouchers is the value of taxable supply.

Option or right or vouchers

When settlement of debt is made by a creditor through a sale

of property of the debtor will be treated as a deemed supply of

the debtor.

1) The creditor is liable to pay VAT on the supply,

2) VAT should be deposited before any surplus money, if any,

may be returned to the debtor.

Sale of property to pay off debt

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Tax will be payable for any amount collected/ retained by the

supplier from its customer even though supply does not take

place or transaction is cancelled

Cancelled Transaction

Lay-by sales

Output Tax payable at the

time of installment

payments.

• Payment by at least more than

one installments

• Possession and ownership is

transferred after payment of

last installment

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Supply by registered person of in-kind

benefit of service or immovable property

without consideration.

Specific Cases

In-kind Benefits to the employees

Supply by registered person of in-kind

benefit in lieu of cash to any of their

employees

Free

accommodation

?

Own vs

Other

Goods

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Specific Cases

A supply consisting of the characteristics of a single

supply from an economic point of view shall not be

artificially split

Single and multiple supplies

If there are more then one element every supply shall

distinct and independent

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Withholding Entities Current Law

Public Limited

Company

Government Entity

Financial

Institutions (Banks,

NBFI etc.)

Non-government

Organization

Post-secondary

educational institution

Establishment

registered with LTU

Private Limited

Company outside

LTU

Firms or

Institution

Withholding Entities New Law

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Tax Withholding Mechanism

Is the recipient a

withholding entity?

Is a supply over BDT

10,000?

Is the Supplier a

withholding entity?

Is the supply exempted

or zero-rated?Withhold VAT

at up to 1/3 of

tax fraction

No withholding

obligationNo

No

Yes

Yes

No

Yes

Yes

No

A withholding entity

cannot transact with

an unregistered or

non-enlisted

supplier

51


Tax Withholding Mechanism

If my tender value is

BDT 30,000 and each

supply value is BDT 9k,

9k and 12k.

So withholding is on

12K or on the entire

tender value?

52


Amount of net payable tax

Net Tax payable

Output VAT

Input VAT Credit

Increasing Adjustments

Decreasing Adjustments

Supplementary duty

53


Eligibility of Input Tax Credit New Law

Input Tax Credit

Registered Person

Imports and taxable supply received as part of economic activity for taxable supply

Consideration for taxable supply is paid or is liable to be paid

54


Restriction on Input Tax Credit –Current VAT Act

Payment by cash

over BDT 100,000

Capital expenditure (e.g.

Building, infrastructure)

Exempted

supplies

No Input Tax Credit mainly on

Items not included in

price declaration

Output VAT under

truncated VAT

system

Restriction on Input Tax Credit –New VAT Act

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Partial input tax credit in New Act

When part of the

consideration is paid or is

due to be paid

When full input VAT credit

cannot be claimable (e.g. total

supplies include exempt

supplies)

Input

VAT

Taxable

Supplies

All

Supplies

Input tax credit on the amount

of consideration paid or is due

to be paid

Then,

Input VAT is claimed

proportionately

56


Adjustments in New Act

Insurance

Withholding Tax

Excess VAT paid in

previous periodConsequences of

change in tax rate

Goods put to a private use

Interest, monetary penalty, fine,

fees, etc.

Second-hand goods

purchased for resale

Not making payments

through banking channel

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Point of determining VAT liability on Taxable Supplies

Earliest of

When supply is made

When tax invoice is issued

When a part or the whole of the consideration is received.

General Supplies

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Earliest of

Recipient makes payment to supplier

Supplier takes out coins, notes or tokens from Such machines

Vending Machines

Supply of any goods is made through a vending

machine, meter, or such similar automatic devices

that are operated by coins, note or tokens

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Earliest of

When separate invoices are issued for each supply

When receivable consideration against each supply is received in part or in full

When the price against the series of supplies becomes payable

The first day of the tax period to which the payable consideration relates, if it is possible to ascertain the

payable amount at that time.

Progressive or periodic supply

Any supply where consideration is paid progressively

or periodically e.g. lease, hire of license, construction

or engineering activity.

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Filling of Return

Return must be

filled by 15

days following

tax period

Revised Return

may be filled

May allow

extension

of 1 month

Commissioner

Interest of

2% per

month is

payable

61


Books and Record Current Law

Books and records in prescribed format or

own designed format

In prescribed forms or

format as per Rules

Own designed templates/format

keeping minimum prescribed

information for certain

documents

Books and records should be

maintained for 6 years.

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Books and Record New Law

Books and records in prescribed format or

own designed format

In prescribed forms or

format as per Rules

Own designed templates/format

keeping minimum prescribed

information for all prescribed

books

Must contain all the

information in the

prescribed format

Books and records should

be maintained for 5 years.

Books, accounts and audit must be

maintained in accordance with BFRS.

63


Carry Forward of Negative VAT and Refund in New Act

General Persons

Is it less than BDT 50,000?

Decreasing adjustment for next 6

tax period

Is the Net Negative VAT payable

(i.e. refund) fully adjusted?

Can be adjusted for unlimited

period

Refund is available

NO

YES

Good for

new setups

No need

to go to

DEDO

NO

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Carry Forward of Negative VAT and Refund in New Act

Special Rules for

Building and Construction Company

Excess paid tax can carried

forward for unlimited time period

Decreasing adjustment

in the next tax period

No cash refund

is allowed.

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Appeals and Revisions

Appeal Time Limit Deposit money Disposal of Appeal

Appeal to

Commissioner

90 days from the

date of order issued

10% of tax specified or

penalty imposed

Within 1 year

Appeal to Appellate

Tribunal

90 days from the

date of order issued


penalty imposed

Within 2 years

Revision by High

Court Division


penalty imposed

Any interim order of the Appellate Tribunal staying collection of

tax shall cease to have effect on the day after the expiry of a

period of 6 (six) months following the day on which it was

passed unless the case is finally decided, or the interim order is

withdrawn by the tribunal earlier.

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Transition Period

What about existing Advance VAT paid

up to time of enforcement of VAT Act?

Unadjusted Advance VAT can be adjusted in new

VAT Act as “decreasing adjustment”

Up to 10% of net

VAT payable in

each tax period

Certificate

issued by

Commissioner

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Transition Period

Unadjusted Advance VAT cannot be

adjusted in following cases:

Cannot Adjust if

If he is not registered under new Act

If there remains any undisposed case pending against him under the VAT Act 1991

If any arrear tax remains unrealized with him under the VAT Act 1991

If any appeal or writ remains pending against him under the VAT Act 1991

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Transition Period

Judgment remains for consistency of

existing SRO with new VAT Act.

All rules, orders, SROs, notifications, and notices

issued under VAT Act 1991 will continue in force as

far as they are consistent with the provisions VAT

Act 2012

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Thank youMehedi HasanPartner

© 2017 Rahman Rahman Huq, a partnership firm registered in Bangladesh,

and a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a

Swiss entity. All rights reserved.

Document Classification: Highly Confidential · GP, Robi, Banglalink, etc.) Telco Intermediary...

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