VAT Deduction/Collection at Sources General Idea

VAT is the abbreviation form of Value Added Tax. The standard rate of VAT in Bangladesh is 15%. According the the Value Added Tax Act 1991 and Value Added Tax Rules 1991 of Bangladesh, any person registered under the VAT system of Bangladesh is eligible to deduct Value Added Tax (VAT) at sources at the time of making payment for any sale of goods or service render at the rates prescribed by the National Board of Revenue (NBR).

The seller of the goods or services deposits the VAT to the Government treasury through treasury challan within 15 working days from the date of deduction of such VAT. Details of deposit will be discussed later on in this blog. Therefore, it is the buyer who ultimately pays the VAT.

Generally supplier of goods or services deposits the VAT as collected at the time of making payment. But in case of deduction/collection at sources this system is contrary (i.e. reverse). In this system buyer of the goods or services deducts the VAT himself and deposits to the Government treasury.

Purpose of VAT deduction/collection at sources:

·         Ensure timely revenue collection for the government;

·         Make the VAT collection much easier;

·         Collect information pertaining risky institutions;

·         Expedite the MUSHAK chain system;

·         Ensure proper tax compliance

Following institutions/organizations are authorized to deduct/collect VAT at sources:

·         Government organizations;

·         Semi Government organizations;

·         Autonomous bodies;

·         Non Government Organizations (NGOs);

·         Banks;

·         Insurance Companies;

·         Financial institutions;

·         Limited Companies; and

·         Educational Institutions.

Note: If any idea above contradicts with the VAT Act 1991 or VAT Rules 1991, then provisions of VAT Act and VAT Rules shall prevail.

Hope in this post you understand the basics of VDS general ideas. Follow my next blog on VDS.

Till then happy reading...........