VAT Deduction at Source (VDS) Guideline most of the audit objections arise out of non-compliance of VDS

regulations. VAT Deaprtment generally can raise demand for 5 (five)

Dr. Md. Abdur Rouf years back. The entities generally can not produce VAT documents of
5 years. Even if they can, the VAT audit officials go for CA firm’s audit
VAT deduction at source (VDS) is a very important matter of today to report of last 5 years. In most of the cases, it is seen that VDS related
all of them who are engaged in economic activities. VDS is one of the regulations have not been properly observed. It is also true that
much talked about component of our VAT system. In our VAT sometimes the regulations were gray and complex – challenging for
system, input tax credit (rebate), export, audit, accounts are some the entities to comply. It is also true that the entities were not aware
other important components. Many of the organizations require of the regulations. But at recent times awareness regarding VDS is on
knowing the rules and procedures regarding VDS to perform their the increase; as a whole on VAT matters awareness is increasing. For
activities specially procurement works smoothly and fairly. The government VDS is equally important. At the present time, the
supplier of the goods and services and the recipient of the supply amount of VAT that is collected from domestic sources from
both require knowing the matters like on which purchase VDS manufacturing, trading and service rendering, almost 40 per cent of
requires to be deducted, what should be the rate of deduction, what the amount is collected as VDS. If VDS related provisions are applied
should be done following deduction, on what purchases VDS does properly, the amount shall further increase.
not require to be deducted etc. VDS is also known as withholding
VAT. The entities who are entitled to deduct VDS they are called The offices and organizations upon whom there is VDS deduction
withholding entity. As per VAT law, the supplier and withholding responsibility, the officials serving there require taking VDS training
entity both are equally responsible for non-deduction of VDS. So, twice in a year. Once after budget i.e, in the month of July. Because
functionaries at both ends require knowing VDS rules. It is to be during budget sometimes VDS related rules and regulations are
noted here that these rules do not only require to be known and changed. Another time is in the month of December or January.
observed during deduction. If VDS related rules and regulations are Because after 5/6 months of budget, some provisions get changed
properly observed from the very commencement of the again. In such training, officials of all departments (human resource
procurement process, then problems do not crop up later or management, negotiation, agreement signing, procurement,
problems largely reduce. Many of the problems can be avoided if transportation, bills payable, regulatory affairs, audit, post-audit etc.)
provisions of VDS related rules and regulations are properly inserted require to remain present. It is not wise to believe that only the
in the purchase agreement or tender. But the sad reality is VDS officials of procurement and bills payable departments require to
related awareness has not yet properly developed at the field-level. take VDS related training. Actually, if officials of all deprtments of an
So, the rules and regulations relating to VDS are not properly office take training sitting at a session, then it gets easier to comply
observed from the start of the procurement process till the payment later because they learn equally and remain on the same page.
for the procurement. Generally it is seen that negotiation Otherwise, in any matter if different departments of an office take
department finalizes discussion, then purchase department does the different positions on any subject then it becomes challenging to get
purchase, at these stages VDS related matters are not considered. the job done. I give enough emphasis on training. My slogan is one
When the bills payable department attempts to pay the bill, then the Taka investment in training can help your organization to save ten
question of VDS comes to the fore. Since VDS related matters have Taka in future. My another slogan is compliance reduces business
not been considered during negotiation or during purchase, so at cost. We have to gradually come out of the managed culture and have
this stage multiple complications arise. Consequently, different types to develop compliant culture. If officials are trained, they can comply
of prblmes arise later straining relationship between the purchaser better, audit objections reduces and business complexities
and the seller including audit objections. Presently, at the field-level,
www.vatbd.com 11.01.2019 www.vatbd.com 11.01.2019
diminishes. So, given the importance of VDS in your organization, it lack of tax culture, lack of adequate tax administration etc.) to realize
the tax in normal course and in the actual place of collection then,
is an imperative to take VDS related training.
provisions are made to deduct that tax at it’s source, from where the
money comes. This system of deducting tax at the source from where
There are some organizations with whom VAT does not apply to any
the money comes is called tax deduction at source. So, VDS is not a
other way but they have the obligation to deduct VAT at source
separate tax, rather it is the system or procedure to deduct tax at the
(VDS). Most of these organizations want to remain compliant but due
source from where the money comes. We can make it clear with an
to lack of knowledge in the area, often they land in difficulties i.e,
example. We, who are service-holders, on many of us, there lies the
non-compliance complaints, departmental cases, audit objections
etc. are raised against them. These organizations sometime take the responsibility to pay Income Tax (IT) as per the provisions of law.
We pay Income Tax. But many of us have the tendency to evade
services of consultants, both individual and organizational. But sadly,
Income Tax. So, Government has made provisions imposing
there are instances that for a very small type of function of VDS, the
responsibility upon the employer to deduct Income Tax from the
consultants or firms charge very high fees which some entities can
salary of the employee when the employer make payment to the
not afford. So, these organizations want to know themselves, what
employee. Here employer is the source of money. So, the National
are the rules and regulations regarding VDS. In this chapter, I have
Baord of Revenue (NBR) has asked the employer to deduct Income
detailed the VDS matters for easy understanding of any type of
readers. Things have been expressed there in easy language and in Tax at source. When the employee will submit his Income Tax
return, then he can show all these source deductions and can make
the sequence of practical economic activities. The rules and
necessary adjustments against his real payable Income Tax. Had it
regulations of VDS remain scattered in the provisions of the Value
been so that all people pay Income Tax as per rules, nobody evades
Added Tax Act, 1991; the Value Added Tax Rules, 1991 and few
Income Tax then, there would not have any need to make such rules
orders made thereunder. The most important of those orders is
for Income Tax deduction at source. In many other places, Income
General Order No-06/Mushak/2018, Dated: 07 June, 2018. These
Tax is deducted at source. For instance, if you have savings
legal instruments are written in legislative language. In legislative
instrument and on maturity when you encash it, Income Tax is
language, sentences are long and terms are complex. So, these can
not be easily understood as a novel can be understood in one deducted from the interest. When you are supplying anything to any
organization participating in any tender, while making your payment
reading. The ideas expressed in this chapter have been taken from
Income Tax is deducted at source. In the same manner, there are
those provisions of the Act, Rules and Orders. Since this is for easy
provisions for VAT deduction at source. There are many people who
understanding of the readers, so references have not been
sell goods and services where as per the provisions of law, VAT
mentioned for the sake of simplicity. I hope, these will not contradict
needs to be paid but actually many of them are evading VAT. They
with the provisions of law. Yet if any contradictions are found there,
are not keeping proper books of accounts, tax culture has not been
provisions of the Act, Rules and Orders shall prevail. However, the
readers are requested to bring those into my notice for future developed in them and above all our VAT administration does not
have enough manpower and other supports to prevent or detect all
corrections. The above General Order is placed below this chapter
those evasion efforts or evasions. So, the NBR has asked certain
for quick reference. To start discussion on VDS, first we need to
organizations to deduct VAT at source on their certain purchases i.e.
know what is VDS
goods and services.
What is VAT Deduction at Source (VDS)?
So far we understand that the provisions of VAT deduction at source
At this stage, it is pertinent to discuss what is VAT Deduction at
have been made where there is risk of VAT evasion. So, let us try to
Source (VDS)? There are the provisions of source deduction in the
assess where risk is high, where it is moderate and where it is less.
case of Value Added Tax (VAT) and in the case of Income Tax. When
it becomes challenging for many reasons (lack of proper accounting, www.vatbd.com 11.01.2019
We know that VAT is collected on goods and servcies. On goods, VAT reason is service can not be seen and sometimes service delivery
system is also not clearly visible. For instance, an individual
is collected at three stages: import stage, manufacturing stage and
consultant is providing consultancy service from home. He writes
trading stage. So, VAT system is also called a multiple stage taxation
reports and sends to his client by e-mail. This is not visible to the
system. On services, whenever service is rendered VAT is paid then.
VAT authorities. Here is greater risk of VAT evasion. Again, there are
There is only one stage with regard to service. Now, we shall see
some services where there is lesser risk of VAT evasion because
import stage, manufacturing stage, trading stage and service
there is a visible establishment etc. For instance, mobile phone
rendering, in these four points where there are more risks and
service. There is huge establishment, network, service delivery
where there are less risk of VAT evasion. At the import stage, goods
physically remain under the custody of government authority (port system which are clearly visible. NBR has identified 39 such services
where risk of VAT evasion is higher. The withholding entities have
authority). At this stage, on these goods, many other works are done;
been asked to deduct VDS in these cases under all circumstances. We
Customs Duty (CD), Supplementary Duty (SD), Regulatory Duty (RD),
shall discuss these in details later. So, we understand that generally
Advance Income Tax (AIT), Advance Trade VAT (ATV) etc. port dues
services which are evasion-prone those are brought under the
and other charges are collected. Then, VAT is also collected. So, it
mechanism of source deduction. So, the organizations upon which
does not require any extra effort to collect VAT there. At this stage,
responsibility of VDS deduction has been given are performing the
VAT evasion possibility is less. So, VDS does not relate at import
stage. Now, let us discuss the manufacturing stage. At manufacturing functions of VAT collection on behalf of the Government. They are
helping the government to collect VAT.
stage, the possibility of VAT evasion compared to import stage is
greater. Because at this stage, governemental control over the
All the rules and regulations regarding VAT deduction at source can
production and sale is less. Control of the VAT officials is also less at
be divided into three components, viz: (1) who will deduct VAT at
this stage. The manufacturer enjoyes self-clearance facility under
source, which are the services requiring VAT deduction at source
VAT system. So, he can clear his goods at any time he wants. Issuance
and the rates of VAT deduction at source and which are the services
of fake VAT invoice, non-issuance of VAT invoice are the risks at this
do not require VAT deduction at source; (2) Following VAT
stage. So, VDS provisions started from there. For our understanding
let me mention one VDS rule at this stage – if manufacturer makes deduction at source how it has to be deposited to the government
treasury and how certification of deduction has to be issued in form
supply issuing VAT invoice then no VDS deduction; if manufacturer
“Mushak-12Kha”; and (3) how the VAT deducted at source amount
makes supply without VAT invoice then 15% VAT deduction. Now,
can be shown in the relevant serials and columns of the VAT return.
let us discuss the risk at trading stage. At trading stage, there are
We shall find discussions below on these points and on other
more risks compared to manufacturing stage because of large
relevant points.
number of points of trading. As per Bangladesh Shop-Owners
Association, there are about 25 lac trading places throughout the
country; those include dealer, distribution center, sales center, Organizations upon which the responsibility of VAT
commission agent, super shop, mega mall, general store, Deduction at Source lies (withholding entity)
departmental store, whole-seller, retailer etc. NBR does not have Ten different organizations have been given the responsibility to
enough manpower to pursue so many places. These also could not be deduct VAT at source. Those are as follows:
brought under automation network. So, risk of VAT evasion at (1) Government organizations;
trading stage is greater than manufacturing stage. So, VDS provisions (2) Semi-Government organizations;
have also been there. One such rule is, if trader makes supply issuing (3) Autonomous bodies;
VAT invoice then no VDS deduction; if trader makes supply without (4) Non-Government organizations (NGOs);
VAT invoice then 5% VAT deduction. Now, let us discuss services. (5) Banks;
Compared to goods VAT evasion risk is higher on services. One main www.vatbd.com 11.01.2019
(6) Insurance companies; to submit VAT return (Mushak-19) those entities require knowing
one more component, i.e, component four. This component deals
(7) Financial institutions;
with how the VDS deduction related matters can be posted in the
(8) Limited company (both private limited company and public
VAT return. For instance, Grameen Phone Ltd. pays output VAT to
limited company but not proprietorship firm);
the governemnt treasury in its normal course of service rendering.
(9) Educational institutions (all types of educational institutions
Grameen Phone Limited submits VAT returns regularly. Again,
form KG, nursery to university both public and private); and
Grameen Phone Limited deducts VDS as a whithholding entity. So, it
(10) Establishment with more than Taka one crore annual trunover
requires knowing how the VDS info needs to be inserted in the VAT
(In VAT law, turnover means total money received from supply
of a certain period, here one year period). return of Grameen Phone Limited. Again, suppose, Aftab Automobile
Workshop Limited repairs the motor vehicles of Grameen Phone
Limited. Aftab Automobile Workshop Limited pays VAT to the
When these withholding entities makes payment against their
government as motor garage and workshop – a VATable service. So,
purchases of goods and services, then they require to apply VDS
it submits VAT return. While Aftab Automobile Workshop Limited
rules to check whether VDS requires to be deducted from the
provides services to Grameen Phone Limited, VDS is deducted by
payment. If there remains obligation to deduct VDS, it has to be done.
Grameen Phone Limited while making payment and VDS
In spite of having the obligation to deduct VDS if it is not done, it can
be realized from the entity failing to deduct with 2% interest. certification (Mushak-12Kha) is issued by Grameen Phone to Aftab
Automobile. So, concerned employees of Aftab Automobile
Moreover, there are provisions in the VAT Act, 1991 [Section
Workshop Limited requires knowing how the information regarding
37Kha(Kha)] stipulating that if deducted money is not deposited to
VDS withheld by Grameen Phone requires to be posted in the return
the government treasury following deduction, then the person who
of Aftab Automobile. We shall discuss now the above components
deducted VDS, the person who was responsible to deposit the
sequentially.
deducted amount to the government treasury and the Chief
Executive of the entity each can be imposed personal penalty worth
Meanwhile, we have learnt the first tips regarding VDS. That is on
of BDT 25,000 (Taka twenty five thousand) only by the
Commissioner. So, the functionaries working at the negotiation, which entities VDS liabilities lies. The second VDS tips is, at present,
on 39 seervices, VDS deduction is compulsory. Those services
procurement, accounts, bills payable, audit, post-audit etc.
remain listed in paragraph 02 of the General Order no.-
departments of the withholding entities require knowing updated
06/Mushak/2018. dated 07 June 2018 of the National Board of
provisions regarding VDS.
Revenue (NBR) regarding VDS procedure. There are 39 services in
the list. If any of the withholding entity described above purchases
Now, we shall place the VDS matters in the sequence of practical
any of the services falling under those 39 services, then regardless of
activities. If we think sequentially, then it shall be easier for us to
have a grasp on the provisions. All matters of VDS can be divided the issuance or non-issuance of VAT invoice (Mushak-11) by the
service provider, regardless of the VAT payable on the service has
into four components. The first component deals with who are the
been deposited to the government trasury or not; VDS has to be
withholding entities and on which supplies VDS requires to be
deducted while making payment against the bill (there is some
deducted. The second component deals with on which supplies VDS
exception with regard to advertizement service that shall be
does not require to be deducted. The third component is, how the
discussed later). Mentionably, it is usual that the service provider
deducted amount can be deposited to the government treasury
shall issue VAT invoice. But practically, many service renderers do
following deduction at source and how VDS withholding certificate
not issue VAT invoice while rendering these services. So, compulsory
has to be issued. For most of the entities, it is sufficient to know upto
this. But the entities who have other VAT works and other provisions VDS deduction provisions have been formulated for these services.
of VAT need to be complied with, specially the entities who require www.vatbd.com 11.01.2019
Therefore, VDS has to be deducted compulsorily regardless of VAT For ease of the readers, I would like to answer to the above question
in a detailed manner at this stage. These 39 service renderers have
invoice has been issued or not. At this stage, a question frequently
options to pay VAT in normal course while providing service or not
arises, whether VDS has to be deducted if the service renderer issues
to pay VAT while providing service since it is known that VAT shall
VAT invoice and deposits amount of VAT against the invoice to the
be deducted at source on these services. If they pay VAT in normal
governemnt treasury. Answer is yes, in the case of receiving any of
course while providing service and if the service recipient
those 39 services, while making payment VDS has to be compulsorily
(withholding entity) deducts VAT at source then on a single service
deducted. Following deduction, withholding entity shall issue
VAT becomes paid twice. Therefore, for the service provider
withholding certificate (Mushak-12Kha) favouring the service
provider. The service provider shall post the deducted amount in the provision has been made to make positive adjustment once in his
Account Current Register and return. Then VAT becomes paid to the
serial 12 of his VAT return, thus the amount shall be positively
government once. This job of making positive adjustment once is not
adjusted. So, ultimately government shall get VAT once. The
clear to many. So, they raise question. They also think in plain
summary is, if any of the above 39 services are purchased by any of
commonsensical manner that there is invoice so no deduction is
the 10 withholding entities, then compulsorily VDS has to be
needed. Hopefully, now we understand that under which
deducted while making payment. There is no exception other than
circumstance positive adjustment is needed. Now let me clarify how
advertizing service. Under all circumstances, VDS requires to be
deducted there. People tend to ask multiple questions on this point. to make positive adjustment. Suppose, service provider has provided
a service. Service provider has issued VAT invoice (Mushak-11). In
So, I hereby emphatically assert that as per the current rules and
normal course, service provider has paid VAT to the government
regulations of VDS under all circumstances VDS deduction is
treasury. The service recipient has deducted VDS because the service
compulsory with regard to these 39 services excepting
falls under the above 39 services where NBR has instructed the
advertizement service which shall be discussed later. So, it is
withholding entities to deduct VDS compulsorily. The service
meaningless to conceive any situation and ask whether VAT requires
recipient has issued VDS certification (Mushak-12Kha). The service
to be deducted there with regard to these 39 services. But a question
provider has obtained Mushak-12Kha. The service provider shall
remains vivid in the mind of the readers that VAT has to be deducted
by the withholding entity (service recipient) in spite of issuance of now post the amount in the Mushak-12Kha in the column (8) of the
Account Current Register (Mushak-18) and add the amount to the
VAT invoice by the service provider, what is the rationale behind
column (10) closing balance. The service provider shall post the
this. The reason of formulating such provision is at the field-level
amount to serial 12 of his next VAT return. Thus, making positive
there is tendency of issuance of fake invoice. Government’s
adjustment is completed. If the service renderer does not maintain
mechanism can not effectively and exhaustively monitor these
Account Current Regiser then posting in the serial 12 of the next VAT
sectors. So, the tendency of issuance of fake invoice can not be
return shall be sufficient to make positive adjustment. Thus, if
eliminated. In other words, there is the risk of VAT evasion. We
know VDS provisions have been made to minimize risk of VAT positive adjustment is made, then VAT is paid to the governemnt
once only. This procedure remains detailed in paragraph 5(Ka) of
evasion. Therefore, with regard to these 39 services provisions have
General Order No.-06/Mushak/2018, dated 07 Junne, 2018 of NBR.
been made to deduct VAT in spite of issuance of VAT invoice. Service
So far we have discussed two VDS tips, viz: (a) who are the VDS
recipient withholding entities have been asked to deduct VDS
withholding entities; and (b) VDS deduction is compulsory on 39
compulsorily and the service provider has been asked to collect
services under all circumstances, however, on advertizement there is
withholding certificate from the service recipient and make positive
some exception.
adjustment in his Account Current Register (Mushak-18) and VAT
return (Mushak-19). Consequently, activities of the service renderer
have been increased.
www.vatbd.com 11.01.2019
At this stage, for convenience of the readers, I want to discuss one service ‘Procurement Provider’ practically relates to the supply of
goods but in our VAT system, it is considered as service. So, if we
thing, i.e, the easy and brief way to understand VAT deduction at
keep Procurement Provider out of the list for the time being there
source procedure. If your organization falls under any one of the 10
remains 38 services left. In serial 5, there is advertizement service.
wighholding entities, then while making payment against purchase
We have mentioned earlier that with regard to advertizement, the
of any goods or service, you have to apply VDS rules to understand
provisions for VDS is a bit defferent. We shall hopefully discuss that
whether there is any need for deduction of VDS. Whenever, any bill
later. If we keep advertizement service out of the list for the time
is placed before you, then you have to ascertain whether the bill is
being, there remains 37 services left. So, whenever any bill is placed
against purchase of any goods or any service. If the bill is against
purchase of any service, then you have to ascertain the title of the before you, please check if the purchase concerning the bill is a
service and the service falls within the 37 services mentioned above.
service. If the service falls under any service mentioned in the list
If the service falls wihtin the 37 services, VAT needs to be deducted
below, then VAT at the rate mentioned in the rightest column of the
at source at the rate mentioned against the service. Sometimes, it
list against the service has to be deducted compulsorily. In the cases
becomes challenging to ascertain the title of the service. In that
of those services, VAT has to be deducted at source under all
circumstance, you need to check the definition of the service. The
circumstances. VAT has to be deducted at source regardless of
definitions of the services remain enshrined in the S.R.O No. 168-
issuance or non-issuance of VAT invoice by the provider of the
service. Regardless of having or not having treasury challan, VAT has Law/2013/672-VAT, dated: 06 June, 2013. The activities composing
the service which your organization has purchased need to be fitted
to be deducted at source. Regardless of inclusion or non-inclusion in
with the definition of services and where it fits most it shall be
the agreement of service delivery, VAT has to be deducted at source.
dubbed that service. There are some service definitions which are
VAT has to be deducted at source, regardless of VAT-inclusive or
almost similar, such as: consultancy firm and supervisory firm;
VAT-exclusive price. Summarily, in the cases of the 39 services
engineering firm etc. In such circumstance, you have to check under
mentioned in the list below, VAT has to be deducted at source under
which service definition your purchased activity falls most, it shall
all circumstances. There is no such circumstance where VAT does
assume that service title.
not require to be deducted at source, except a circumstance related
to the service of advertizement. The procedure following deduction
The above mentioned 39 services and the rates of VAT to be
has been discussed later. I suppose, things have become easy now. If
deducted against the services remain listed in the following table. In
you work under payment section of any VAT withholding entity,
the serial 19 of the table, there is Procurement Provider. It has been
then when a bill against any purchase of your organization is placed
mentioned earlier that Procurement Provider is the supply of goods
before you, then you have to see whether the bill is against the
following procurement. It is a service. Procurement Provider
purchase of any service and the service falls under the 39 services
procures goods from one place, brings all the way and provides to
mentined in the list. If the service remains included in the list below,
then deduct VDS at the rate mentioned in the rightest column of the the withholding entity. This service is called Procurement Provider.
Although it looks like goods but in our VAT system it is considered as
list. Most of the services generally purchased by your organization
service. If we keep Procurement Provider out of the list, there
shall fall under the 39 services of the list. So, with this meagre
remains 38 services. If we keep advertizement service out of the list,
knowledge on VDS, in most of the cases, you may perform your VDS
there remains 37 services. With regard to these 37 services
responsibilities properly.
deduction of VAT at the rate mentioned against the service is
compulsory under all circumstances.
In most of the cases, it can be easily understood whether any service
falls under the 39 services mentioned in the list. There are only few
services which could not be understood easily. One important thing
needs to be mentioned here that in serial 19 of the following list, the www.vatbd.com 11.01.2019
 Serial Service Title of Service Rate of VAT
List of services where VAT deduction at source is No. Code deduction
mandatory at source
Serial Service Title of Service Rate of VAT 16. S032.00 Consultancy firm and 15%
No. Code deduction
supervisory firm
at source
17. S033.00 Awarder of lease (Izaradar) 15%
01. S002.00 Decorators and caterers 15%
18. S034.00 Audit and accounting firm 15%
02. S003.10 Motor garage and workshop 10%
19. S037.00 Procurement provider 5%
03. S003.20 Dockyard 10%
20. S040.00 Security service 15%
04. S004.00 Construction Firm 7%
21. S045.00 Lawyer 15%
05. S007.00 Advertizing Agency 15%
22. S048.00 Transport (a) for transport of 5%
06. S008.10 Printing press 15%
contractor petroleum
07. S009.00 Auctioneer 15%
products
08. S010.10 Land developer 3%
(b) for transport of 10%
09. S010.20 Flat a) From 1 to 1600 2%
other products
seller square feet
23. S049.00 Rent-a-car 15%
b) From 1601 square 4.5%
24. S050.10 Architect, interior designer or 15%
feet or above
interior decorator
c) On reregistration 2%
25. S050.20 Graphic designer 15%
10. S014. 00 Indenting agency 15%
26. S051.00 Engineering firm 15%
11. S020.00 Survey agency 15%
27. S052.00 Rentor of sound and lighting 15%
12. S021.00 Ogranization renting out plant 15%
instruments
and capital machinery
28. S053.00 Board meeting attendee 15%
13. S024.00 Seller of (a) at production 7%
29. S054.00 Advertizer through satellite 15%
furniture stage
channel
(b) at showroom 5%
30. S058.00 Organization renting out 15%
(if VAT Challan in
support of 7% VAT
chartered aircraft or helicopter
payment at 31. S060.00 Purchaser of auctioned goods 5%
production stage is 32. S065.00 Organization performing the 15%
available, if not works of cleansing and
available then maintenance of building and
7+5=12%) floor
14. S028.00 Courier and express mail 15% 33. S066.00 Seller of lottery ticket 15%
service 34. S071.00 Event organizer 15%
15. S031.00 Individual, organization or 15% 35. S072.00 Organization supplying and 15%
establishment performing repair managing human resources
and servicing of taxable goods in 36. S099.10 Information Technology 5%
exchange of consideration.
www.vatbd.com 11.01.2019
 Serial Service Title of Service Rate of VAT necessary adjustments through return or they need to reflect the
No. Code deduction deduction in the VAT return.
at source
Enabled Services (ITES) VAT deduction at source on advertizing agency:
37. S099.20 Other Miscellaneous Services 15% The procedures regarding VAT deduction at source in respect of
advertizing agency is a bit different. So, it is discussed here
38. S099.30 Sponsorship Services 15%
separately. Any advertizing agency as any other service renderer on
39. S099.60 Credit Rating Agency 7%
rendering services while submitting bill to the service recipient shall
issue VAT Challan in its normal course, it is desired. The VAT Challan
At this stage, a question frequently arises specially from the has to be certified by the Assistant Revenue Officer (ARO) or
withholding entities. The question is, if the provider of service Revenue Officer (RO) of the local Value Added Tax Office i.e. Circle
provides any of those 37 services on payment of VAT himself as per Office under whose jurisdiction the advertizing agency falls. If such
general provisions, then should VAT be deducted at source from the properly certified VAT Challan is submitted with the bill, the service
bill of the same service while making payment? The answer to this recipient will not deduct VAT at source from the bill. Total bill
question is yes, in such case too VAT has to be deducted at source. In including VAT has to be paid to the service renderer advertizing
fact, the straight answer is under all circumstances, on those 37 agency. The advertizing agency shall deposit VAT to the government
services VAT has to be deducted at source. Then, the next question treasury in its normal course. It is worth mentioning here that only
comes. If the service provider has paid the VAT himself and if on the in the case of the service of advertising agency, VAT Challan requires
same service again VAT is deducted at source then VAT is paid twice to be certified. In no other servcie in our VAT system, VAT Challan
on the same service. Is not it? The answer is yes, in such case VAT is requires to be certified by VAT official. In fact, unlike excise system,
practically paid twice but the service provider shall take positive VAT system is self-clearance system. The VAT registered person
adjustment of the VAT once in his Account Current Register issues VAT Challan thyself and makes the supply. Advertizing agency
(Mushak-18) and next VAT return (Mushak-19). Then VAT shall be is a special type of service. In between service provider and service
ultimately paid once on his service. The procedure is that the recipient there stands media agency who are also called advertizing
authority deducting VAT at source, on deduction and deposit of VAT agency. To prevent the problem of accrual of continuous positive
to the government treasury will issue an withholding certificate in VAT balance to the VAT return of media agency (considered as
“Mushak-12Kha” form. On receipt of such certificate, the service advertizing agency), such mechanism of VAT Challan certification by
renderer shall post it in the column 8 of his Account Current Register VAT officials has been introduced.
and serial 12 of his VAT return in the tax period of issuance of the
certificate or immediate next tax period. Thus, he can take positive There lies ambiguity among many regarding what does advertising
adjustment of VAT paid once. So, VAT is ultimately paid by him once agency mean in the VAT system of Bangladesh. By the term
not twice. This procedure has been described in details in the advertising agency means making any advertisement, publicizing the
paragraph 5(Ka) of the General Order No. 06-Mushak/2018, Dated: advertisement in any media or assisting in the work of publicity. The
07 June, 2018 issued by NBR regarding VAT deduction at source. definition also includes publicizing advertisement in website or
These provisions will be discussed in details later in the part (3) of online version of newspaper, periodical, magazine etc. By that count,
this write-up. Such provisions have been incorporated to give liberty in the VAT system of Bangladesh any organization making
to the service renderers i.e. to facilitate them. The service renderers advertisement and publicizer i.e. radio, television, newspaper,
have been given both the options. They can render service on website, billboard etc. and facilitator i.e. media agency fall under the
payment of VAT in normal course or without payment of VAT definition of advertising agency. These organizations require
whichever suits him. Whatever the case, they need to make
www.vatbd.com 11.01.2019
submitting properly attested VAT Challan by the Revenue Officer or the VAT system of Bangladesh it is considered as service. If we
consider that we have discussed Procurement Provider, then we
Assistant Revenue Officer of the VAT Circle Office with bill if they
have completed 39 services included in the list above.
make and supply or publicize advertisement. If properly attested
VAT Challan does not accompany the bill, applicable VAT i.e. 15 per
VAT Deduction at Source beyond 39 Services
cent has to be deducted at source. For better undertanding the
Now the question is if any of the services beyond those 39 services
definition of advertizing agency is given below which remains
are purchased then what will be the procedures of VAT deduction at
incorporated in S.R.O No.-168-Law/2013/672-VAT, dated: 06 June,
source. Provisions regarding this have been inserted in the
2013:
paragraph 02(3) of the General Order No 06/Mushak/2018, Dated:
07 June, 2018 issued by NBR. Provisions go that if services beyond
Advertizing Agency:
those 39 services are purchased, then it is to be checked that
Explanation.-(a) ʺAdvertizing Agencyʺ means any individual,
whether applicable VAT on those services have been paid in due
institution or organization, with the objective of publicity of any
course by the service provider. If the service provider has paid the
goods or service or any other publicity, engaged on commercial
applicable VAT on the service in due course, then the service
basis, in the preparation of advertizement of any name or type or
recipient shall not deduct VAT at source. If service provider has not
publicize any advertizement prepared with the same objective in any
media or in any other way or in the assistance of the work of paid VAT in due course, then VAT shall have to be deducted at
source. Now the question arises that how the recipient of service
publicity; and
shall be certain that VAT has been paid on the service. Firstly, he
(b) Publicity of any advertizement in the online version of any
shall see the VAT Challan (Mushak-11). The service provider shall
website of any individual, institution or organization or any
have to submit VAT Challan along with his bill. The service recipient
newspaper, periodical, magazine etc. too shall be included in the
shall have to see the salient features of the VAT Challan to check its
advertizing agency.
apparent authenticity. The VAT Challan has to be issued in the
prescribed format. Most of the VAT Challans are issued in form
“Mushak-11”. A format of the form “Mushak-11” can be seen in the
website: www.vatbd.com. If the VAT Challan is issued manually, it
has to be issued using duel-sided carbon paper. There can be no
overwriting, no use of fluid or strike through in the Challan. It has to
be checked whether the information of serial numbers of the Challan,
name of the business organization, address, Business Identification
Number (BIN), name of the purchaser, address, Business
Identification Number and other information are there. Price of the
service and applicable VAT and total price needs to be mentioned in
So far we have discussed on which organizations responsibilities for the Challan. But VAT-inclusive price can be mentioned in the Challan
VAT deduction at source have been given. Moreover, we have as well. The Challan has to be signed with date by the authorized
mentioned 37 services on which VAT deduction at source is person. If any supplier issues VAT Challan prepared in computer, the
compulsory. Special procedures for VAT deduction at source on order of the Commissioner by which such permission has been given
Advertizing Agency has also been discussed. So far discussions have to issue VAT Challan by computer may be taken from the supplier. It
been done regarding VAT deduction at source on 38 services. We can be worth mentioning here that to prepare VAT Challan by
shall discuss Procurement Provider later while we discuss VDS computer, permission of the Commissiner is needed as per the
provisions on goods, since it it basicallay the supply of goods but in
www.vatbd.com 11.01.2019
 Sl. Name of the service Truncated
present procedures of VAT system of Bangladesh. To that effect a
No. VAT rate
software has to be established first. Then, the software has to be
01. Non-AC restaurant 7%
checked by a team appointed by the VAT Commissioner. On
02. Motor garage and workshop * 10%
satisfaction, the VAT Commissioner issues permission to use
03. Dockyard * 10%
software to issue VAT Challan. It can be mentioned here that the NBR
is now in the process of approving softwares at one go which can be 04. Construction firm * 7%
purchased and used by multiple clients. Additionally, Treasury 05. Land developer * 3%
Challan can also be taken to be sure that VAT against the service has 06. Flat seller * (a) From 1 to 1600 square feet 2%
been deposited to the government treasury. If the provider of service (b) From 1601 square feet and above 4.5%
informs that he has paid VAT not by Treasury Challan but by (c) On reregistration 2%
debiting from Current Account Register, then the attested copy of 07. Furniture * (a) At factrory 7%
concerned page of the Current Account Register (Mushak-18) can be (b) At show room 5%
taken as an evidence of payment of VAT. It can be examined whether (If VAT Challan in support of payment of 7 percent
VAT at factory stage is there, otherwise 7+5=12
the VAT Challan issued remains included in the Current Account
percent has to be deducted at show room stage)
Register.
08. Goldsmith 5%
09. Procurement provider * 5%
In brief, while purchasing any service beyond those 39 services, the
10. Transport (a) for transport of petroleum products 5%
recipient of the service would have to be sure that applicable VAT on
contractor (b) for transport of other products 10%
the service has been deposited to the government treasury. If it can
*
be sure that the service provider has paid the VAT himself in proper
11. Distributor of electricity 5%
manner, VAT shall not have to be deducted from the bill at source
while making payment. If the service recipient can not become 12. Purchaser of auctioned goods * 5%
certain that VAT on the service has been deposited to the 13. English medium school 5%
government treasury in due course, then VAT has to be deducted at 14. Seller of branded and non-branded ready- 5%
source. As per clause (Ta) of sub-section (2) of section 37 of the VAT made garments
Act, 1991, the service recipient has such obligation. Then the 15. Virtual business 5%
question arises at what rate VAT has to be deducted at source 16. Information technology enabled services 5%
beyond 39 services. One needs to know the applicable rate on that (ITES) *
service. In our country standard VAT rate is 15%. But on few 17. Credit rating agency* 7%
services there are truncated rates. At present, there are 6 truncated
VAT rates on 17 services. Those are 2%, 3%, 4.5%, 5%, 7% and 10%. It can be mentioned here that of the above 17 services, the services
A list of those 17 services with truncated VAT rates is given below. If with asterisk mark are already in the list of 37 services where VDS
the purchased service falls under these 17 services, then VAT has to deduction is compulsory.
be deducted at the rate mentioned against the service. If the service
falls beyond these 17 services, then VAT has to be deducted at the We have been discussing the procedures of VAT deduction at source.
rate of 15%. We are explaining the cases where VAT deduction at source is
needed. We have discussed the VDS provisions on services first since
List of services with truncated VAT rates on services there are more risks of VAT evasion. We have discussed
Sl. Name of the service Truncated VDS provisions on 37 services, then we have discussed special
No. VAT rate www.vatbd.com 11.01.2019
provisions on Advertizing Agency, then we have skipped to deduct VAT at source on Procurement Provider service. Because
some people think that there is non-clarity in the explanation
Procurement Provider for later discussion, then we have discussed
regarding the scope and boundary of this service. The definition of
VDS provisions on services beyond those 39 services. In the
Procurement Provider goes “Procurement Provider means, such
following paragraphs, we shall discuss VDS provisions on goods.
individual, organization or establishment who supplies in exchange
of consideration, taxable goods or service or both through quotation,
VDS Provisions on the Supply of Goods
tender or by any other means to the various government, semi-
We have discussed earlier that if the bill for the purchase of service
government, autonomous bodies, non-government organizations
is placed before you, then you have to follow the provisions
(NGOs), bank, insurance or any other financial institutions, limited
mentioned above. But if the bill for the purchase of goods is placed
company or educational institutions.” Its meaning is that if the
before you, then you have to follow the provisions mentioned below.
supply is made through tender or through quotation or through any
If bill for the purchase of goods is placed before you, then your first
other way and if the goods or service are taxable, then the service of
job is to ascertain who has given the supply. Three entities can make
supply will be considered as Procurement Provider. Purchase in any
the supply; viz: (a) a manufacturer supplier; or (b) a trader supplier;
other way means cash purchase or any purchase without tender or
or (c) a procurement provider. For the supply of these three entities,
quotation. So, on all these types of purchases, an withholding entity
there are separate VDS provisions which have been discussed later.
requires to deduct VAT at source subject to other provisions
We know that although procurement provider is a service,
regarding VDS. Purchase of any amount will fall under the definition
practically procurement provider provides goods. Procurement
of Procurement Provider. There is no lower limit in the VDS
provider procures goods from one place, he brings the goods all the
procedures. No specific amount of purchase has been exempted from
way and provides to an withholding entity. So, he provides the
being Procurement Provider under VDS procedures. In the
service of procuring and bringing the goods. So, procurement
procedures regarding Income Tax deduction at source, in certain
provider service comes before you in the form of goods. Therefore,
cases, there are certain limits where Income Tax deduction at source
we are discussing procurement provider in goods section of this
is not required. So, people sometimes confuse this with VDS. It can
write-up. The following discussion is relevant to understand when
be mentioned here that from 1 July, 2017 a provision was added to
the supply of goods shall be considered as procurement provider.
the VDS regulations that a purchase worth of Taka 1,000 (Taka one
The procurement provider service which remains included in the list
thousand only) shall not be subject to VDS. This provision remained
of 39 services mentioned above is a very important service in our
effective for one year only. On 7 June, 2018 such provision has been
VAT management system. There remains obscurity in the minds of
cancelled. Supplier of taxable goods or services has been included in
people regarding VDS provisions on this service. So, the provisions
the definition of Procurement Provider. Taxability will be decided
regarding VDS deduction on procurement provider is discussed in
only by the Schedules of the VAT Act, i.e. goods and services listed in
details below. Mentionably, the definition of procurement provider
the First and Second Schedules of the VAT Act are non-taxable goods
has been to some extent changed during the budegtary measures of
and services. If those non-taxable goods and services are supplied,
2013-14 and consequently, VDS provisions have also been changed.
the supplier will not be considered as Procurement Provider and
Please find detailed discussion regarding this below.
therefore no VDS deduction will require. If goods and services
exempted by SRO are supplied, the supplier will be considered as
VAT deduction at source on Procurement Provider Procurement Provider. Because goods exempted by SRO is taxable
Of the 37 services included in the above list, Procurement Provider is goods. Those are exempted at one stage but VATable at other stage.
an important service. Many of the concerned persons do not Suppose, one item is VAT-exempted at production stage but it is
understand clearly the procedure of VAT deduction at source on VATable at import stage and trading stage. So, it is taxable goods. But
Procurement Provider service because of obscurity and complexity
of its definition. At the field level, sometimes there arise difficulties www.vatbd.com 11.01.2019
goods listed in the First Schedule of the VAT Act, 1991 are VAT participants in the tender, of them Kohinoor Chemical Company is
one. Kohinoor Chemical Company is a producer. S R Enterprise has
exempted at all these stages, so these goods are called non-taxable
also participated in the tender. This is a Procurement Provider firm.
goods. Supplier of all other taxable goods and services shall be
If Kohinoor Chemical Company obtains work order, then as a
considered as Procurement Provider. In case of petty purchase in
producer it will make the supply issuing VAT Challan. In this case,
cash, VAT as Procurement Provider shall have to be deposited to the
while making payment against the supply, VAT will not require to be
government treasury from own fund. Because these petty purchases
deducted at source. But if the tender is obtained by S R Enterprise,
are generally made from small shops. They do not issue VAT Challan.
then it will purchase the goods from any producer or trader and
Prices are already paid to the shops. So, deduction can not be made
from the bill. Therefore, VAT shall have to be paid from own fund of make the supply. So, he is a Procurement Provider. At the time of
making payment by Sonali Bank Limited to the S R Enterprise, VAT
the purchaser.
as Procurement Provider will have to be deducted at source. If
Procurement Provider supplies the goods after import, then the
Sometimes, it becomes difficult to the service recipients to identify a
procedure is a bit different. In case of supplying the goods to any
Procurement Provider. It is to be kept in mind that as per the
government, semi-government and autonomous body, bank,
provisions of VAT Act, purchase through tender can not be done
insurance company or NGO after import, at the import stage, tender
from any entity other than an entity registered under VAT. It is also
obligatory to submit a copy of VAT registration certificate with documents will have to be submitted while making assessment as
per paragraph 7(d) of SRO No 174-Law/2018/797-VAT, Dated: 07
tender document. If the entity submitting tender is a Procurement
June, 2018. If tender documents are submitted, Advance Trade VAT
Provider then on his VAT registration certificate (11 digit BIN)
(ATV) will not be applied at the import stage. At the supply stage, the
against “nature of your business” there will be mentioned “Service
recipient of the supply will deduct 5 percent VAT as the service of
Renderer” and against “activity code” there will be mentioned
Procurement Provider.
“S037.00 Procurement Provider”. If the supplier is a producer then
against “nature of your business” there will be mentioned “Supplier
It needs to be mentioned here that as per S.R.O No.-167-
(Manufacturer)”. If the supplier is a trader then against “nature of
your business” there will be mentioned “Supplier (Trader)”. It is to Law/2018/790-VAT, dated: 07 June 2018, the following supplies
shall not be considered as procurement provider:
be kept in mind that a Procurement Provider does not produce
(a) tiffin supply to school;
goods. He either purchases the goods from producer or from trader
(b) supply of text book to primary, secondary and equal grade
or imports the goods from abroad and supplies those against tender.
printed against work order issued by National Curriculae and
When deducting VAT at source on the service of a Procurement
Textbook Board.
Provider, one needs to be certain that the supplier is a Procurement
(c) supply of cotton;
Provider.
(d) supply of waste and scrap paper;
(e) supply of cullet (pieces of broken glass);
One thing is very important at this stage that needs to be kept in
(f) supply of plastic waste;
mind. If the supplier is a producer or trader and if he has issued VAT
(g) supply of cattle bone used as raw-material of giletine capsule;
Challan with the supply of goods, then he will not be considered as
(h) supply of locally collected scrap to steel mill;
Procurement Provider. So, in such case, VAT does not require to be
(i) supply of jute goods.
deducted as source. Because he is not a Procurement Provider rather
he is a producer. For this reason, it is of utmost importance to know
about the status of the supplier. It can be made clear with an Difference Between Trader and Procurement Provider:
example. Suppose, Sonali Bank Limited has floated tender to
purchase 10,000 (ten thousand) pieces soaps. There are several www.vatbd.com 11.01.2019
If you want to identify procurement provider, you need to basically discussed that, in the same manner, if any trader makes supply with
VAT Challan, he too shall not be considered as procurement provider
differentiate procurement provider from trader. A trader has an
and therefore, in that case too VAT shall not require to be deducted
establishment, may be own or rented where he has structure (small
at source. In other words, if supply of any goods is received by any
or big), manpower, utilities and stock of goods. A procurement
withholding entity, then while making payment, at first it has to be
provider generally does not have any such establishment. A trader
determined whether the supply has been made by any manufacturer
stocks the goods then, sells from the stock; a procurement provider
or any trader or any procurement provider. Scrutinizing VAT
does not stock. Procurement provider procures, brings all the way,
registration certificate (Business Identification Number-BIN),
then supplies directly to the client. A trader sells to all type of
customers but procurement provider supplies only aginsat tender. A Taxpayers Identification Number (TIN), trade license, Memorandum
or any other document and if needed the business place of the
trader takes part in a tender involving the goods he deals with but a
supplier has to be visited to determine whether the supplier is a
procurement provider may take part in the tender of any goods.
manufacturer or a trader or a procurement provider. This job is not
so challenging. Such scrutiny does not require while making
In brief, if goods are supplied by any producer or trader issuing VAT
payment of each and every bill. In any withholding entity, there are
Challan, then the supplier will not be considered as Procurement
some enlisted vendors. The vendors are appointed beforehand.
Provider and there will be no need to deduct VAT at source. Before
deducting VAT at source, one needs to be certain about the status of When the vendors are appointed, then it can be understood that
whether the vendor is manufacturer or trader or procurement
the supplier. If the supplier is a Procurement Provider, then VAT at
provider. Suppose, Sonargaon Hotel shall appoint vendor to take
the rate of 5 percent requires to be deducted at source.
regular supply of edible oil. Tender has been floated for this purpose.
Many organizations have taken part in the tender. Amongst them,
VAT Deduction at Source on the Supply of Goods by
there is Bangladesh Edible Oil Industries Ltd. There is Prince Bazar
Manufacturer or Trader
Pvt. (Ltd.). Moreover, there is Rahmania Enterprise. At this stage,
We have meanwhile discussed that upon which entities VAT
scrutinizing documents, it can be ascertained that Bangladesh Edible
decution at source responsibilities have been given. Moreover, we
have discussed 37 services from where VDS deduction is obligatory. Oil Industries Ltd. is a manufacturing organization; Prince Bazar
(Pvt.) Ltd. is a trader and Mrs. Rahmania Enterprise is a procurement
We have discussed special VDS provisions on advertizing agency. We
provider. If Bangladesh Edible Oil Industries Ltd. is selected in the
have discussed VDS provisions regarding procurement provider.
tender, then whenever submits bill on supply of edible oil, it could be
Then, we have discussed VDS provisions beyond those 39 services.
assumed that the bill has been submitted by manufacturer. It shall
Then we have started discussion regarding VDS provisions on the
not require to scrutinize in respect of each and every bill. The same
supply of goods. We have seen that goods are supplied by
applies to the other two entities: trader and procurement provider.
manufacturer, trader and procurement provider. We have also seen
that in the case of supply of goods who shall be considered as Now, we shall see that in the cases of supply made by these three
procurement provider and who shall not. If considered as types of organizations what are the VDS related provisions. If the
procurement provider, then VAT at the rate of 5% shall require to be supplier of goods is ascertained as procurement provider, then VDS
deducted at source from the supply. If the supplier is not considered at the rate of 5% has to be deducted compulsorily at source from the
as procurement provider, then generally no VAT requires to be supply. Because the procurement provider service remains included
deducted at source. In the continuation of discussion, we have in the 37 services described and discussed earlier where VDS
mentioned that if any supplier of goods himslef is the manufacturer deduction at source is compulsory. If the supplier is a manufacturer
and if he makes the supply issuing VAT Challan, then he will not be and if it supplies goods directly from manufacturing place issuing
considered as procurement provider and therefore, VAT shall not VAT Challan, then VDS does not require to be deducted at source. Bill
require to be deducted at source from such supply. We have further www.vatbd.com 11.01.2019
along with VAT has to be paid. For instance, if Bangaladesh Edible Oil electricity, gas, telephone and any other connectivity. This is a new
phenomenon in our VAT system. In June, 2010 this provision has
Industries Ltd. supplies edible oil to Sonargaon Hotel directly from
been inserted in the VAT Rules. All concerned persons have not yet
manufacturing place with VAT Challan, then VDS shall not require to
been fully aware about the need of such VAT deduction. However,
be deducted at source. If manufacturer of any VATable goods
gradually awareness is developing and revenue income from this
supplies goods without VAT Challan, then VAT at the rate of 15% has
area is increasing. Land registration fee has been exempted from
to be deducted at source, not 5%. If the supplier of goods is a trader
VAT during budgetary measures of 2018-19 by inserting clause Jha
and supplies goods with VAT Challan, then VDS shall not require to
in the paragraph 7 of the Second Schedule of the VAT Act, 1991.
be deducted at source. For instance, if Prince Bazar supplies 500
pieces of tissue paper box to Sonargaon Hotel with VAT Challan, then
VDS shall not require to be deducted at source. It may be mentioned VAT deduction at source in case of service import
here that ECR receipt is considered as VAT Challan provided there When any service is provided from outside the geographical
are some prescribed informaion. If Prince Bazar supplies those items boundary of Bangladesh and the service is received in Bangladesh, in
that case, bank or other financial institutions who will remain
without VAT Challan, then 5% VAT shall require to be deducted at
involved in the process of bill payment will deduct VAT at source at
source, not 15%.
applicable rate. Service import is a special type of activity. The
So far we have discussed that any withholding entity while making process of service import is different from that of the process of
payment for the purchase of anything, first shall think that whether import of goods. In the case of service import, any person comes
the purchase is a goods or a service. What steps have to be taken from abroad to render services. Before that, an agreement is signed
subsequently in the case of purchase of service, those have been between the service importer i.e, receiver of service and the service
discussed before. If the bill is for the purchase of goods, then it has to renderer. The concerned service renderers come here in Bangladesh,
be checked whether the supplier of goods is a manufacturer or a render the service and go back. The VAT authorities do not have
trader or a procurement provider. In all those cases, what are to be enough knowledge and control over all these activities. As per
agreement, the payment against the service shall have to be made
done have been discussed above. Few more pertinent aspects related
through banking channel. So, banks or other financial institutions
to VDS are discussed below. Few tips related to VDS have been
have been assigned the responsibility to deduct VAT at source while
mentioned at the end of this chapter which shall be enough helpful making payment in such cases of service import. Such services are
to understand VDS procedure. mainly consultancy services and technical services. The concerned
bank shall remit the payment against import of services to the bank
There are few more areas of VDS deduction, those are account of the service renderer, deduct VAT from the payment and
discussed below deposit the VAT to the government treasury. Service import is as
well a new phenomenon in our VAT system. So far there was no
VAT deduction at source as per Rule-18Uma mechanism of taking input tax credit on the import of services.
As per Rule-18Uma of the Value Added Tax Rules, 1991 when any Because in such cases, generally VAT Challan would not have been
license is issued or renewed by any government, semi-government issued by the service renderers and generally they would not have
and autonomous bodies and local authorities, VAT at the rate of 15% been registered under VAT in our country. So, taking input tax credit
has to be deducted from the recipient of the facilities on the total on the import of services was not possible. Necessary changes have
been made in Section-9(1)(j) to enable the service importers to take
receipt. VAT shall have to be deducted at source on the total
input tax credit. Input tax credit on the import of the service can be
consideration of revenue sharing, royalty, commission, charge, fees
taken if the service imported remain included in the price of the
or receiveables in any other manner under the conditions cited in service provided by the importer or remain declared in the goods
the permit, license, registration given. VAT needs to be deducted at supplied by him and if proper evidence in support of deposit of the
source on the connection fee while giving connection of water,
www.vatbd.com 11.01.2019
VAT in government treasury (Treasury Challan) is there. It can be channel. Here VDS requires to be deducted by the bank making
mentioned here that import of service is VAT exempted in the cases payment.
of import by 100 per cent export-oriented establishment, 100
percent deemed exporter and entities located in Export Processing Provisions when there is difference between tender price
Zone (EPZ) area. and declared/approved price
If the tender price of any goods is more or less than the
Provisions of VAT deduction at source on imports against declared/approved price, then as per the Standing Order No.-
tender or work order 6/Mushak/92 dated: 21/01/1992 issued by the National Board of
Sometimes, procurement provider organization supplies goods Revenue (NBR) at the production stage, VAT has to be paid on the
against tender importing the goods from abroad after obtaining tender price. The tender price and the price including VAT
tender. While making assessment of such imported goods at import mentioned on the VAT Challan need to be the same. The VDS
stations necessary documents of tender or work order require to be withholding entity shall take the supply ensuring such similarity of
submitted if after import the supply is to be made to any prices and shall make payment. Sometimes, at the field level, it is
government, semi-government and autonomous bodies, bank, seen that the tender price of any goods is more than its price
insurance and NGO as per paragraph 7(d) of SRO No 174- declared/approved. VAT Challan has been issued in
Law/2018/797-VAT, Dated: 07 June, 2018. When such tender declared/approved price. If the supplier is a producer or trader, then
documents are submitted Advance Trade VAT (ATV) is not charged point is made not to deduct VAT at source since there is VAT Challan.
on such imports. At the supply stage, 5 percent VAT has to be Sometimes, the recipient of the goods does not deduct VAT at source
deducted at source considering the supply as procurement provider. because of not being aware of the procedure. This results in audit
Such importers very often make a mistake. They do not submit their objections afterwards. In all cases (excepting goods with Tariff
tender documents at the import stage at times of making assessment Value), tender price and declared/approved price need to be the
due to ignorance of such procedure or due to the need of making same. After obtaining tender, if tender price is different from the
assessment quickly or due to lack of proper guidance by the Clearing declared/approved price of the goods, then the tender price is to be
and Forwarding (C&F) Agent. As a result, ATV is collected at import informed to the VAT Circle/Division Office and supply against the
stage. Again, at the supply stage, 5 percent VAT is deducted at source tender is to be made as per tender price. But if the goods are with
considering the supply as procurement provider. So, the importers Tariff Value, then VAT is to be paid as per tariff value. VAT Challan is
who import for the purpose of making supply against tender to those to be issued. Total price mentioned in VAT Challan and tender price
organizations need to know these provisions and act accordingly. need to be the same. It has been mentioned that VAT has to be paid
as per tariff value. In the case of goods with tariff value, if supply is
Provision for VAT deduction at source when payment is made with VAT Challan, then VDS does not need to be deducted.
made against local Letter of Credit There is a differing opinion that since tariff value is less then actual
If the bank of the purchaser of any goods or service makes the sell price, so VDS is to be deducted on the differential amount
payment on behalf of the purchaser through local Letter of Credit between tariff value and actual sell value. Such concept is flawed.
(L/C) or any other means against any VDS deductible purchase, then Tariff value is the value determined by the NBR. Government wants
the bank shall deduct VAT at source and shall deposit it to the to get VAT on the basis of tariff value in respect of the goods where
government treasury. In such case, the concerned bank shall make tariff value has been determined. So, when VAT has been paid on the
the deduction on behalf of the purchaser, since the bank is making basis of tariff value, there remains no VAT obligation and therefore
payment on behalf of the purchaser. At present, sometimes, such VDS deduction is not warranted.
purchases are made locally where payment is made through banking
www.vatbd.com 11.01.2019
 documents and bills. On these two components, VDS regulations
Provisions for depositing VAT deducted at source by
have to be applied separately.
centrally registered entities We have completed discussion of the first part. We have presented
The centrally registered entities shall deposit all VDS deducted from few matters sequentially. Those are: which entities shall deduct VDS.
their branches or sale centers through their central entity. In many VDS has to be deducted compulsorily on 37 services. The provisions
cases, at the field level, VDS is deposited to the government treasury regarding VDS deduction on advertizement service. The provisions
where branch or sale center is located or local VAT offices (Circle, regarding VDS deduction on procurement provider. Provisions
Division) ask to deposit VDS deducted at the branches or sale centers regarding VDS deduction beyond these 39 services. Provisions
at those local places. Such instructions are not right. For instance, regarding VDS deduction on few more specific supplies. Provisions
insurance companies have many branches. All insurance companies rearding VDS deduction on goods. Now, we shall start discussion on
are centrally registered as per S.R.O No. 167-Ain/95/119-Mushak, the second part mentioned earlier.
dated 20 September, 1995. Output VAT and VDS to be deposited to
the government treasury from all branches shall be sent to the Head
The cases where VAT deduction at source is not needed
Office which is the center of the insurance company. The Head Office
(a) If any producer or manufacturer of goods supplies the goods
shall deposit it and report it to the local VAT office. But VAT on house
directly to any at source VAT deducting authority issuing VAT
rent of the branches is not to be deposited centrally. In the case of
Challan, then the seller shall not be considered as procurement
house rent of branch office, the VAT on house rent is to be deposited
provider, so VAT shall not have to be deducted at source on such
to the code of the local VAT Commissioner under whose jurisdiction
supply. For instance, Bikash Bread and Biscuit Factory Limited is a
the branch offic is located and Treasury Challan is to be submitted to
producer of biscuits. Manusher Jonnyo NGO has floated tender to
the local VAT Circle office.
purchase biscuit to be distributed among the children of the poor.
Bikash Bread and Biscuit Factory Limited has won the tender. Bikash
Provisions for VAT deduction at source in the case of Bread and Biscuit Factory Limited shall supply biscuit to Manusher
supply with multiple components Jonnoyo NGO issuing VAT Challan i.e. paying production stage VAT
Sometimes, it is seen that there are multiple components within a as a producer. While making payment against the supply, Manusher
particular supply. But price is mentioned altogether. Complexities Jonnoyo NGO shall not deduct VAT at source. Full bill including VAT
arise regarding VDS deduction on such supply. So, provisions have has to be paid to the Bikash Bread and Biscuit Factory Limited. There
been made to the effect that if there is any supply with muliple is no source VAT deduction. So, we have learnt one important
components, then in the tender or quotation or bill all components principle of VDS i.e, if a manufacturer supplies goods directly
are to be mentioned separately. Each component has to be issuing VAT Challan, then VDS does not need to be deducted.
considered as a separate supply and VDS regulations have to be
applied on each supply accordingly. As an example, it can be cited (b) If any trader supplies goods directly to any at source VAT
that, sometimes it is seen that, in a tender award has been given that deducting authority issuing VAT Challan, he shall not be considered
machineries have to be installed and servicing of the machineries for as procurement provider, so VAT shall not have to be deducted on
a couple of years are to be done. These two componets of works have such supply at source. Suppose, S. R. Enterprise is a trading
been awared by one tender. In such case, one component i.e., organization. S. R. Enterprise purchases soap from Unilever
machinery installation has to be considered as one supply and Bangladesh Limited and sells it through whole-sale or retail basis
servicing of those machineries for a couple of years has to be issuing VAT Challan and paying proper VAT at the trading stage. If
considered as another separate supply. Prices of both these such trader supplies goods to any at source VAT deducting authority
components have to be mentioned separately in the tender issuing VAT Challan and paying proper trade VAT, such organization
www.vatbd.com 11.01.2019
shall not be considered as procurement provider and as such VAT VDS i.e, when the supply is made by an entity under Turnover
Tax enlistment with own cash memo inscribed with enlistment
shall not have to be deducted from such supply. Suppose, Agrani
number, then VDS does not require to be deducted.
Bank Limited has floated tender to purchase 5000 (five thousand)
pieces of soap. S. R. Enterprise has won the tender. S. R. Enterprise
(d) The organizations enlisted under cottage industry makes supply
has given the supply to Agrani Bank issuing VAT Challan i.e. paying
issuing own cash memo inscribed with enlistment number under
proper trade VAT. In such case, S. R. Enterprise shall not be
cottage industry. If such organization makes any supply directly to
considered as procurement provider. So, VAT shall not have to be
any at source VAT deducting authority issuing own cash memo
deducted by Agrani Bank while making payment from the bill of soap
supply. It is worth mentioning here that the same shall also be inscribed with enlistment number under cottage industry, he shall
not be considered as procurement provider and as such VAT shall
applicable for those traders who issue Challan considered as VAT
not have to be deducted from the supply while making payment. It is
Challan. For instance, Agora is a trader. Agora issues Point of Sales
worth mentioning here that the numbers of organizations enlisted
(POS) generated Challan. Point of Sales (POS) generated Challan is
under cottage industry are very few. These organizations are very
considered as VAT Challan under certain conditions. So, if any such
small organizations. Generally, they do not make supply to at source
supply is made to any such at source VAT deducting authority by
VAT deducting authorities. However, they have the right to make
Agora with POS-generated Challan, the supply shall not be
considered as a supply made by procurement provider and as such such supply. So, people involved in purchase, bill payment etc. at any
withholding entity need to be able to identify a cottage industry. As
VAT shall not have to be deducted at source while making payment.
per old BIN, the second digit of the eleven digits of the enlistment
Here, we have learnt another principle of VDS i.e, when trader
number of cottage industry is 3. They issue cash memo in their own
provides supply of goods issuing VAT-11, then VDS does not
format. In the online BIN, so far there is no provision for cottage
require to be deducted at source.
industry.
(c) The organizations enlisted under Turnover Tax makes supply
(e) While making payment against the bill of fuel, gas, electricity,
issuing own cash memo inscribed with Turnover Tax enlistment
number. If such organization makes any supply directly to any at telephone, mobile, water etc. utility services, VAT will not have to be
deducted at source. The bills issued by the suppliers of these services
source VAT deducting authority issuing own cash memo inscribed
are considered as VAT Challan. Bills are to be paid with VAT. Fuel
with Turnover Tax enlistment number, he shall not be considered as
and gas is supplied from petrol pump. Since petrol pumps do not
procurement provider and as such VAT shall not have to be deducted
issue VAT Challan, so it was in the guidelines earlier that while
at source from the supply while making payment. It is worth
purchasing fuel from petrol pump, VAT at the rate of 5% as
mentioning here that the number of organizations enlisted under
procurement provider has to be deducted at source. Paragraph
Turnover Tax is limited. These organizations are small organizations.
Generally, they do not make supply to at source VAT deducting 3(Kha) of the General Order No.-06/Mushak/2018, dated 07 June,
2018 incorporates provisions to the effect that for purchasing fuel
authority. However, they have the right to make supply. So, people
from petrol pump VDS deduction shall not be needed. Gas remained
involved in purchase, bill payment etc. in at source VAT deducting
incorporated in that paragraph previously. So, while purchasing fuel
organizations need to be able to identify a Turnover Tax
(octane, petrol, diesel etc.) from petrol pump and CNG from CNG
organization. In the 11 digit (old) Business Identification Number
station, VDS do not require to be deducted at source. The provision
(BIN), if the second digit is 2, it denotes that the organization is
has been enough business-friendly. Because VAT remains included in
enlisted under Turnover Tax. In the new 9 digit online Turnover Tax
the price of fuel and gas. These are the prices fixed by government
registration certificate, ‘Turnover Tax’ remains written on the
certificate. So, it is easy to understand the status of the supplier
having seen the BIN. So, we now understand another principle of www.vatbd.com 11.01.2019
inclusive of everything VAT too. So, there is no possibility of VAT (h) A provision came into force from 1 July, 2017 which stipulated
that VDS deduction shall not be needed in the case of a single
evasion. So, VDS regulations is not needed there.
purchase amounting to no more than BDT 1,000/- (Taka one
thousand only). There arises complexities to deduct VAT on small
(f) If any goods with tariff value is supplied to any at source VAT
purchases. The amount of VAT is also not much in these cases. So,
deducting authority directly by the producer of the goods issuing
this provision was made not to deduct VDS on a single purchase
VAT Challan on tariff value, then irrespective of the price of supply
amounting to BDT 1,000/- or less. But there arises complexities at
VAT will not have to be deducted at source. Because tariff value is
the field-level to implement this provision. In most of the cases, it
fixed by the National Board of Revenue (NBR) i.e. the government.
When VAT has been paid on the price fixed by the government, then was understood by concerned people that VAT shall not be
applicable on a single purchase amounting to BDT 1,000/- or less. So,
the producer does not have any more responsibility about payment
such provision has been cancelled through General Order No.-
of VAT. If VAT Challan is issued properly on tariff value, there shall
06/Mushak/2018, dated 07 June, 2018. From now on, as it was
require no VAT deduction at source. It can be made clear with an
before the above provision was made, VAT has to be deducted at
example. Mango juice is a goods with tariff value. Tariff value of each
source irrespective of the amount of the purchase, if it needs to be
pack of mango juice weighing 1000 mili litre is Taka 25 (twenty five).
deducted as per other provisions.
The producer at the production stage shall pay VAT at the rate of 15
percent on Taka 25 (twenty five) tariff value against a pack of mango
We have mentioned earlier that the rules and regulations regarding
juice weighing 1000 mili litre. His actual sale price may be different.
VAT deduction at source (VDS) can be divided into four parts.
Sometimes, the actual sale price of the goods with tariff value is
Discussion on the first and second parts have been completed. Now,
several times higher than the fixed tariff value. The producer shall
we shall start discussion on part three.
issue VAT Challan mentioning tariff value and paying VAT at tariff
value but his receipt against the supply shall be actual sale price. In
such case, there shall be no VAT deduction at source. Had it not been Formalities to be observed by the withholding entity after
the goods with tariff value, the tender price, sale price and approved VAT deduction at source
price would have required to have been the same. Now we shall discuss what are to be done by the at source VAT
deducting authority after deduction of VAT at source. There are
(g) “Lessee of place and establishment” is a service under VAT mainly two functions, viz: (1) deposit of the deducted money to the
system of Bangladesh. Commonly it is known as VAT on house rent. government’s treasury; and (2) issuance of deduction certificate i.e.
This is the VAT imposed on the tenant and paid by the tenant. This is “Mushak-12kha”. Within 15 (fifteen) working days of VAT deduction
not a VAT on the landlord. So, there is no need for VAT deduction at at source, the deducted amount has to be deposited to the
source. The tenant pays his VAT himself. The landlord has no government treasury through Treasury Challan in the organizational
responsibility to pay VAT on his house rent. The tenant shall pay the code of the concerned Commissionerate of the VAT withholding
rent to the landlord as per agreement. If VAT is payable on the rent, entity. In the Treasury Challan, the Accounts Code should be written
the tenant shall pay the VAT from his own fund and shall send the 1/1133/0000/0311. In the place of “0000” the organizational code
Treasury Challan to the local VAT Office. On this service now VAT of the concerned Commissionerate of the VAT deductor has to be
rate is 15%. However, on four types of house rent, VAT is exempted. written. The organizational codes of the VAT Commissionerates are :
Those are: (a) if VAT registered production place is rented; (b) house Dhaka (North) 0015, Dhaka (South) 0010, Dhaka (East) 0030, Dhaka
rent on completely residential purpose; (c) commercial house rent (West) 0035, Chattogram 0025, Comilla 0040, Sylhet 0018, Rajshahi
not exceedeing 150 square feet area; and (d) if the place of VAT 0020, Rangpur 0045, Jashsore 0005 and Khulna 0001. The Accounts
registered information technology enabled service (ITES) provider is Code of Large Taxpayers’ Unit (VAT) is 1/1133/0006/0311. In the
rented. www.vatbd.com 11.01.2019
first column of the Treasury Challan, the name of the VAT deductor, registered person, the amount deducted at source and deposited to
the government treasury has to be shown against serial no. 5 and 16
his address, VAT registration number, names of the VAT Circle and
of his VAT return of the concerned tax period. Entry of the deposited
Commissionerate under whose jurisdiction the VAT deductor falls
amount in the Current Account Book is not needed. But entry can be
have to be written below “the name and address of the person
made in the Current Account Book, in that case, in one entry deposit
through whom payment is made”. In the second column of the
is to be shown i.e, added with the balance and then in another entry
Treasury Challan, the name of the provider of the goods or renderer
payable is to be shown i.e, deducted from the balance; thus at the
of the service, address, VAT registration number, names of VAT
same time with deposit and payable the balace will be same.
Circle and Commissionerate under whose jurisdiction the supplier
falls have to be written below “the name, title and address of the
Now we shall start discussion on the fourth part. How the service
person/organization on whose behalf payment is made”. In this field
provider shall show the information of VDS deduction in his monthly
“see overleaf for details” has to be written, if VAT deducted from
return and how the withholding entity shall show necessary
more than one supplier organizations is to be deposited through one
information in his monthly return those shall be discussed now.
Treasury Challan. Then on the overleaf detailed break-up of all
supplier organizations are to be written in the manner that a
photocopy of this can serve their purpose.
Formalities to be observed by the supplier
The last portion of the discussion relates to how the supplier shall
show the information of the VAT deducted at source in his VAT
Within no more than 5 (five) working days of the deposit, a
return. Supplier can be of two types, viz: (1) the suppliers who have
deduction certificate in three copies need to be prepared and issued
supplied the 37 services mentioned earlier with payment of VAT;
in the manner mentioned below in form “Mushak-12kha” with Fiscal
and (2) the suppliers who have supplied those services without
Year-wise serial number. In one deduction certificate, information
payment of VAT.
about more than one suppliers can be included using serial number
in the manner that a photocopy of the same can serve their purpose.
The first copy of the deduction certificate with original copy of When supply has been made with payment of VAT
Treasury Challan shall have to be sent to the VAT Circle Office of the We have mentioned earlier that as per the present procedures of
at source VAT deducting authority. The VAT Circle Office, on the VAT deduction at source, a supplier can supply the 37 services
basis of the original copy of the Treasury Challan shall show the mentioned earlier to the at source VAT deducting authority with
deducted amount of revenue in it’s revenue collection statement. payment of applicable VAT or without payment of applicable VAT as
Second copy of the VAT deduction certificate with a photocopy of the per his choice. Such measures have been incorporated in the
Treasury Challan shall have to be sent to the supplier organization procedures of VAT deduction at source to facilitate the service
for necessary entry in his VAT return. The third copy of the VAT providers. The service providers who do not maintain Current
deduction certificate shall have to be preserved by the at source VAT Account Book, deposit VAT of the previous month within fifteenth
deducting authority for a period of 6 (six) years. day of the next month and who maintain Current Account Book
deduct payable VAT from Current Account Book while issuing every
But while depositing money to the government treasury by cheque, VAT Challan. In this general manner, VAT payable on the service
the Treasury Challan is issued after encashment of the cheque. So, provided can be paid by the service providers. Sometimes, for
the Treasury Challan can not be obtained within 5 (five) working serving the purposes of taking input tax credit by the service
days of the deposit. In such cases, the deduction certificate is to be receiver, service is provided with payment of applicable VAT. In such
prepared and issued within no more than 5 (five) working days of circumstances, i.e, if the applicable VAT against the service has been
the receipt of the Treasury Challan i.e. from the date mentioned on paid in normal course, those are to be adjusted through VAT return
the Treasury Challan. If the authority deducting VAT at source is a www.vatbd.com 11.01.2019
following deduction at source. Such service renderers shall mention mentioning here that by adding the amount of VAT deductible at
source mentioned within bracket of serial no. 1 of the current VAT
their total sale information in the concerned field of serial no. 1 of
return with the amount of “Mushak-12Kha” mentioned in the serial
the VAT return. His total VAT payable has to be mentioned in the
no. 19 of the immediate previous VAT return and by deducting from
concerned field of serial no. 4 of the VAT return. If he has received
the total the amount of “Mushak-12Kha” mentioned in serial no. 19
any VAT deduction certificate in form “Mushak-12kha” against any
of the current VAT return we can obtain the pending amount of
service provided beforehand, then the amount mentioned in
“Mushak-12Kha”. The VAT Officers will know about the amount of
“Mushak-12kha” has to be entered in the concerned field of serial no.
pending “Mushak-12Kha” i.e, VAT not yet has been deducted at
12 of the VAT return. This is the way of making positive adjustment
of the VAT paid earlier when applicable VAT has been paid by the source having seen the amount mentioned within bracket of serial
no. 19 of VAT return.
service provider and VAT has been deducted by the service receiver.
In the concerned field of serial 19 of form “Mushak-19” total amount
Thus, in the procedures of VAT deduction at source, provisions have
of money has to be mentioned on the basis of the deduction
been incorporated to provide service to the at source VAT deducting
certificate i.e. “Mushak-12kha” received in the concerned tax period.
authority with payment of applicable VAT or without payment of
VAT. Such provisions have been made to facilitate the service
When supply has been made without payment of VAT
providers. Arrangements are there to make necessary adjustments
Generally, VAT return for the previous month is submitted within
making proper entries in the VAT return. Those who do not
the fifteenth day of the next month. For service renderers who do not
understand these entries to be made in VAT return, they find it
maintain Account Current Book deposit the payable VAT through
difficult to do the things after VAT deduction at source and deposit. If
Treasury Challan and submit the Treasury Challan with the VAT
the ideas expressed here are understood, inshaallah, the procedures
return. In such case, entries for service provided in the concerned
of VAT deduction at source shall seem easier and simpler to the
tax period i.e, month have to be done in the concerned fields of serial
readers.
no. 1 and 4 of the form “Mushak-19”. In the field 4 of serial no. 1
against description “neat sale of taxable goods or services or goods
VAT inclusive and VAT exclusive price and VDS
and services” the amount of total VAT payable has to be written. The
While deducting VDS, VAT-inclusive or VAT-exclusive matters
amount of VAT to be deducted at source from the above amount has
sometimes come to the fore and sometimes difficulties arise with
to be written below the above figure in the field 4 within first
regard to this. The origin of such complexities lie much before. I have
bracket in the manner (. . . . .). In the serial no. 4 of the return against
mentioned before that VDS is not only the subject of those personnel
the description “total payable tax (SD+VAT from serial 1)” the
of an organization who are responsible for deducting VDS, rather
amount has to be written excluding the amount of VAT deductible at
VDS is the subject of almost all personnel working there. Starting
source from the figure mentioned in field 4 of serial 1. The service
from selection of vendor for any purchase through signing
renderer shall make entry in serial no. 19 of VAT return after
agreement with the vendor, preparation of specification of the goods,
receiving VAT deduction certificate in “Mushak-12Kha”. The amount
issuance of tender notice, scrutinizing the tenderers, selecting lowest
of VAT deducted at source has to be mentioned in the serial 19 of the
tenderer, issuance of work order, taking delivery of the goods,
VAT return on the basis of the “Mushak-12Kha” received by the
testing quality of the goods, warehousing the goods, processing the
service provider in the tax period of the issuance of deduction
bill for payment, making payment of the bill, performing audit,
certificate by the service receiver or in the immediate next tax
performing post-audit, all the people involved with these activities
period. “Mushak-12Kha” received and photocopy of the Treasury
need to know VDS related actions and need to act accordingly.
Challan have to be submitted with the VAT return. The amount of
Throughout the process if everybody knows his responsibilities,
“Mushak-12Kha” pending has to be mentioned here in serial 19
below the figure within first bracket in the manner (. . . . .). It is worth www.vatbd.com 11.01.2019
then while making payment there shall not arise any challenge to Because that is the price of his service. VAT amounting to BDT
75,000 (Taka seventy five thousand only) has to be paid from the
deduct VDS from VAT-inclusive price or VAT-exclusive price. These
fund of the purchasing organization. In such case, a problem is,
things shall be settled much earlier. These matters are to be
sometimes it is seen that for the purchase of that service, the
mentioned in the agreement. It is to be noted here that any such
organization allocated a fund amounting to BDT 5,00,000 (Taka five
agreement can not be made which is contrary to VAT law or any
lac only). So, it is not being possible to pay more money as VAT
other law prevailing in the country. For instance, an agreement can
additional to that allocated money. Since there is shortage of fund,
not be made effecting that purchaser shall not pay VAT but seller
had the persons involved in the making of the purchase agreeement
shall pay VAT. This is against the basic principle of VAT system.
had clear concept regarding VDS provisions, then they would have
made the agreeemnt in the manner that the VAT-inclusive price of
One basic thing of VAT system is, VAT is consumption tax or
the service is BDT 5,00,000 (Taka five lac only). In such case, while
consumers tax. The purchaser or consumer of the goods or service
making payment, 15% VAT has to be deducted from within the BDT
shall pay VAT. Purchaser or consumer pays two types of money
5,00,000 amount and the rest has to be paid to the consultant. Had it
while purchasing anything; one is the price of the goods or service
been inserted in the agreement, then the consultant would have
and the other is VAT. When the question of VDS deduction comes,
known it earlier that he will be paid the amount deducting VAT from
then the VAT fraction is to be deducted that has been paid by the
purchaser of the goods or service. Purchaser i.e, who makes payment BDT 5,00,000. So, he would not have raised objection now. Another
solution to the problem is, if in anyway the consultant can be made
against goods or service shall deduct VDS. We shall now discuss one
understood and agreed that while making agreement, there was a
issue about this that crops up frequently. Suppose, an organization
mistake of not inserting such provisions in the agreement. In true
wants to purchase consultancy service. The organization has entered
sense, the price of the service is not BDT 5,00,000. Rather the price
into an agreement with a consulting firm to the effect that in
of the service is the price arrived at after deducting 15% VAT from
exchange of BDT 5,00,000 (Taka five lac only), the service shall be
BDT 5,00,000. If consultant does not agree with this, then the
purchased. At this stage, nothing like the price of the service, the
purchaser organization has to pay VAT. Generally, the consultant
amount of VAT upon the service, how much money is to be deducted
at source, none of these have been mentioned in the agreement. I agrees with such request becaue he also wants to maintain good
relations with the organization for obtaining future works. It is also
have mentioned before that the officials involved in the preparation
to be understood how VAT is to be calculated from VAT-inclusive
and execution of agreement also needs to know the provisions
price. This method has been discussed in details in my Bangla
regarding VDS. The consultant has submitted a bill for BDT 5,00,000
version book, Vol. III, sub-para 13 ‘VAT Calculation’. VAT-inclusive
(Taka five lac only) on completion of the work as per agreement.
price has to be divided by 100 plus rate of VAT. Then the result has
Bills payable section of the organization wants to deduct 15% VAT
to be multiplied by the rate of VAT. Now, you get the VAT amount. If
amounting to BDT 75,000 (Taka seventy five thousand only) and pay
the consultant the rest amount BDT 4,25,000 (Taka four lac and BDT 5,00,000 is VAT-inclusive price, and if rate of VAT is 15% in this
case, then while BDT 5,00,000 is divided by 115, you get BDT
twenty five thousand only). But consultant shall not accept that
4,347.82. If you multiply BDT 4,347.82 with 15, then you get BDT
anyway. Consultant wants BDT 5,00,000 (Taka five lac only) in full.
65,217.39. So, BDT 65,217.39 is the VAT amount within BDT
Such type of problems frequently arise. The problem has been
5,00,000. If you subtract VAT portion BDT 65,217.39 from total VAT-
created principally because while making the agreement price and
inclusive amount BDT 5,00,000, then you get price of the service,
VAT have not been well clarified. However, what is the solution to
here BDT 4,34,782.61.
the issue? The solution to the issue lies in the inherent principle of
VAT. One basic principle of VAT system is, VAT shall be paid by the
purchaser or consumer of the goods and services. In the present case
BDT 5,00,000 (Taka five lac only) has to be paid to te consultant. www.vatbd.com 11.01.2019
 service recipient has to pay additional 1% VAT from own fund
Rate of which time shall be effective
because VAT is service recipient’s liability.
While deducting VDS, this sometimes become an issue – which VAT
rate shall be effective. To effect VAT rate in respect of normal VAT
Please see the following VDS tips for easy understanding of VDS
payable and VDS are not same. Section 4(1), 6(2) and 6(3) stipulates
regulations. Almost all regulations regarding VDS have been made
provisions regarding the time of VAT rate shall become effective for
compact and expressed in the following 10 tips sequentially. Hope,
normal payable VAT. There are three events. When one of those
on completion of reading of these tips, the readers shall understand
events happens, the rate of VAT prevailing at that time shall be
the VDS matters more clearly and could practice accordingly.
applicable in case of that supply. Those three events are as follows:
a) when goods are delivered or services are rendered;
b) when VAT invoice in respect of the supply is issued; and
c) when payment is made in full or in part with regard to the
supply.

Of these three events, when one event occurs first, the VAT rate
prevailing at that time shall be applicable with regard to that supply.
Rate of VAT generally does not change. With regard to goods, the
rate of VAT is almost static. In our country, the standard rate of VAT
is 15%. At present, there are 6 truncated VAT rates on 15 services;
those rates are 2%, 3%, 4.5%, 5%, 7% and 10%. Previously, there
were 9 truncated VAT rates. During last budgetary measures (FY
2018-19), 3 truncated rates have been deleted that have come into
effect from 07 June, 2018. Such rate change generally occurs during
budgetary measures i.e, June. Throughout the year generally such
VAT rate change does not occur. This is all about application of VAT
rate with regard to VAT payable on supply of goods and services.
With regard to VDS, the time of the VAT rate that shall become
applicable is easier than the above. Sub-section (4KaKa) of section 6
of the VAT Act, 1991 stipulates that with regard to VDS the rate of
VAT that remains effective during the payment of the bill and
deduction of VDS shall be applicable. Such provision has been
enacted by the Finance Act, 2013. Prior to that there were
complexities with regard to applicability of VAT rate while deducting
VDS. Suppose, a service has been rendered from February to April
throughout these three months period. Bill against the service has
been submitted in May while VAT rate was 5%. Bill could not be paid
in May due to shortage of fund. Bill is being paid in July. Meanwhile,
in June, rate of VAT has been changed. Present rate of VAT is 6%
while the bill is being paid. So, VDS has to be deducted at the rate of
6%. If the service renderer is reluctant to allow deduction of 1%
more VAT from his bill, that was not in the agreeement, then the www.vatbd.com 11.01.2019
 the same supply of service VAT is paid twice. Solution to this
VDS Tips question has been there in the General Order related to VDS. It is
VDS provisions in case of purchase of service stipulated in the paragraph 5(Ka) of the above General Order that
Tips-01: Suppose, you are Finance Manager of a VDS withholding under such circumstances, the service provider shall make positive
entity. A purchase bill has been placed before you. You will require adjustment once in his monthly VAT return on the basis of the VDS
approving the bill for payment. You have to decide whether VDS deduction certificate (Mushak-12Kha) issued by the withholding
deduction is needed on the bill or not. When such purchase bill is entity on completion of VDS deduction. So, now we understand the
placed before you, then your first thought should be whether the basic VDS actions of service purchaser with regard to those 37
bill is for the purchase of service or for the purchase of goods. If services.
the bill is for the purchase of service, then you have to go to Tips-2. If
the bill is for the purchase of goods, then you have to go to Tips-6. Tips-04: With regard to the service of advertizing agency, the VDS
Suppose, the bill is for the purchase of service. So, please see Tips-2. procedure is a bit different. The service provider i.e, advertizing
agency shall issue and submit VAT Challan with the bill to the service
Tips-02: We know that there is a list of 39 services in the paragraph recipient, it is generally demanded by law. The VAT Challan has to be
2 of VDS related General Order No.-06/Mushak/2018, dated 07 June, attested by the Assistant Revenue Officer (ARO) or Revenue Officer
2018 issued by NBR. In serial no. 5 of the list there is advertizement (RO) of the VAT Circle Office under whose jurisdiction the service
agency service and in serial no. 19 of the list there is procurement renderer is located. If such properly attested VAT Challan
provider service. If we keep those two services at bay, there accompanies the bill, VDS does not require to be deducted. Bill
remains 37 services. We shall discuss these two services later. One of amount including VAT has to be paid to the service provider i.e,
the basic and very important VDS provision is on these 37 services advertizing agency. The service provider shall pay VAT in due
VDS deduction is compulsory under all circumstances. If there is VAT course. If such properly attested VAT Challan is not there with the
Challan, VDS is to be deducted; if there is no VAT Challan, VDS is to bill or if there is no VAT Challan at all then 15% VDS has to be
be deducted. If VAT has been paid, VDS is to be deducted; if VAT has deducted at source. It can be mentioned here that in no other case of
not been paid, VDS has to be deducted. If VAT remains included in VAT there is the provision for attesting VAT Challan by VAT Official.
the agreement, VDS has to be deducted; if VAT does not remain Only in this case, such provision has been made to address a special
included in the agreement VDS has to be deducted. If the price is need.
VAT-inclusive, VDS has to be deducted; if the price is VAT-exclusive,
VDS has to be deducted. Summarily, on those 37 services, under all Tips-05: So far we have discussed a total of 38 services, 37 services
circumstances VDS has to be deducted. There is no such and advertizement service. We shall discuss procurement provider
circumstance under which VDS does not require to be deducted on service later. For the time being, we suppose that procurement
these 37 services. So, raising any such hypothetical circumstance is provider service has been discussed. Then, we have discussed a total
unnecessary. We have to learn what have to be done following VDS of 39 services. If the purchase bill which has been placed before you
deduction on these 37 services for adjustment. There are procedure, falls beyond those 39 services, then primarily you do not have any
those have been discussed later. VDS obligation on that purchase. But you have the responsibility to
check whether the service provider has paid VAT on the service in
Tips-03: In the above tips-2, it has been asserted that on those 37 due course [(VAT Act 1991, Section 37(2)(KaKa) and (Ta)]. You may
services under all circumstances VDS has to be deducted check VAT Challan, Treasury Challan and Account Current
compulsorily. Then a question remains. If the service provider Register to be certain about it. It is geneally requies that a VAT
provides the service paying VAT in normal course and if service Challan accompanies a supply. It is sufficient to have a VAT Challan
recipient deducts VDS compulsorily as per above provisions then on www.vatbd.com 11.01.2019
which appears to be true. Then VDS deduction shall not be needed. importer or an exporter. Procurement provider falls under service
renderer, this shall be detailed later.
Even if there is VAT Challan, you may ask for Treasury Challan as an
evidence of depositing the VAT involved with the supply to the Tips-08: In this tips-08, we shall discuss important VDS principle.
government treasury. If the service renderer provides you Treasury When manufacturer has given supply of goods directly issuing VAT
Challan, then you are sure that VAT involved with the supply has Challan, VDS deduction is not needed. If manufacturer gives supply
been deposited to the government treasury. So, you do not need to of goods directly without issuing VAT Challan, then 15% VDS
deduct VDS. If the service provider has paid VAT subtracting from requires to be deducted – not 5%. When trader has given supply of
the balance of his Account Current Register (Mushak-18), then you goods directly issuing VAT Challan, VDS deduction is not needed. If
have to ask for photocopy of the concerned page where the VAT trader gives supply of goods directly without issuing VAT Challan,
Challan involved with the supply has been entered and VAT has been then 5% VDS requires to be deducted – not 15%. If vendor/supplier
substracted. If it is properly subtracted there, you do not require is a procurement provider then 5% VDS has to be deducted at source
deducting VDS from the bill. If in the above ways you can not be sure because procurement provider service remains included in the list of
that the service provider has paid VAT, then you have to deduct VDS 37 services where VDS deduction is compulsory under all
on the bills of these services at the rate prevailing on the services. circumstances. While discussing service, we mentioned that we shall
We have discussed all services excepting procurement provider. discuss procurement provider with goods. In the following tips,
Procurement provider shall be discussed later while we shall discuss procurement provider shall be discussed in details.
VDS provisions on goods. Because procurement provider service is
Tips-09: Who is a procurement provider? Procurement provider
the service of providing goods to the withholding entities.
is neither a manufacturer not a trader. Procurement provider
purchases from the manufacturer then makes supply. Procurement
VDS provisions in case of purchase of goods provider purchases from the trader then makes supply. Procurement
Tips-06: Suppose, you are Finance Manager of a VDS withholding provider imports against tender/work order then makes supply.
entity. A purchase bill has been placed before you. You will require While making purchase from small shops (package VAT) who have
approving the bill for payment. You have to decide whether VDS not issued you VAT Challan, 5% VDS has to be deducted, i.e, you have
deduction is needed on the bill or not. When such purchase bill is to pay 5% VAT from your own fund. Because you have paid the price
placed before you, then your first thought should be whether the of the goods to the shop, there is no scope of deduction from that
bill is for the purchase of service or for the purchase of goods. price. Shops under package VAT falls under trader category. For
Suppose, the bill is for the purchase of goods. traders, VDS principle is when trader has issued VAT Challan while
Tips-07: When you have purchased goods, you are to determine the supplying goods, VDS deduction is not needed. These small traders
status of the vendor/supplier. The supplier of goods can have any do not issue VAT Challan. Moreover, their actual turnover is much
one of the three status; viz: (a) manufacturer supplier; (b) higher than the turnover fixed for package VAT shops. So, 5% VDS
trader supplier; and (c) procurement provider supplier. Having needs to be deducted or paid from own fund while purchasing from
scrutinized the VAT registration certificate (Business Identification these shops. We have mentioned earlier that a provision was
Number-BIN), Taxpayers Identification Number (TIN), trade license, inserted in the VDS regulations that came into effect on 1 July, 2017
tender, agreement and other related documents you have to which stipulated that on a single purchase amounting to BDT 1,000
ascertain the status of your vendor/supplier. If need be, you have to (Taka one thousand) only, VDS deduction is not needed. That
visit the premises of your vendor/supplier to see for yourself his provision has been cancelled. The cancellation came into effect on 07
practical status. It can be mentined here that a VAT registered June, 2018. A basic difference between trader and procurement
person can be a manufactuer, a trader, a service renderer, an provider is trader procures and stores at a specific place from where

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trader makes the supply but procurement provider purchases from
manufacturer or trader or imports from abroad and then makes the
supply directly – generally without storage. Trader has a specific
place of business where he stores the goods. Procurement provider
does not have any such place. Procurement provider prepares
business documents (trade license, TIN, BIN etc.) using an address (BIN)
but generally it remains obscure. Trader sells to everyone but
procurement provider sells only against tender or work order.
Trader takes part in tender to supply only those goods it deals but
procurement provider takes part in tender to supply any goods he
can afford.
Tips-10: Who is not a procurement provider?
The following shall not be considered as procurement provider:
a) supply of goods exempted by the First Schedule of the VAT Act,
1991;
b) supply of goods by manufacturer or trader issuing VAT Challan;
c) supply of goods by an entity enlisted under turnover tax or
cottage industry with own cash memo mentioning enlistment
number;
d) supply of any service shall not be considered as procurement
provider since services remain specifically defined; it shall be
the concerned service under the service title it falls;
e) supply of tiffin to school;
f) supply of primary, secondary and equivalent text books printed
against the work order given by National Curriculae and
Textbook Board;
g) supply of cotton;
h) supply of waste and scrap paper;
i) supply of cullet (broken piece of glass);
j) supply of plastic waste;
k) supply of cattle bone to be used for inputs of gelatine capsule; N. B.: Updated upto January, 2019
and - The End -
l) supply of jute goods.

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