Changes to VAT Deduction at Source Rules in Bangladesh

Since 1992
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1
SUMMARY OF CHANGES IN
VAT DEDUCTION AT SOURCE (VDS) OF BANGLADESH IN 2019
Sl. Existing
(VAT Act 1991)
New
(VAT & SD Act 2012)
Change
1. What is Withholding VAT entity?
Not defined by law Defined by the VAT & SD
Act 2012 (the Act) and
Collection of VAT at Source
Rule 2019 (the VDS Rule)
(1) Precisely defines the entities which shall be
obligated to collect/deduct VAT at source in
sub-section 21 of section 2 of the Act.
(2) Earlier a list of entities prescribed vides a
General Order that could deduct or collect
VAT at the time of payment.
2. Is there any Rule for VDS?
No Yes (1) The VDS Rule has been framed which
explains the withholding entities more
elaborately in sub-rule( kha) of rule 2
(2) The Board framed VDS Rule vide S.R.O. 187-
Law/2019/44-VAT and S.R.O-235-
Law/2019/71-VAT on 13 June, 2019 and 30
June 2019 respectively.
(3) Earlier the rates were prescribe vide an
order of the General Order- 13/VAT/2017
issued on 1 July 2017 (GO)
3. Who are the Withholding VAT entities?
Not been precisely defined but a GO
pointed out the following entities:
(a) Government and Semi-
Government entities
(b) Autonomous bodies
(c) Non-Government Organization
(NGO)
(d) Banks insurance companies or
financial institutions
(e) Limited companies
(f) Educational institutes
(g) Any entity having turnover over
1 Crore
The following entities shall
be considered as VAT
withholding entities and
shall be obligated to collect
VAT at source:
(a) Ministries,
Government
departments and
directorates
(b) State Owned
Enterprises (SOE)
(c) Local Government
authorities
(d) Local council or
similar bodies
(e) Semi-Government
Enterprises and
autonomous bodies
(f) Registered NGOs
(h) Banks, insurance
companies or financial
institutions
(i) Limited companies
(j) Educational institutes
(1) Withholding VAT entities has been
conclusively defined in sub-rule (b) of Rule
2 of the VDS Rule. The changes are as
follows:
 In case of Government:
Ministries, Government
departments and Directorates,
State Owned Enterprises (SOE),
Local Government authorities,
Local council or similar bodies
shall require collecting Vat at
source.
 In case of NGO: Only NGOs which
are registered with NGO Affairs
Bureau/ Directorate-General of
Social Welfare can deduct or
collect VAT at source
 Any entity having turnover of 1
Crore or over: This provision has
been withdrawn. Now VAT
deduction authority irrespective
of the amount of turnover needs to
collect VAT at source

Since 1992
2
Sl. Existing
(VAT Act 1991)
New
(VAT & SD Act 2012)
Change
4. Shall the withholding VAT entities deduct or collect VAT in case of purchase suppliers/services from
withholding VAT entities?
No precise guidelines No (1) If the Withholding VAT entities shall not
deduct/collect VAT if they purchase taxable
supplies/services from another withholding
VAT entities.
(2) VDS shall not applicable if the purchase
through tenders/quotations.
5. Are all supplies/services are subject to VDS? What are the methods of VDS?
 GO. VDS applicable only for
services as determined by a
general order of the NBR
 Collecting Vat invoices (Mushak-
11) from suppliers were
optional
 VDS applicable for
both products and
services mentioned in
3rd Schedule of the
Act 2012 as
determined by the
VDS Rule
 Collecting Vat invoices
(Mushak-6.3) from
suppliers is now
mandatory
The 3rd Schedule of the VAT Act now includes
hundreds of products which shall now be
subject to VDS including services at different
rates. Earlier VDS was applicable only for 39
services specified in G.O. the VDS Rules
prescribes:
(1) if purchased via quotations/tenders VAT
shall be deducted
(2) VAT shall be deducted If the applicable rate
for the supply/services is less than 15%
(5%, 7.5% and 10%)
(3) VAT shall not be deducted if the rate is 15%
(4) The supplier must provide Mushak 6.3 for
supply of taxable/goods or supplies
(5) Purchasers shall not purchase
goods/services if the suppliers/service
providers fail to provide VAT invoice
(Mushak-6.3)
(6) Purchasers shall hold payments until the
suppliers/service providers provide
Mushak-6.3.
6. Can unregistered persons supply/provide taxable (VAT) services against a tender or quotations?
Yes No (1) Taxable supplies/services shall now be
purchased only from registered taxpayers
under Section 11 of the Act
(2) Earlier, enlisted Turnover taxpayers were
eligible to participate in tenders which has
now been withdrawn
7. Is there any precise guidance for procurement providers/suppliers?
No Yes (1) Procurement provider for the purpose of
VAT Deduction At source has been precisely
defined in sub-rule (ga) of Rule 8 of the VDS
Rule
(2) Procurement providers shall mean any

Since 1992
3
Sl. Existing
(VAT Act 1991)
New
(VAT & SD Act 2012)
Change
person who supplies any goods without
modification to the withholding VAT
entities against tenders and quotations
(3) Procurement providers are not importers,
manufacturers or suppliers rather
intermediaries who procure goods and
supplies without modifications.
(4) The NBR issued two special orders in 13
and 30 June, 2019 (S.R.O. 187-
Law/2019/44-VAT and S.R.O. 234-
Law/2019/70-VAT) which precisely defines
services assessable to VAT. These services
shall not be considered as procurement
provider services
(5) Procurement providers need to obtain
individual registration using service code
37 (So37) of the Act.
(6) Sub-rule (gha) also prescribes that if a
supply includes multiple taxable services-
the tender, quotations and VAT invoices
shall precisely identify each types of
services according to their classification in
order to remove confusion.
8. What are the VDS rates?
Different rates fixed by a general
order of the NBR purchase of
services.
VDS rates on the goods and
services have been fixed @
5%, 7.5% and 10%
respectively.
VDS at a specific amount
against specified item of
goods.
(1) There are four (4) Tables under Third
Schedule.
(2) VAT rates on the goods and services
mentioned in Tables 1, 2 and 3 have been
fixed at 5%, 7.5% and 10% respectively.
(3) VAT on the goods mentioned in Table 4 has
been fixed at a specific amount against each
item of goods.
(4) VAT rate of all other goods and services has
been fixed @ 15% which are not subject to
deduction at source.
(5) Earlier VDS was applicable only on 39
services at fixed rated of G.O-13/VAT/2017
dated 1 July 2019
9. Should we deduct VAT at source for standard rated supplies/services i.e. when the rate is 15%?
 VDS if taxable supplies/services
are purchased from
manufactures or local traders.
 In all other cases
supplies/services were subject
to VDS
No VDS for the standard
rated goods/supplies
except for the rent of
leasehold properties
(1) VAT rate of all goods and services other
than mentioned in the Third Schedule has
been fixed @ 15%.
(2) Consumers shall not deduct VAT at source if
applicable rates for the supplies/services
are fixed at 15%
(3) However, tenants shall deduct VAT at 15%
from rent of leasehold properties

Since 1992
4
Sl. Existing
(VAT Act 1991)
New
(VAT & SD Act 2012)
Change
10.
Is it mandatory to collect VAT invoice (Mushak-6.3) from the suppliers/ service providers?
No Yes (1) Collections of VAT invoice (Challan) from
suppliers were optional earlier. Recipients
were only obligated to deduct VAT at
Source only.
(2) It is now compulsory for the withholding
VAT authorities to collect Mushak-6.3
11. What should the consumers do if the suppliers don’t issue VAT invoice (Mushak 6.3)?
No prescribe provisions Embargo imposed (1) Embargos has been imposed on both
purchase and payments in absence of
Mushak 6.3 for the suppliers as per rule 5 of
the Collection of VAT at Source Rule 2019
(2) Recipients shall not purchase any taxable
goods/services
(3) Recipients shall hold payment until
Mushak 6.3 is available.
12. Are there any taxable services which are not subject to VDS?
No No (1) Any purchases of taxable goods were
subject to VAT deduction
13. Are cross border services subject to deduction?
Yes Yes (1) When services are provided from outside of
geographical locations, it’s called cross
border services.
(2) Banks or financial institutions or any other
entities liable to pay for cross border
services shall collect VAT at 15% from
importer at the time of payment.
(3) Where transactions cannot be separated
(i.e. buyer and seller are not connected, and
time of sale might not be quite clear),
 the value of supply shall be the price
paid;
 the place of supply shall be where the
item sold is situated;
 while the tax liability shall arise at the
earlier of invoicing, payment, or
delivery and either the supplier or the
receiver shall be liable to VAT and
 The importer shall be liable to pay the
applicable VAT at 15%
14. Rules regarding inland L/C
No rules Yes (1) Banks shall now be liable to deduct and
deposit VAT for payment through inland
L/C or other instruments at the time of
payment of taxable services/supplies.

Since 1992
5
Sl. Existing
(VAT Act 1991)
New
(VAT & SD Act 2012)
Change
15. VAT collection at the time of registration, permits etc and renewal
Yes Yes (1) State Owned Enterprises (SOE), local
Government authorities, local council or
similar bodies, semi-Government
enterprises and autonomous bodies and
any other registration authorities need to
collect VAT at source.
(2) Revenue sharing, royalty, commission,
charge, fees are now subject to VDS at the
time of registration or renewal of permits.
(3) New registration/permits and renewal shall
be subject to VDS at 15% as per rule 4 of the
VDS Rule.
16. Shall the tenants pay VAT separately?
Yes No (1) Tenants shall deduct VAT at 15% on the
lease value. However, Vat shall not be
deducted if the landlord is not a vat
withholding entity rather the tenant shall
pay the VAT at 15% separately as per the
rule 5 of the VDS Rule. Earlier tenants used
to pay the VAT separately
17. Which products/services shall not be subject to VDS?
Any services other than mentioned in
the general orders, Zero rated and
exempted services and Gas, electricity
and fuel bills
(1) Any products and
services other than 3rd
Schedule, zero rated
products and services
and exempted
products and services
in the first schedule
(2) Gas, electricity, water,
telephone, mobile and
fuel bills shall not be
subject to VDS
(1) Hundreds of products are now included in
the exemption list of the 1st Schedule of the
Act. Earlier only services were subject to
VDS.
(2) VAT rate of all goods and services other
than mentioned in the First and Third
Schedule has been fixed at15%. No VDS for
goods and services at 15%
18. Applicability of VDS for Zero rated supplies/services
There was no precise methods Not subject to VDS (1) Zero rated supplies means any export or
deemed export .Sub-section 1 of Section 49
of the VAT & SD Act 2012 now precisely
waives the Zero rated services from VDS.
19. Applicability of VDS for exempted supplies/services
No VDS for Exempted services listed
in 1st schedule. However, if any
services are exempted vide any S.R.Os
the suppliers need to issue VAT
Challan (Mushak-11)
No VDS for exempted
supplies and services in the
1st schedule.
However, if any services
are exempted vide any
S.R.Os the suppliers need to
issue VAT Challan
(Mushak-6.3)
(1) 1st schedule now includes hundreds of
products which shall be exempted. Earlier
there were only exempted services in the
schedule.
(2) For any exempted services specified by any
Order, suppliers/service providers required
to issue VAT invoice in proscribed Form
called Mushak 11. The prescribed Form has

Since 1992
6
Sl. Existing
(VAT Act 1991)
New
(VAT & SD Act 2012)
Change
been changed and the suppliers/service
providers will still need to issue VAT
invoice in Mushak 6.3.
20. VDS certificate
Entities entitled to deduct VAT at
source required to issue VDS
certificate in VAT Form- Mushak
12kha to the suppliers. Mushak
12kha stated price exclusive of VAT
Two new regime Two new regime
(1) When the applicable rate for taxable
supplies/services is 15% and VAT is not
deducted at source, then VAT invoice
(Mushak-6.3) shall be considered as VDS
certificate for the withholding entities as
per rule 5 of the VDS rule.
(2) When the applicable rate for taxable
supplies/services are concessional (at 5%,
7.5% and 10%), VAT is deducted at source
and the withholding entities shall be
required to issue VDS certificate in VAT
Form Mushak 6.6 to the sellers. Mushak 6.6
shall be for VAT inclusive price as per sub-
rule 2 of rule 5 of the VDS Rule.
(3) 3 copies of VDS certificates has to be issued
–
 The withholding entities shall submit a
copy to the concerned VAT circle
attaching the proof of VAT Challan
 A copy shall be required to be sent to
the suppliers/service providers within
3 days of deposit of the VDS amount
and
 The withholding entities shall retain a
copy for 5 years
21. Do the VDS certificate required to be issued within 3 working days of depositing to the Government
exchequers?
Yes Yes (1) When VAT is not deducted, withholding
entities don’t require to issue VDS
certificate.
(2) When VAT is deducted, withholding entities
shall require to inform the suppliers and
issue VDS certificate within 3 days of
deposit of the VAT amount
22. Decreasing/increasing adjustments of VAT liabilities
Manufactures or local traders could
increase/decrease their net VAT
liabilities only if they issued Mushak
11
Both withholding entities
and suppliers are now
entitled to
increase/decrease their
VAT liabilities
(1) Tax withhold at source and increasing
adjustment by the withholding entity Sub-
rule 3 of rule 5 of the VDS Rule 2019 and as
per sub-section 1 of section 49 of the Act
states if the withholding entities deduct
VAT they shall apply increasing adjustments

Since 1992
7
Sl. Existing
(VAT Act 1991)
New
(VAT & SD Act 2012)
Change
through their VAT return (Mushak 9.1) and
vice versa.
(2) Rule 6 of the VDS rule prescribes suppliers
shall be entitled to increasing/decreasing
adjustments. However, they need to claim
adjustments within 6 months of the supply.
23. Time of deposit of VDS
VDS amount to be deposited within
15 days of deduction
No change of the time
frame
(1) Now, the responsible person to deposit the
VAT amount shall require to inform the VAT
online system within 3 working days of the
depositing date.
However, no prescribe method has yet been
suggested regarding the process of
informing.
24. Penalty
(1) The withholding entities shall
render as assessee in default and
they shall be taxed if they were
the suppliers or service
providers in the following cases-
 Failure to deduct VAT at
source (VDS) at applicable
rate or
 Failure to pay in due time
(2) Such defaulters shall be liable to
pay the due VDS amount and
simple interest at 2% with the
due amount on half yearly basis
until the date of payment.
(3) In case of failure to deposit the
VDS amount within the
prescribed time, both the
individual responsible to deposit
the VDS amount and the Chief
Executive Officer shall be
deemed as assessee in default
and shall be fined personally at
BDT 25k
In case of appeal by the
taxpayer, the date of
payment shall now include
the time required for
appeal until the payment is
made.
(1) The defaulters shall now suffer if their
appeal is lost as the penalty calculation shall
now include the time of appeal.

Changes to VAT Deduction at Source Rules in Bangladesh

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