VAT Questions For Professional Stage Knowledge Level

Related Topics Covered From Following Books (Exclusively for Study Purpose)
Taxation 1 Study Manual, ICAB Publication
Banglaesh Income Tax, By Nikhil Chandra Shil, Mohammad Zakaria Masud, Mofhammad
Faridul Alam
Value Added Tax (VAT) In Bangladesh, By M. A. Baree
Organized By
Md. Abul Kalam Azad

Question 1: Define Value Added Tax.
Answer: Value Added Tax is the tax on the value added by a tax payer. VAT is an indirect tax. It
can be grouped with expenditure tax since it is ultimately borne by the consumers of goods or
services. Tax on value addition is known as Value Added Tax. Value addition is the value
created by the manufacturer or trader in the goods through added inputs, labor or skill including
his profit for risk bearing or organizational efforts and that value addition is reflected in the
price.


Question 2: What is meant by VAT registration? Briefly discuss VAT registration.
Answer: For the ease of administration following entities shall have to be registered with the
concerned divisional VAT office. VAT office allocates a particular number top each registered
entity to identity as a VAT payer.
Importer of goods or services
Exporter of goods or services
Producer of goods or services
Trader of goods or services
Service provider
Time of Registration: A person needs to register for the purposes of VAT before
commencement of
Production of goods
Trading of goods
Rendering of services
Import of goods
Export of goods
VAT Registration Process: The person who is falling under the jurisdiction of turnover tax
and cottage industry is not required to register for the purpose of VAT. Even if some of them
want to register, they can and this is called self-registration. Concerned divisional VAT office
can register and inform a person under section 15 (4) of the Act. effective from the date the
person ought to have registered, when he does not apply for registration though required by law
to do so. This is called compulsory registration.
Application for VAT registration shall be made to the VAT Divisional Office in Form VAT 6.
The following documents shall be enclosed with the application
Trade license
TIN Certificate (if any)
IRC/ERC (if any)
List of all sale centers when applied for central registration
A declaration in From VAT 7 regarding place of production or business, plant,
machinery, fittings, goods to be produced or purchased, sale or stock of goods and its
inputs.
If the application is complete, the VAT Divisional Officer shall issue the Certificate of
Registration in Form VAT 8 within 7 days of application.
Cancellation of Registration: The registration may be cancelled for the purposes of VAT if
The registered person discontinues business.
The registered persons businesses are exempted for the purposes of VAT.
The turnover of the registered person/self-registered is below Tk. 40 lac.
The registered person fails to commence business after obtaining certificate of
registration.
The registered person shall apply to the VAT Circle Office in Form VAT 10 for cancellation of
the registration.


Question 3: How goods and service are classified for VAT purpose and how taxation
procedure differs based on those classifications?
Answer: For VAT purpose goods and services are classified as
Taxable: Taxable goods and services are fully taxable @ 15%. However, the
manufacturer or trader can obtain input tax rebate against output tax liability through
current accounts.
Exempt: Exempt goods and services are those which are exempt from VAT at output
stage i.e. food stuffs, medical services, books, newspapers etc. and input taxes, if any,
paid in the process cannot be obtained as rebate. They thus form the element of cost of
particular goods or services.
Zero-Rated: Zero-rated goods and services are deemed exports on which there is a VAT
but incidentally the rate at present is zero. This is part of broader national export policy to
make the goods and services competitive price in the international market. All duties and
taxes paid on the inputs of exported or deemed to be exported goods or services are
reimbursed through duty draw back scheme.


Question 4: What are the differences between exemption and zero-rating?
Answer: Exemption and zero-rating are significantly different. Business supplying only exempt
goods and services are not required to fulfill any VAT formalities. They do not charge VAT on
their outputs, nor are they able to take credit for any input tax. On the other hand, those dealing
with zero-rated transactions have to be registered and fulfilled all the VAT formalities. No tax is
chargeable on their zero-rated goods and services, but they can take credit for the input tax they
have paid which relates to their zero rated supplies.


Question 5: Discuss in detail the basis for determination of value for calculating VAT.
Answer: According to Section 5 of the Value Added Tax Act, 1991, the value for charging of
VAT would be determined as per the following provisions:
1. 1. Imported goods: In case of imported goods, the value on which the VAT will be
payable is the transaction value as determined under section 25 (1) of the Customs Act,
1969 plus the amount of import duty, supplementary duty and all other duties and taxes
(if any), except advance income tax payable. But after the introduction of pre-shipment
inspection system these rules have become almost redundant since most of the imported
items are now valued at the custom stations on the basis of certificates of the pre-
shipment inspecting organization appointed by the Government who act objectively and
independently.
2. 2. Supply of Goods: In case of supply of goods, the value would be the price receivable
by the producers or manufacturers or by the business person from the buyer which
includes
All cost of production
Where applicable any commission, charge, fee, all other duties and taxes including
supplementary duty and profit.
Any person who is registered for VAT who acquires goods in any way from any other person
under a contract or sub-contract and sells those goods within themselves or them through their
sales center, to account for VAT on the basis of the price received from the consumers of such
goods.
1. 3. Retail Price: The Government through official Gazette can determine the price of
goods upon which VAT shall be payable based on retail price which the manufacturer or
the producers shall fix up with approval of the Government officer. The price shall be
printed on that product which include
All expenses
Commission, charges, duties and taxes.
1. 4. Services: In case of rendering service, VAT shall be imposed on the total receipts.
While rendering specific services the board will be able to determine the amount of
VAT.
2. 5. Trade Discount: Goods on which trade discount is allowed, VAT will be charged on
the value of the goods after deduction of trade discount. The discounted value shall be
shown in the invoice.
3. 6. Exception: Notwithstanding anything in section 5, considering public/national
interest and when satisfied after due investigation, the Board can determine the tariff
value of any taxable goods or services through official Gazette notification in order to
charge VAT and supplementary duty.


Question 6: What are the documents required to be maintained for VAT purposes?
Answer: The following books and documents shall be maintained by a VAT tax payer
Purchases Register in Form VAT 16
Sales Register in Form VAT 17
Current Account in Form VAT 18
Invoices in Form VAT 11 or 11A
VAT return in Form Vat 19
These books and documents shall be maintained for at least 4 years.

Question 7: Briefly discuss deduction at source of VAT.
Answer: To collect tax revenue quickly and in advance of maturity certain service receivers are
required to deduct VAT applicable to certain services from the bills of the service providers and
deposit the same to the Government Treasury within prescribed time and in prescribed manner.
This is deduction of VAT at source.
VAT is deductable at source from certain services at different rates such as

Particulars Rates
Construction firms 4.5% of total bills
Indenting firms 2.25%
Lessors 15% of S/C
Printer 4.5% of S/C
Procurement providers 2.25% of S/C
Consultancy & Supervisory firms 4.5%
Board meeting participators 15% of Meeting fee
Banking services 15%
Sales of goods on auction 1.5% of S/C
Audit & accountancy firm 4.5%
Advertisement firms 9%
Insurance companies, NGOs 15%

No turnover tax is deductible at source from the aforesaid services. The following persons
shall be responsible for deduction of VAT at sources
Governments
Semi-Autonomous Bodies
Autonomous Bodies
NGOs
Banks
Insurance Companies
Limited Companies
Penalty: Any person responsible for deducting VAT shall be liable to pay deductible VAT
along with interest at 2% per month from the due date of deduction to date of payment.


Question 8: Briefly discuss about Turnover Tax (TOT).
Question: TOT is a tax, as an alternative to full VAT. Person who produces taxable goods or
provide taxable services but not required to register under section 15 of the VAT Act. 1991 and
having turnover below Tk. 40 lac shall have to enlist with superintendent to pay 4% of turnover
tax in advance.
TOT payer cannot pay tax on the basis of tariff or truncated value.
TOT payer cannot obtain input tax rebate
VAT registered persons purchasing from turnover taxed person on the basis of tax
challan cannot also obtain input rebate.
For enlisting as TOT payer, applicant shall have to apply in Form VAT 6 to the superintendent
of concerned local VAT office. If the application is complete, superintendent issue an enlistment
certificate in Form VAT 8 within 7 days of application. If after registration, the turnover of a
registered person exceeds Tk. 40 lac during a continuous period of 12 months, he will apply
within the next 30 days after the end of the 12 months for registration for the purpose of VAT to
the Divisional office in Form VAT 6. For turnover tax Circle Office is the direct controlling
authority.
Persons enlisted for turnover tax need to maintain following documents
Daily Purchases and Sales Register in Form VAT 17A.
Cash Memos in serial order in self-designed.
Paid Treasury Challan.
Turnover tax return in Form VAT 4.
Declaration of turnover in Form VAT 28B.
These books and documents shall be maintained for at least 4 years.
Payment of TOT: The turnover tax shall be payable monthly, quarterly or yearly, as specified
by the registered person in his application @ 4% of the turnover during the month, quarter, year
or as the case may be. In the case of annual declaration, within 30 days of declaration of turnover
and for quarterly or monthly declaration within 15 days of such declaration tax calculated @ 4%
on the turnover declared, shall have to be deposited to the treasury, Bangladesh Bank or Sonali
Bank through challan form named T. R - 6 and the return together with main copy of treasury
challan have to be submitted to the concerned circle office in Form VAT 4.
Penalty: If any tax payer enlisted under TOT fails to pay tax on due date, the superintendent of
VAT Circle Office may impose on that tax payer fine up to Tk. 5000 and additional tax @ 2%
per month for the delayed or non-payment period. If a tax payer makes false declaration for
turnover tax by understanding his turnover, he may be penalized under section 37 of the VAT
Act. 1991 to the extent of at least the tax evaded and at best 2.5 times of the tax evaded and also
required to pay unpaid tax.


Question 9: Briefly discuss about Input Tax and Input Tax Rebate
Answer: Under VAT Act. 1991 input shall mean al materials, packages, services, fuel,
machinery and spare parts thereof used in the production or supply of services and all goods
procured by the retailers or wholesalers for resale. But following shall not be treated as inputs
Labor
Lands
Buildings
Office Equipments
Transports
Concerned Insurance Services
VAT paid by a registered person while importing or purchasing inputs from another registered
person is termed as input tax except from TOT enlisted.
Conditions to Claim Input Tax Rebate: The following conditions are to be met for claiming
credit of input tax
Tax payer must have been registered for the purpose of full VAT.
Must have Bill of Entry (B/E) for imports and VAT invoices VAT 11 for local
purchases.
In the price declaration, proper analysis of breakdown of costs of concerned inputs must
be made.
Tax payer must possess the inputs for which input tax has been claimed.
Rebate must be obtained in the concerned tax period but delay is acceptable on
reasonable grounds.
Tax payer can claim credit against VAT only, not import duty, supplementary duty and
income tax at source
Input tax cannot be adjusted if
Inputs used in production of exempt goods or services.
Inputs purchased from TOT enlisted person.
Service providers paying output tax on Truncated Value Base.
Bill of Entry is incomplete.
VAT paid on materials without possession.
Packing materials with multiple uses except for the first time.
Special Treatment: The tax payer can claim 60% of the VAT paid as claim against input tax in
respect of charges for-
Telephone, fax, internet
Freight forwarders leaning and forwarding agent
WASA, Electricity
Insurance
Audit and accounting firms
Procurement providers, transport contractor
Legal advisor
Security services, L/C services
Other related taxable services
Penalty: If a tax payer makes false declaration relating to credit of input tax, may be penalized
under section 37 of the VAT Act. 1991 to the extent of at least the tax evaded and at best 2.5
times of the tax evaded and also the credit of the input tax shall be cancelled.


Question 10: How turnover tax related matters can be appealed against?
Answer: Appeal against any turnover tax related decision of the circle superintendent can be
made to the Turnover Tax Commissioner within 60 days of such decision in prescribed Form
VAT 2B. Upon receipt of appeals, based on information received and personal hearing, the
Commissioner can determine the disputed turnover and his appellate decision shall be final.


Question 11: What is price declaration? Where it is to be submitted? What information
price declaration includes?
Answer: Producers of taxable goods are required to submit information relating to their products
in accordance with VAT rule 3 in Form VAT 1. This is price declaration and shall have to be
submitted by any manufacturer or businessman to concerned custom, excise and VAT divisional
office.
Price declaration includes following information
Description of goods
Value of inputs and where applicable, duties and taxes (other than VAT) paid on the
inputs
All direct and indirect expenses of the organization
Commission, charge, fee paid
Profit
Item wise value addition
Sale price including duties and taxes


Question 12: Write short note on Supplementary Duty.
Answer: Supplementary duty is an output tax, in addition to VAT on luxuries, not essential and
not socially desirable goods and services. The rate of supplementary duty varies from 15% to
350%. Some goods and services on which supplementary duty is applicable are given below

Name Rate
Goods
Dairy Products 15%
Chocolate, Sweet Biscuits 60%
Cigarettes 250%
Alcoholic Beverages & Wine 350%
Bear from Malt 250%
Satellite Channel Distributor 25%

Services
Film Exhibitors 35%
SIM Card Suppliers 35%

According to expert opinion, in the third schedule, there are many products attracting
supplementary duty, which are no way luxurious or non-essentials in compare to our present
economic situation and consumption trend of people.

Question 13: Discuss in brief about time and mode of payment of the Value Added Tax.
Answer: According to Section 6 of the VAT Act. 1991, the provisions with regard to time and
mode of payment of the VAT are as follows
Provisions with regard to time of payment -
1. 1. Imported Goods: VAT on imported goods shall be paid at the same time and in the
same manner as import duty is paid in accordance with the provisions of Customs Act.
2. 2. Manufactured Goods: VAT will be payable upon goods manufactured or produced
for carrying out or for expansion of business or on goods imported, purchased, acquired
or produced in any manner by a registered or would be registered person at the time of
the following events whichever occurred first
When the goods are delivered or supplied.
When an invoice relating to supply of the goods is issued.
When any goods are used personally or supplied for use of any other person.
When part or full payment is received.
1. 3. Services: VAT shall be payable when a taxable service is rendered by a registered
person during the operation or expansion of his business at the time of any of the
following activities, whichever occurs first, namely
When the service is rendered.
When an invoice relating to the service is issued.
When part or full payment is received.
Provision with regard to mode of payment -
1. Supervision of Board: In spite of anything contained in this section the Board, in
accordance to the rules, can make provisions for advance payment, including fixation of
time and procedure of payment of the VAT and SD, as the case may be.
2. Supervision of Government: In spite of anything contained in this section Government
by Order published in the Government Gazette, may direct the receiver of services to
realize, deduct and deposit the tax amount to the Treasury. (Sub-section 4a)
3. 3. VAT Realization Certificate: A person who realizes or deducts VAT at source in
accordance with sub-section 4a must give a certificate in respect of such realization or
deduction to the person who renders the service. The certificate must be issued according
to a fixed procedure and that certificate should include following information
The registration number of the VAT payer.
The total cost or commission paid for the service received.
VAT imposable on the cost of the service or commission.
Amount of VAT charged or deducted.
Any other information required under the Rules.

Question 14: What is tax period? What tax period each registered person must follow?
Answer: Generally each English calendar month is a tax period. However NBR can determine
the tax period of any registered person supplying goods or services differently and the variations
are

Tax Period Tax PayersDescription
3 Months Seasonal brickfields, indenting firms and shipping agents

6 Months 100% export-oriented organizations, construction firms, C & F agents, consulting and
supervisory firms, leaseholders, procurement providers, sponsors of cultural functions in
association with foreign artist

1 Month For all other registered person

Question 15: What is meant VAT return? What documents are to be enclosed with the
return?
Answer: Every VAT registered person has to submit following information to the local VAT
office for each tax period within the 10th of the following month in Form VAT 19.
Sales and purchases
Exports, imports
Tax payable
Rebate obtained
Treasury deposit
Adjustments, balance etc.
This is known as VAT return. Main copy of current account and for some services, main copy of
treasury challan also is required to be enclosed with the return. Besides, certificate of deduction
at source and any other document required by the Commission, bill of entry, rebate, drawback,
adjustment etc have to be enclosed. Two copies of returns are to be submitted.

Question 16: Briefly discuss about Central Registration
Answer: When supply of vatable goods or services or export-import business is conducted from
more than one place but the accounts are centrally maintained, NBR can, by a special or general
order direct to register only the head office of business. It is known as central registration.
Central Registration is not a legal right of the VAT payer. The Board can issue order to
concerned VAT division to register centrally upon fulfilling specific conditions.
Benefit of Central Registration: Any centrally registered person can enjoy following privileges

The hassle of registration of each and every branch, sales or trading center can be
avoided.
Goods can be transferred from one branch/center to another without payment of VAT.
The board by general orders allowed central registration to insurance companies, land
development organization etc. But it is notable that manufacturing activities have been kept
outside of the scope of central registration. Every production or store center of a manufacturer of
taxable goods must be separately even when accounts and records are centrally kept and the
whole organization is also managed centrally.


Question 17: What is truncated value? Show calculation of VAT under truncated value.
Answer: Truncated or short value system is one where VAT at the standard 15% is charged on
the deemed or estimated value addition. Since this is based on a shortened value input tax rebate
cannot be obtained excepting on exports or deemed exports.
VAT on Certain Services on Estimated Value Addition:
1. 1. Retail Trade Services: VAT is payable by a retailer in following manner

Areas Minimum Value Addition VAT (15%) VAT Payable (Tk.)
Dhaka
Chittagong
City Corporation 28000 15 4200

Rajshah, Barisah
& Sylhet City
Corporation 24000 15 3600

Zilla Paurasabha 16000 15 2400

Other Areas of
Country 8000 15 1200

1. 2. Trade Services: All distributors, agents, wholesalers and retailers other than above
are subject to VAT on non-exempted goods @ 1.5% of sales (that is, 15% of value added
at 10%) on a monthly basis within 10 days of following month through treasury challan.
2. 3. Other Services: At present there are 35 services under the truncated system. Some of
these are given below

Taxable Services Value Addition (VA)
Motor vehicle garage and workshop,
construction contractors,
audit and accountancy firm, securities services 30% of total receipts 4.5%
Banking and non-banking services, credit cards 100% of total receipts/service charge 15%
Procurement provider, transport contractors 10% of total receipts 2.25%

VAT Calculation: Suppose, Mr. Azad bought a flat at Chittagong from Asset Development &
Holdings at accost of Tk. 50,00,000. The Deed of Agreement specifies that VAT is payable by
Mr. Azad.
Estimated value addition for building developers is 10%.
VAT chargeable and payable by Mr. Azad
= 50,00,000 X 1.5%
= 75,000 Tk.
Or
= (50,00,000 X 10% Value Addition) X 15% VAT
= 5,00,000 X 15% VAT
= 75,000 Tk.