Study Material for Week Four

Structure of VAT in Bangladesh

The VAT system in Bangladesh is governed by the VAT and Supplementary Duty Act,
2012. Key points include:

• VAT Applied at Each Stage: VAT is charged at every step of production and
distribution.

• Destination-Based Tax: Paid by the final consumer.

• Cumulative at Production Stage: businesses can claim credits for VAT already
paid.

• Businesses as Collectors: Businesses collect VAT from consumers and remit it to

the NBR.

VAT Registration Process in Bangladesh

Businesses must register for VAT if they meet the prescribed turnover thresholds:

• Mandatory Registration: Businesses with an annual turnover exceeding BDT 50

lakhs.

• Voluntary Registration: for smaller businesses to reclaim VAT.

• Steps for Registration

• Apply online or at the VAT office.

• Submit documents (Trade License, TIN, business address, financial info).

• Get VAT Registration Certificate after approval.

VAT Rates in Bangladesh

VAT is applied at different rates depending on the type of goods or services:

 Standard Rate: 15% for most goods/services.

 Reduced Rate: 7.5% for items like medicines, public transport.

  Zero Rate: 0% for basics like rice, wheat, pulses.

 Exemptions: Services like education, healthcare, and exports.

VAT Exemptions
VAT exemptions are provided for certain goods and services to make them more
affordable:

 Basic Foods Items: Rice, wheat, pulses – no VAT.

 Medical Services: Healthcare services and medicines are exempt.

 Educational Services: Tuition and related services – VAT-free.

 Exports Goods: Goods and services for export are VAT-exempt.

Sales Tax and VAT in Bangladesh

Sales Tax and VAT are related but distinct in Bangladesh:

• Sales Tax: Old system, only on final sale of goods. Now mostly replaced.

• VAT: Applied at every stage of production or distribution, allowing

businesses to reclaim VAT paid on inputs.

The current system primarily uses VAT for taxation

VAT Refund Process

If input VAT (on purchases) is more than output VAT (on sales).

Steps for VAT Refund:

• 1. VAT Credit: input VAT against output VAT.

• 2. Refund Application: Submit refund request with invoices and VAT receipts to
NBR.

• 3. Review: NBR checks documents.

 • 4. Approval and Payment: Approved amount is given as cash or future VAT
credit.

Role of VAT in the Economy

• VAT plays a key role in Bangladesh's economy, contributing to national revenue and
economic growth:

• Broadening the Tax Base: VAT applies to most goods and services, helping
ensure government revenue.

• Increasing Transparency: The multi-stage collection process makes it harder to

evade taxes.

• Encouraging Exports: Exempting exports from VAT helps promote international

trade.

• Promoting Investment: Businesses can reclaim VAT on input goods, reducing

production costs.

VAT Compliance and Enforcement

The NBR ensures VAT compliance through various measures

• Regular Filing: Businesses must file VAT returns monthly or quarterly.

• VAT Invoices: Businesses must issue VAT-compliant invoices to customers.

• Record Keeping: Businesses must keep VAT records for at least 5 years.

• Penalties for Non-Compliance: Fines or legal actions for late filing, unpaid VAT,
or incorrect records.

• Audits and Inspections: The NBR conducts audits to verify compliance and
prevent evasion.
 Study Material for Week Three

1. Corporate Tax Obligations in Bangladesh

Companies in Bangladesh must pay tax on their profits as per the Income Tax Ordinance, 1984.
The National Board of Revenue (NBR) oversees tax filing, payment, and compliance.

Corporate tax obligations include:

 Tax Return Filing: All companies must file annual tax returns with financial reports.

 Tax Payment: Companies pay tax on profits, including advance payments during the
year.

 TIN Required: Every company needs a Tax Identification Number (TIN).

 Keeping Financial Record: Must keep financial records for 5 years.

 Audits: NBR may audit companies to check for proper tax compliance.

2. Corporate Tax Rates

Corporate tax rates in Bangladesh are set by the Income Tax Ordinance, 1984 and updated each
year through the Finance Act. Rates vary based on the type and nature of the business.

Corporate Tax Rates for the Financial Year 2025-2026:

 Publicly Listed Companies: 25%

 Non-Listed Companies: 32.5%
 Banks and Financial Institutions: 37.5%
 Mobile Phone Operators: 40%
 Insurance Companies: 30%
 Export-Oriented Industries: 12% (including industries involved in the export of goods
and services)
 Information Technology (IT) Companies: 10% (special tax rate for IT-related businesses)
 SEZ (Special Economic Zones): 10% to 12% (with incentives)
Corporate Tax Rate Breakdown

1. Publicly Listed Companies: 25% — For companies listed on the stock exchange.

2. Non-Listed Companies: 32.5% — Slightly higher rate for private firms.

3. Banks & Financial Institutions: 37.5% — Includes banks, insurance, and NBFIs.

4. Export-Oriented Industries: 12% — Encourages exports and foreign earnings.

5. Mobile Operators & Telecoms: 40% — Highest rate due to large economic impact.

6. IT Companies: 10% — Special rate to support the growing tech sector.

Tax Rates for Other Entities

 Cooperative Societies: 30% of income

 Foreign Companies: 30% flat rate on income earned in Bangladesh

Corporate Tax Filing in Bangladesh

The filing and payment of corporate taxes in Bangladesh involve several key steps, which are
important for ensuring compliance.

Tax Filing:

 Tax Return Filing Deadline: Tax returns must be filed by September 30 for companies
with a fiscal year ending June 30. Other companies may have different deadlines.
 Required Documents:

o Audited financial statements (income statement & balance sheet)

o Tax calculation sheet

o Tax challan showing advance tax payments

o Any other documents requested by NBR (like tax credits or exemptions)

Tax Payment
  Advance Tax Payments: Companies pay estimated taxes in quarterly installments
throughout the year.

 Final Tax Settlement: After filing the tax return, the final tax is calculated. Companies
pay any remaining tax due or get a refund if they overpaid.

Tax Payment Process

1. TIN Registration: Every company registers with NBR to get a Taxpayer Identification
Number (TIN).

2. Advance Tax Payment: Companies pay estimated tax at the end of each quarter.

3. Filing Tax Returns: After the fiscal year ends, companies file a tax return showing
income, expenses, and tax owed.

4. Assessment & Final Payment: NBR may audit the return, then final tax is calculated and
any balance must be paid.

4. Corporate Tax Compliance and Reporting

 Tax Return Filing: Companies must file accurate tax returns on time to avoid penalties.

 Proper Documentation: Keep all financial documents, tax payments, invoices, and
receipts for audits.

 Tax Audits: NBR can audit returns; discrepancies may lead to penalties or extra taxes.

 Annual Compliance: Submit audited financial reports and follow corporate governance
rules.

Key Compliance Obligations:

 Accurate income reporting

 Submission of financial statements
 Payment of advance tax
 Maintaining records for tax audits
 Following transfer pricing regulations for multinational companies
5. Special Tax Incentives for Industries

Bangladesh provides tax incentives to encourage investment, boost exports, and support
industrial growth. These benefits help certain industries become more competitive and
promote long-term economic development.

Special Tax Incentives for Certain Industries

1. Export-Oriented Industries:

o Reduced tax rate (about 12%) to promote exports

o VAT exemption on exported goods

2. Information Technology (IT) Sector:

o 10% tax rate to support digital economy growth

3. Special Economic Zones (SEZs):

o Lower tax rates (10–12%) and exemptions on customs duties and VAT

4. Green and Sustainable Industries:

o Tax holidays up to 5 years for eco-friendly products and renewable energy

5. Industries with Investment Promotion:

o Tax exemptions or rebates for sectors like textiles, garments, and jute, especially
if investing in R&D or expansion

6. Agriculture and Agribusiness:

o Tax incentives for companies in farming, food processing, fertilizers, and related
areas to encourage investment

Example of Tax Incentive:

A company exporting garments enjoys a reduced corporate tax rate of 12%. This helps boost
Bangladesh’s important textile and apparel industry, which is a major source of export earnings.