Bangladesh

Value-added tax (VAT)

VAT is an indirect tax, which is a transaction-based taxation regime enacted in 2019 under the VAT and Supplementary Duty Act, 2012 (the VAT Act) replacing the older VAT Act, 1991. The VAT regime in Bangladesh is governed by the Board under the Ministry of Finance.

The standard VAT rate in Bangladesh is 15% for the majority of goods and services. However, some specific goods and services have reduced VAT rates at 5%, 7.5%, and 10%.

Specified goods mentioned in the Second Schedule of the VAT Act manufactured in Bangladesh and specified services are subject to Supplementary Duty (SD), ranging from 5% to 65.5%. While VAT is payable at each stage of supply, SD is payable only at the first stage of supply.

Goods and services notified under the First Schedule of the VAT Act are exempted from the payment of VAT. Moreover, goods and services notified by the government are also exempted from the payment of VAT at different stages of supply.  

While VAT and SD are payable on the value of supply in respect of most goods, both of these are payable on the maximum retail price (MRP) in respect of specified products, such as tobacco and goods containing alcohol. Such VAT and SD are payable only by the manufacturer at the first stage of supply.

Registration

VAT registration is to be obtained once turnover exceeds BDT 30 million. Mandatory VAT registration is to be obtained in respect of supply of specified goods and services irrespective of the turnover limit. Mandatory VAT registration is also to be obtained by a supplier engaged in the import or export of goods, supply against tender, as well as by the branch or liaison office of a foreign company. However, a supplier may apply and obtain registration suo-motu even if the turnover does not exceed the threshold limit.

VAT registration is to be obtained online through the Board portal upon furnishing the requisite information and documents. No government fee is payable for obtaining VAT registration. Generally, such registration is granted within a period of one to two weeks.

Turnover tax

Suppliers of goods and services with turnover ranging from BDT 5 million to BDT 30 million are liable to pay turnover tax at 4% on their turnover and are required to obtain registration in the form of an ‘Enlistment Certificate’.

Import of goods and services

Import of goods is subject to payment of import duties, which includes 15% VAT, unless exempted through an official notification. This is payable by the importer on record at the time of import and collected by the Customs authority.

Import of services is subject to payment of VAT at 15% under the reverse-charge mechanism by the recipient or importer of service.

Zero-rated supplies and export of goods and services

Export of goods and services is zero-rated; consequently, VAT is not payable.

The following supply of goods and services is also zero-rated:

• Goods supplied outside Bangladesh that are meant for import and consumption within Bangladesh.
• Goods supplied by a local supplier against ‘warranty provided by a non-resident supplier’ under an agreement with such non-resident supplier.
• Goods and services supplied to foreign-going vessels or aircraft meant for repair and maintenance.
• Services provided on goods physically located outside Bangladesh.
• Services provided by a local supplier against ‘warranty provided by a non-resident supplier’ under an agreement with such non-resident supplier.
• Insurance service provided in relation with international transportation of goods.

Input tax credit (ITC)

ITC is eligible in respect of procurement of goods or services provided the output supply is made by the supplier at the standard rate of 15%. ITC is also eligible in respect of zero-rated supply of goods and services. The supplier engaged in the supply of exempted goods and services would not be eligible for ITC.

Suppliers engaged in taxable as well as exempted supply would be eligible to avail proportionate ITC in respect of inputs used for the supply of taxable supplies.

The following major restrictions and conditions are applicable to claim ITC:

• Output supply cannot be made at a price lower than the cost price.
• The inputs are to be used for the manufacture of taxable goods or provision of taxable services.
• Payment to be made through banking channel for supply beyond BDT 100,000.
• In respect of import of service on which 15% VAT is payable under reverse-charge, VAT liability on import of service to be disclosed as output VAT in the return.
• Credit is to be claimed in the month of receipt or within the next four months.
• The procurement must be recorded in the statutory purchase register.
• The tax invoice in Form Mushak 6.3 must be received, and it must contain the name, address, and Business Identification Number (BIN) of both the buyer and seller.

The following procurement of goods and services is not eligible for ITC:

• Supply or import related to passenger vehicle and maintenance thereof.
• Supply or import of goods or services used for the purpose of entertainment.
• Admission or membership fee of any club or association.
• Supply of transportation service exceeding 80% of such cost.
• Labour, land, buildings, office equipment, furniture and fixture, office supply, stationery, refrigerators, freezers, air conditioners, generators, and their maintenance.
• Interior design, architecture, planning, and design.
• Vehicle purchase, rent, or lease.
• Goods or services used for the travel, entertainment, development, and welfare of employees.
• Rent of places and establishments.

VAT deduction at source (VDS)

A VAT withholding entity is required to withhold VAT at the time of making payment to vendors. The following entities are considered as VAT withholding entities:

• Government entities.
• Non-governmental organisations (NGOs) approved by the NGO Affairs Bureau or the Directorate General of Social Welfare.
• Banks, insurance companies, or similar financial institutions.
• Secondary or post-secondary educational institutions.
• Limited companies.
• Entities exceeding turnover of BDT 100 million.

VDS is required on procurement of the following services:

However, VDS is not required in respect of procurement of the following services:

• Payment of fuel, gas, Water and Sanitization Authority (WASA), electricity, telephone, and mobile phone bills.
• Suppliers of furniture and advertisement services provided valid Mushak 6.3 duly attested by the concerned Revenue Officer is available.
• Procurement of goods or services against receipt of invoice issued from electronic fiscal devices or sales data controller, provided the name and BIN of the buyer is mentioned in the invoice.

VDS rate in respect of procurement of goods

If any supplier (other than a manufacturer) supplies goods charging VAT at 7.5%, then such supply would be considered as a supply made by a ‘procurement provider’. Accordingly, VAT is required to be withheld from payment made to such procurement provider. In addition, goods supplied by a ‘trader’, charging VAT at 5% to the VAT withholding entity, would also be considered as supply made by a ‘procurement provider’; in such cases, even if the supplier charges VAT at 5%, VDS at 7.5% is to be withheld considering the supplier as a ‘procurement provider’.

VDS will not be required in respect of the following cases of procurement of goods:

• Procurement of goods from a manufacturer, provided the tax invoice is issued in Mushak 6.3.
• Procurement of goods where the supplier (other than the manufacturer) issues a tax invoice in Mushak 6.3 charging VAT at 15%, provided the supplier produces certificates evidencing regular submission of VAT return or tax honour cards.

VAT compliance in respect of VDS

• Deducted VDS is required to be deposited in the government treasury within seven days from the end of the month.
• Upon deposit of the VDS amount in the treasury, the withholding entity is required to issue a VDS certificate in Mushak 6.6 in favour of the supplier within three working days from the date of deposit.

VAT compliance

Filing of VAT return

A VAT-registered person is required to file a monthly VAT return in Form Mushak 9.1 within the 15th day of the succeeding month. In case the 15th day is a holiday, the VAT return can be filed on the next working day. Presently, VAT returns can be filed both manually (physically at the VAT office) and online through a designated Board portal. Other than the monthly VAT return, no other VAT return is required to be filed by a registered person.

A person dealing with goods and services covered under the First Schedule of the VAT Act is neither required to obtain VAT registration nor required to follow any VAT compliances. However, a person dealing with goods and services that are exempted under the notification must obtain VAT registration and adhere to all other VAT compliances.

Payment of output VAT

A VAT-registered person is required to deposit output VAT within the 15th day of the succeeding month. Evidence of such payment is to be submitted along with the VAT return.

Filing of declaration in respect of purchase or sales exceeding BDT 200,000 

A VAT-registered person is required to file a declaration in Mushak 6.10 containing details of purchases and sales exceeding BDT 200,000. Such declaration is to be filed on or before filing the monthly VAT return.

Filing of audited financial statements

A VAT-registered person is required to file audited financial statements before the VAT Commissionerate within six months from the end of the financial year. Such period may be extended for another six months by the Commissioner against the application filed by the VAT-registered person.

Filing of input output co-efficient

A VAT-registered manufacturer of goods is required to file an input output co-efficient statement in Mushak 4.3 before the supply of goods. This statement contains details of the cost of raw materials and overheads required for the manufacture of each unit of goods.

Statutory registers to be maintained

A VAT-registered person is required to maintain the following records in the statutory format prescribed by the law:

• Purchase book (Mushak 6.1).
• Sales book (Mushak 6.2).
• Sales invoice (Mushak 6.3) (to be issued at the time of supply and to accompany during the transportation of goods).
• Invoice for contractual manufacturing (Mushak 6.4).
• Invoice for transfer of goods (Mushak 6.5).
• Certificate for VDS (Mushak 6.6).
• Credit note (Mushak 6.7).
• Debit note (Mushak 6.8).

Such records are to be maintained at the registered premises and preserved for a period of five years from the end of the tax period (month).

Use of VAT software

Every registered or to be registered person whose sales turnover exceeds BDT 50 million in the previous financial year is mandatorily required to use Board-approved software. Otherwise, the software used by the registered person has to be approved by the Board for maintenance of statutory registers as well as preparation of the monthly VAT return.

Such software is required to be integrated with ERP or software maintained by the registered person for its own maintenance of books of accounts.

If any registered person fails to comply with the provisions, it will be penalised with a minimum of BDT 10,000 and maximum of BDT 100,000. 

VAT audit or assessment

The following VAT authorities operating under the Board are empowered to conduct VAT audit of a registered person:

• Jurisdictional Customs, Excise, and VAT Commissionerate.
• Central Intelligence Cell.
• Directorate of Audit, Intelligence, and Investigation.

It may be noted that anyone of the aforesaid authorities is empowered to conduct the audit for a particular period. Therefore, the audit is not allowed to be conducted by more than one authority for the same period.

The audit could be initiated within five years from the end of the tax period (month) in respect of all VAT-registered persons except the person registered as a 100% export oriented unit (EOU) where the audit could be initiated within three years from the end of the tax period.

Penalty and interest

Interest is payable at 1% per month for delay in deposit of output VAT within the due date and at 2% every six months for delay in deposit of VDS within the due date. Such interest is payable for a maximum period of 24 months from the due date of payment.

Penalty is payable against any offence established by the authority. Various penalty amounts are stipulated in the VAT Act for specific offences.

Refund

Excess ITC reported in the VAT return is allowed to be carried forward to the next month’s VAT return. There is no time limit to carry forward such excess ITC. A registered person is eligible to claim refund of excess ITC reported in the VAT return after six months of such VAT return. However, a 100% EOU is eligible to claim refund of any excess ITC immediately without carrying it forward to the next return period.

Diplomatic missions and international organisations are eligible to obtain refund of VAT payable on local procurement of goods and services that are covered under the international convention applicable in Bangladesh.

Sale of going concern

Sale of business as a going concern is not considered as a ‘supply’ in Bangladesh; consequently, VAT is not applicable on such sale of business as a going concern. Moreover, a business division that is capable of operating independently after sale is also considered as sale of a going concern on which VAT is not payable.

VAT liability of non-resident service providers

A non-resident service provider supplying ‘electronic services’ to VAT-unregistered customers in Bangladesh is liable to obtain VAT registration by appointing a VAT agent and is liable to discharge VAT in Bangladesh. Such non-resident service providers are neither required to establish their presence nor required to open a bank account in Bangladesh.

Such non-resident service providers are required to deposit VAT and are also required to file monthly VAT returns in Mushak 9.1 within the 15th day of the subsequent month.

VAT exemption on specified supplies and procurement of goods and services

Output VAT at a specified rate on local manufacture and supply as well as VAT and Advance Tax (AT) payable on import and local procurement of raw materials or inputs required for the manufacture of the following products are exempted:

• AC.
• Refrigerator or freezer.
• Motorcycle.
• Active pharmaceutical ingredients.
• Polystyrene staple fibre.
• Mobile phone.
• LPG cylinder.
• Washing machine, microwave oven, electric oven, blender, juicer, mixer, grinder, electric kettle.
• Computer and parts of computer.
• Motor car and motor vehicle.

The following local supply of goods and services supplied to entities located in Economic Zones are exempted from VAT payment:

• Natural gas.
• WASA (municipal services).
• Procurement provider.
• Electricity distribution.

The following local supply of goods and services supplied to entities located in High-Tech Parks are exempted from VAT payment:

• Procurement provider.
• Electricity distribution.

Development surcharge

Surcharge is levied under the Development Surcharge and Levy (Imposition and Collection) Act, 2015 as follows:

• 1% development surcharge is payable on services provided by mobile phone operators by facilitating the use of subscriber identity module (SIM) and removable user identity module (RIM) cards.
• 1% health development surcharge is payable on import and local manufacture of tobacco products.
• 1% environment protection surcharge is payable by identified business entities contributing to environmental pollution.
• 1% information and communication technology surcharge is payable on import and local manufacture of cellular mobile phones.

Import duties and tariffs

Import of goods is generally governed under the Customs Act, 2023 read with various rules and regulations. In respect of import of goods, the importer on record (IoR) is liable to discharge the applicable import duties on such goods. The actual duty rates depend on the Harmonised System (HS) code of imported goods in accordance with the First Schedule of the Customs Tariff Schedule and corresponding exemption notification (if any) issued by the Board.

The components of import duties in Bangladesh include the following:

• Customs Duty (CD): Imposed under the First Schedule of the Customs Act, 2023.
• SD: Imposed under the VAT Act.
• VAT: Imposed under the VAT Act.
• Advance Income Tax (AIT): Imposed under the Act.
• AT: Imposed under the VAT Act.
• Regulatory Duty (RD): Imposed under the Customs Act, 2023.

The afore-mentioned duties are collectively called Total Tax Incidence (TTI).

A TTI calculation template is depicted below:

Importer of record (IoR) eligibility

To be an IoR in Bangladesh, the importer must be a resident entity and possess or comply with the following:

• The importer must have a renewed Import Registration Certificate (IRC) issued by the Chief Controller of Import and Export. To obtain an industrial IRC, the IOR needs to obtain industrial undertaking registration from the Bangladesh Investment Development Authority (BIDA).
• The importer must have a 13-digit VAT registration certificate.
• The importer must obtain a Letter of Credit (LC) from a designated bank in Bangladesh issued in favour of the exporter.
• The invoice issued by the exporter shall be in the name of the IoR.

Elements of duty eligible for credit or set off

• CD, SD, and RD payable at the time of import will not be available as credit and become a cost to the importer.
• VAT and AT payable at import stage are available as ITC or decreasing adjustment and can be adjusted against the output VAT payable.
• AIT can be adjusted against the CIT payable for the financial period.

Therefore VAT, AT, and AIT will not become a cost in the hands of the importer.

Valuation of imported goods

Customs Valuation (Valuation of Imported Goods) Rules 2000 (Valuation Rules), as notified vide SRO No. 57-AIN/2000/1821/Customs dated 23 February 2000, provide detailed guidelines for the valuation of imported goods.

According to the Valuation Rules, ‘transaction value’ is the basis for determining the assessable value of imported goods where the following costs are required to be considered for determining the transaction value:

• Commission and brokerage other than buying commission.
• Cost of packaging and packing material expenses.
• Royalty and license fee.
• Any indirect payment made by the importer in relation to the sale of imported goods.

Where the transaction value is not ascertainable, the following valuation process is to be followed chronologically:

• Transaction value of identical goods.
• Transaction value of similar goods.
• Deductive value.
• Computed value.
• Other method.

In respect of import from ‘related’ entities, the transaction value is accepted in the following circumstances:

• Where, from the circumstantial evidence, it is established that the price is not influenced by the relation of the two entities.
• The importer is able to establish that, during the relevant period, the declared value (transaction value) of the imported goods is equivalent to the value of the following upon consideration of other costs and services:
  • Price charged to an unrelated Bangladeshi customer that is equivalent to the price of identical or similar goods.
  • Deductive value of identical or similar goods.
  • Computed value of identical or similar goods.

Therefore, in respect of import from related entities, where the Customs authority does not agree to accept the transaction value, the other valuation methods mentioned above must be followed chronologically.

Authorised Economic Operator (AEO)

Authorised Economic Operator (Recognition and Operation) Rules, 2024 have been introduced, vide SRO No.217-AIN/2024/67/Customs dated 4 June 2024, replacing AEO (Recognition) Rules, 2018.

Salient conditions or eligibility to be an AEO are as follows:

• Logistic operators having experience of handling an average minimum of 500 import or export consignments in the preceding three years are now specifically eligible to be an AEO upon fulfilling the desired conditions.
• Authorised capital and paid-up capital of the applicant (other than logistic operators) increased from BDT 150 million and BDT 50 million to BDT 300 million and BDT 100 million, respectively.
• Applicants other than manufacturers must have a minimum import or export turnover valued at BDT 100 million in the preceding three years.
• Applicants need to maintain Board-approved software.

Salient benefits of AEOs:

• Release of consignment pending chemical examination of imported goods upon provisional assessment.
• Fast-track assessment, physical inspection, and 24/7 release of consignment upon furnishing basic documents.
• A minimum 20% of the consignment would be auto released through the green lane based on importers’ or exporters’ declaration.
• AEOs are allowed to clear their consignments within 14 days of a deferred payment of import duties against furnishing a bank guarantee.

Bonded warehouse

Under the prevailing Customs Act 2023, the following entities are allowed to import goods without payment of import duties upon obtaining a bond licence:

• 100% EOU.
• 100% deemed EOU.
• Diplomatic, duty free, and duty paid entity.

The aforesaid bond licence is granted initially for a period of three years, which is required to be renewed subsequently for a further period of three years. The bond license fee of BDT 1 million is payable at the time of granting licence; subsequently, BDT 30,000 is payable for renewal of such licence.

Upon obtaining the bond licence, the licence holder is required to execute a ‘general bond’ valued from BDT 10 million to BDT 30 million, depending on the nature of business activities.

Advance ruling

The Customs Act, 2023 provides the option of seeking advance rulings relating to the classification of goods proposed to be imported and country of origin. Application fee of BDT 2,000 is to be deposited along with the application for advance ruling, and such application is required to be filed at least 60 days prior to the import or filing of Bill of Entry.

Excise duty

Excise duty is imposed under the Excise and Salt Act, 1944 in respect of the following two services:

• Services rendered by a bank or financial institute.
• Services rendered by airlines.

The following are the present rates of excise duty applicable on the aforesaid services.

Services rendered by a bank or financial institute

Excise duty is applicable as per the following rates based on the account balance (positive or negative) maintained with the bank or financial institute:

Services rendered by airlines

Excise duty is payable as per the following rates in respect of airline services provided by the airline operator:

Property taxes

Property tax is levied by the governing authority of the jurisdiction in which the property is located. The rate of tax levied varies from city to city in Bangladesh and is generally related to the prevailing market prices for property in each locality.

Transfer taxes

Transfer tax for the transfer of any land or building or apartment by the transferor engaged in the real estate or land development business varies depending on the location of the land, building, or apartment; size of the apartment; and purpose of the building or apartment, and will be payable for registering under the Registration Act, 1908.

Stamp duty

Stamp duty is a tax charged on certain documents (known as ‘instruments’) as mentioned in Schedule 1 to the Stamp Act 1899. The stamp duty rates for various instruments are mentioned in the First Schedule of the Finance Act 2022.

Environmental taxes

According to the VAT Act, 1% environment protection surcharge is payable by identified business entities contributing to the pollution of the environment (see above). The time and process of collection of the surcharge is governed under the prevailing VAT laws.

Travel tax

The Travel Tax Act, 2003 imposes a tax on passengers for travel within Bangladesh or from Bangladesh by air, land, or sea. The tax is collected by the person or organisation responsible for issuing the ticket or boarding pass and deposited to the government treasury within the prescribed time.

The tax rate varies depending on the destination, mode of transport, and age.

Capital gains taxes

Capital gains are defined as the profits and gains that arise from the transfer of ownership of capital assets. Transfer includes sale, exchange, or relinquishment or extinguishment of any title to the asset, but does not include the following, namely:

• If the transfer of the capital asset is made by way of gift, under will, bequest, or an irrevocable trust.
• If the assets of the company are distributed in any way to the shareholders on the winding up of the company.
• At the time of dissolution of the firm or other private associations, or if any capital asset is distributed on the partition of an HUF.

Notional gains or profits, which are calculated based on the fair market value (FMV) method as per International Accounting Standards or International Financial Reporting Standards (IFRS) without an actual transfer of the asset, are excluded from being treated as capital gains.

For corporate taxpayers, there is no concept of short-term capital asset or long-term capital asset or indexation of cost in Bangladesh.

The computation mechanism of capital gains is shown below in a tabular form:

In case the fair value of any asset is more than 15% or 25% of the declared value by the taxpayer, the Deputy Commissioner of Taxes (DCT) may determine the FMV or offer to purchase the asset.

Capital gains from the transfer of all assets of a partnership firm to a new company incorporated under the Companies Act, 1994 are exempt from tax if the transfer consideration is invested in the equity of the new company.

Capital gains are taxed at 15%.

Where the capital gains arise in favour of a non-resident person from the transfer of shares in a company, the person, as the case may be, the authority responsible for the transfer of shares, shall not effectuate the transfer unless the tax applicable on such capital gains has been paid.

Social security contributions

Social security is not mandatory in Bangladesh.

Social security in Bangladesh is broadly governed by the Bangladesh Labor Act 2006, namely, in the form of employees’ provident fund and gratuity.

An establishment in the private sector is required to constitute a provident fund for the benefit of its workers if at least three-fourths of the total number of workers employed therein so demand to the employer by an application in writing. Employees (including foreign nationals) are liable to contribute towards the provident fund at the rate of 7%-8% of their salary. The employer is required to make a matching contribution and deposit both the employer’s and employee’s contributions in the provident fund of the employee every month.

Gratuity is payable to workers on the termination of employment in addition to any compensation or wages or allowance payable on termination of employment.

Additionally, certain companies are required to contribute to the Workers’ Profit Participation Fund (WPPF).

There are specific provisions for getting recognition for the provident fund and approval of gratuity funds under the Act.

Provincial / local taxes other than income taxes

There are no provincial or local taxes in Bangladesh at present.