Corporate Tax

What are the major changes proposed by the Finance Bill 2020 for VAT and SD?

June 19, 2020
VAT and SD Changes 2020

Are you looking for major changes proposed by Finance Bill 2020 for Value Added Tax (VAT) and Supplementary Duty (SD)?

Read also…

Major VAT Changes FY 2021-22

Today, in this article, I will discuss topics wise VAT and SD major changes step by step in a short brief so that you could go through easily. We have also an online tax course “Changes of Finance Act 2020” where we have discussed all the changes using example.

In my last article, I have published the salient features of Finance Bill 2020 all about income tax. In that article, all the important issues for corporate taxpayer and individual taxpayer are included.

Each year, after passing Finance Act, I publish TDS rates, VAT rates, SD rates and VAT exempted goods and services 2020-21 in this blog. You may also download PDF copy of the above resources by visiting the respective post.

Advance Tax (AT)

You may know that at import stage, Advance Tax (AT) has to pay at 5% irrespective of registered or not registered. The registered person has the option to adjust the amount paid during the import as adjustment but in other cases shall apply for refund.

A short video about VAT and SD major changes by Finance Bill 2020 has been prepared which is shared below for you.

The businessman has raised their concern about the high rate at import stage and hence the rate has been proposed to reduce by 1% only for the manufacturing industries.

Advance tax has been reduced on imported raw materials for manufacturing industries from existing 5% to 4% but 5% remain unchanged for other cases.

Input Tax Credit

The VAT registered person who pay VAT at 15% on input is eligible to get the credit from output VAT. And the input VAT is adjustable during the filing of VAT return. When the Value Added Tax (VAT) and Supplementary Duty (SD) Act 2012 was introduced last year, then the adjustment was permissible for the two periods means two months.

Now, the time limit for the input tax credit has been proposed to extend upto 4 tax periods from existing 2 tax periods and hope it will give the benefit to the businesses. And another facility is that input tax credit facility has been extended, 80% of the expenditure incurred on transportation services will be considered as input credit.

Withholding VAT

New provision has been proposed to avoid multiple withholding of VAT from the bill of sub-contractors who are engaged in various development projects as service providers.

A new SRO 149 has been issued on 11 June 2020 which will be applicable from the first day of upcoming financial year 2020-21. The existing SRO 187 will be deleted from the same day.

As per new SRO 149, the withholding areas will be changed which includes certain services. In the exiting SRO 187, only the withholding is applicable for rent which rate is 15%. But according to SRO 149, several areas of services have been specified where the VAT shall be deducted at source and deposited to the government treasury accordingly as prescribed time.

VAT Filing

When the lockdown started on 26 March 2020, the main concern by the accounts and finance people was tax filing on due time to avoid non-compliance, penalty etc. People were uncertain about what to do for tax filing and in the meantime the VAT wings of NBR decided to remain open field offices to collect the VAT return before 15 April 2020.

In that lockdown situation, people were scared to go outside but to avoid non-compliance they have try to submit the VAT return. Some are submitted through online and some are submitted physically. After about two months of lockdown, a government order come out by amendment of VAT act.

And relevant amendment of the law has been proposed to authorise the NBR to extend time limit for tax filing to avoid fine and interest during the period of epidemic, pandemic or natural calamities,

Another new provision has been proposed to consider the next working day as the deadline for the VAT return submission if the 15th day becomes a public holiday;

VAT Exemption under First Schedule

The government of each country has the main target to encourage the domestic product by providing tax benefits in various ways. Exemption is one of them. And in the Finance Bill 2020, government has proposed the exemptions for the following goods and services:

  • VAT exemption has been provided on locally produced mustard oil
  • Exemptions has been proposed on agricultural machineries such as Power Ripper, Power Tiller operated Seeder, Combined Harvester, Rotary Tiller, etc. at the trading stage;
  • VAT exemption on upto 60 AMP solar battery production for partner organisations of Infrastructure Development Company Ltd (IDCOL);
  • VAT exempted on Test kits of Covid-19 on the import, manufacturing and trading stages. Alongside, exemption has also been proposed at the manufacturing and trading stages for locally manufactured Personal Protective Equipment (PPE) and Surgical Mask (including face mask) to protect health workers.
  • VAT exempted on COVID-19 medicines at the import, manufacturing and trading stages
  • Exemption proposed on meditation service for one more year to keep mental health sound during the pandemic.

Besides the first schedule, a new SRO 144 has been issued on 11 June 2020, where a long list has published which are exempted from VAT at various stages. Each year, I publish exempted goods and services in this blog and this year I will also publish the full list after passing the Finance Act 2020.

Reduced VAT Rates under Third Schedule

The new VAT and SD act 2012 has introduces four VAT rates i.e. standard rate which is 15%, 10%, 7.5% and 5%. The reduced rates or specified amount except 15% are provided under the third schedule of VAT and SD Act 2012.

In few cases the rates have been increased and on the other hand rates have been decreased. To know about all the rates changes by the Finance Bill 2020, please see the annexure 01 and 02 below this article.

To get full third schedule, please click here.

Supplementary Duty (SD)

The rates of Supplementary Duty (SD) has been provided in the second schedule of the VAT and SD Act 2012.

The Finance Bill 2020 has proposed to change the rates in several areas which are presented in the annexure 03, 04 and o5 below of this article.

To get full third schedule, please click here.

Please note that the VAT and SD major changes proposed by the Finance Bill 2020 are accumulated here, mainly the major areas are covered in a summary basis. So, do not reach any decision based on solely depends on this article without professional advice.

Annexure 01: VAT Imposable Goods

Heading No.H. S. CodeDescription of GoodsVAT Rate %
11.051105.20.00Potato flecks5%
11.081108.12.00Maize (Corn) Starch5%
54.02 to 54.10 and  55.12 to 55.16Concerned H.S. CodeAll types of fabrics made by man-made fiber, except under mentioned cases/ areas, namely; 1) reap of fibre and waste piece (not more than 1 metre long) 2) fabrics made by man-made fiber which except waving or sowing factory but manufactured by other factory 3) free supplied fabrics as sample to BSTI (below three metres) 4) Taps and Braids5%
85.17 85.29 85.38Concerned H.S. codeLoader PCB5%
85.348534.00.00Printed Circuit Board5%

Annexure 02: VAT Imposable Service

Heading No.H. S. CodeDescription of GoodsVAT Rate %
S001S001.20Non-Ac Restaurant7.5%
S024S024.20Furniture selling show room7.5%
S036S036.20Air-conditioned launch10%
52.05 to 52.07All H.S. CodeCottonTaka 3/per KG
54.02 to 54.10 & 55.12 to 55.16All H.S. CodeYarn made from combination of man-made fibre and other fibre which contains the majority of man-made fibreTaka 6/per kg

Annexure 03: Goods subject to Supplementary Duty at import stage

Heading No.H.S. CodeDescription of goodsSD Rate (%)
02.070207.13.10Fresh or chilled Cuts and offal of fowls Wrapped/canned up to 2.5kg20
 0207.13.90Fresh or Chilled Cuts and offal of fowls in bulk20
 0207.14.10Frozen Cuts and offal of fowls in Wrapped/canned up to 2.5 KG20
 0207.14.90Frozen Cuts and offal of fowls in bulk20
 3808.91.22Charcoal frame of mosquito coil20
From 44.10 to 44.12All H.S. codes (other than 4411.12.00, 4411.13.00, And 4411.14.00Particle board, oriented strand board (OSB) and similar board, fibreboard, hard board, plywood, veneered panels and similar laminated goods.10
61.16ALL H.S CodesGloves, mittens and mites, knitted or crocheted45
68.096809.11.00 6809.19.00Plaster Boards and sheets10
73.177317.00.00Nails, Tracks, Drawing Pins of iron/steel20
73.187318.14.90Other self-tapping screws20
 7318.16.00Threaded nuts of iron/steel20
85.098509.40.00Blender, mixer and grinder20
 9401.80.00Other seats45

Annexure 04: Goods subject to supplementary duty at supply stage

Heading NoH.S CodeDescription of goodsSD Rate (%)
24.022402.20.00Cigarettes containing tobacco65
 2402.90.00(a) Hand-made Bidi (Without filter or containing filter) other than machine made and other40
24.0324.03.99.00Jorda (retail price per 10gm Taka 40.00 i.e per gm taka 4.00)50 (retail price per 10gm Taka 20i.e. per gm taka 2) 
33.04Beauty or makeup preparations and preparations for the care of the skin (other than medicaments), including sunscreen or sun tan preparations including hand, nail or leg, makeup preparation)
 3304.99.00Other (other than petroleum jelly and baby lotion)10
69.10All H.S CodesCeramic sink, basins, basin pedestals, Commode or it’s part, other fittings and fixtures of any pans and bathroom.10
 All H.S CodesCeramics bathtub and jacuzzi, shower, shower tray30

Annexure 05: Supplementary duty imposable services at supply stage

Heading NoService codeServicesSD Rate (%)
S012S012.10Telephone: Service provided by using SIM/RIM card of mobile phone only15
S044S044.00Service by BTRA: Giving services (except passenger bus, cargo truck, lorry, three-wheeler, ambulance, school bus) by Bangladesh Road Transport authority related to registration, rout permit, fitness certificate, ownership certificate etc. and renewal, on consideration against such services.15
S058S058.00Organization renting out chartered aircraft or helicopter: Organization renting out chartered aircraft or helicopter (except air ambulance)30

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