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Value Added Tax (VAT) is a tax that is imposed on the additional price that an organization adds to every step of providing products or services. Basically, it’s tax on the final consumption, which ultimately has to be carried by the consumer. However, this tax is collected at every step of production and distribution and tax credit on the previous step paid taxes, so that the cascading effect does not fall on the same product.
VAT is considered a very important revenue system for developing countries. In 1954, VAT was first launched in France. This tax system has been gradually introduced in more than 130 countries around the world.
VAT was launched in Bangladesh in 1991, aimed at increasing internal revenue and bring transparency to indirect tax system. Currently VAT is one of the main revenue sources of Bangladesh. A large part of total revenue for a long time (about 30% or more) comes from VAT and its contribution is constantly increasing.
Recent Update VAT System of Bangladesh
- VAT is currently conducted in Bangladesh in accordance with Value Added Tax and Supplementary Duty Act 2012.
- The standard VAT rate is currently 15%.
- Digital VAT system (Online VAT Return, e-BIN registration) has been launched, which has made business management easier.
- The National Board of Revenue (NBR) collects and controls VAT.
- Tax gap is underway by increasing the use of technology in e-filing, automation and VAT management.
Finally, an important question is: Who carries the real burden of VAT in Bangladesh? Although it ultimately stays on the consumer, its effect on income level may differ. Research usually measures VAT’s progressivity to analyze this.
Statement of VAT
It is very important to have a idea about finance for business owners or managers at the present time. Although it’s easy to leave everything on accountant, it’s not always realistic. Learn the basic things of finance is important information about business, which is very helpful in making decisions.
📊 Profit and Loss Account (P&L)
Profit and Loss Account (Love-Loss Account) shows business income and expenses at a certain time. When you create your strategic objectives and annual business plan, goals must be set in financial terms (marketing, quality, manpower, etc.)
If the original goal is achieved, an important indicator will be return on capital (income from capital). In the production (manufacturing) sector is usually higher in capital investment, but as it is higher than in sale, asset turnover may be lower.
📑 Balance Sheet
Balance Sheet shows business assets at a certain time (assets), liabilities and ownership (equity).
The issue can also be added about VAT here:
Value Added Tax (VAT) is tax on the integrated price at every step, where business firms act as tax collectors on behalf of the government.
If you are registered VAT:
- You can claim that VAT has paid (input VAT) back
- And the VAT that has collected from the customer (output VAT) is to submit to the government
👉 Recent Updates (Bangladesh):
- VAT is currently operated in accordance with Value Added Tax and Supplementary Duty Act 2012
- Standard VAT rate: 15%
- Controlling Organization: National Board of Revenue (NBR)
- Online VAT returns and e-BIN systems have been launched
💰 Cash Flow Statement
Cash Flow Statement shows how much money the business has come at a certain time (cash inflow) and how much money has gone (cash outflow).
- It is usually made for one year, but it is possible to do for any time
- It is related to P&L and Balance Sheet
- Explains how much the business working capital has increased or decreased
- But it doesn’t show how much total working capital is (it’s on Balance Sheet)
- Only cash shows transactions, so non-cash issues like deprecation are not included here
🎯 Choosing Appropriate Objectives
When you set the strategic goals of the business, they need to be made financially clear.
such as:
- If the main goal is to gain → return on capital
- Production Sector→ more capital investment in the production sector and less asset turnover normal
💰 VAT (Value Added Tax)
Value Added Tax (VAT) is a tax that is attributed to the price attached to each step of the supply of any product or service.
It’s a method where business companies act as tax collectors on behalf of the government.
If you are registered in VAT, then:
- By submitting VAT returns you have paid before (input VAT), you can claim it back
- And the VAT collected from the customer (output VAT), it must be submitted to the government
📋 Field (Options used in form/report)
- Starting Date
- Ending Date
- Include VAT Entries → All transactions related to VAT will be included
- Round to Whole Numbers → Numbers will be round in full number (without ten)
- Show Amounts in Add. Reporting Currency → Additional reporting currencies (such as USD/BDT) will be displayed
Detailed explanation of VAT
💰 Who gives VAT?
Value Added Tax (VAT) is basically a tax on consumer spending. So, anyone who purchases the product or service, ultimately provides VAT. That’s, in general, all consumers give VAT.
🧾 How is VAT paid?
VAT is usually included within the price of the product. So often you don’t understand how much percent of the VAT you’re giving.
Example:
- VAT is included in daily use products such as clothes, fuel (petrol) etc
- It doesn’t show how much VAT is being given separately
📊 When is VAT separated?
VAT is clearly specified in some specific products or services, such as:
- Time to buy computer or electronics
- Electricity bill
- Professional Service (consultancy, legal service etc.)
In this case:
- VAT amount is shown in your bill or invoice
- And it’s also mentioned how many percent of the VAT was taken
💰 How VAT is charged in Bangladesh
VAT is taken on the added value of products in Bangladesh at every step (production → wholesale → retail → consumer) of the VAT. But ultimately the full burden of this tax is carried by consumers.
Current VAT Rate (Bangladesh)
- Standard VAT: 15% (in most cases of products and services)
- Low/Special Rate: 5%, 7.5%, 10% (in certain sectors)
- 0% (Zero-rated): In case of export
- In some sectors VAT-free (Exempt) such as education, health etc
Real Example (15% of Bangladesh’s VAT)
Let’s suppose:
Step 1: Manufacturer
- Purchase Price = 1000 Taka
- Sales Price = 1500 Taka
- VAT (15%) ≈ 195.65 Taka
- Previous VAT (input) ≈ 130.43 Taka
👉The government must pay = 65.22 taka
Step 2: Wholesaler
- Sales Price = 2000 Taka
- VAT ≈ 260.87
- Previous VAT credit ≈ 195.65 Taka
👉 The government should pay ≈ 65.22 taka
Step 3: Retailer
- Sales Price = 2500 Taka
- VAT ≈ 326.09 Taka
- Previous VAT credit ≈ 260.87 Taka
👉 The government should pay ≈ 65.22 taka
Note: These calculations are in the official example of the National Board of Revenue (NBR)
How much does the government get total VAT?
- Total VAT = 326.09 Taka (on last consumer price)
👉 That is, the last consumer carries the whole VAT
Recent Real Status (Bangladesh)
- VAT is conducted in accordance with Value Added Tax and Supplementary Duty Act 2012
- Turn on full digital VAT system (e-BIN, online return)
- Some sectors have launched low VAT or fixed VAT to make business easier
Summary of Major Findings, Policy Recommendations
Summary of Major Findings
Value Added Tax (VAT) is a comparative complex tax system, as it is imposed at every step of the products and services and is required to calculate through the combination of input-outputs. It is mainly based on consumer spending and business companies only pay the government by collecting taxes. VAT is imposed on products supply, service and import, and it is determined on total sales price.
Policy Recommendations
In Bangladesh, it is important to simplify, digitalization and awareness to make VAT system more effective. Strengthening online systems under the National Board of Revenue, keeping tolerable policies for small businesses and using the right invoices will reduce taxes and increase revenue.
Conclusion
Reduction of Value Added Tax (VAT) may increase economic growth and employment, but it also poses a risk of income and inequality. So, the decision to reduce VAT should not be taken alone – it should be adjusted with the increase in direct tax, so that the tax structure equality is maintained.
Zero-rating on food products can benefit the poor people immediately, but it can reduce government revenue — so it needs to increase direct tax. Similarly, zero-rating employment in financial services can increase, but tax structure can be somewhat discriminatory because people with high income benefits.
Therefore, it is important to make a balanced decision in considering the overall tax structure to make any changes to the VAT policy. Besides, administrative costs, complement cost and real data should be analyzed in future research and policy.
