Tax once, VAT again and again the consumer suffers!

Mohammad Siraj Uddin :: I basically write regularly about taxes. There is no deep knowledge about VAT. However, as there is a basic similarity between VAT and tax, when it comes to advising different people on tax matters, the issue of VAT comes to the fore. Sometimes I care, sometimes I don’t care. Recently a friend very much requested him to cooperate in the VAT work of a firm. I was really surprised by his positive attitude towards paying VAT! Because people say traders do not want to pay VAT. But the way he was interested, I thought the information I heard was wrong. Going a little deeper, a lot of businessmen like this friend want to pay VAT properly. So where is the problem? Let’s go a little deeper. I am shocked to see the ongoing laws and procedures of VAT.

Reader, let’s see what is in the law about VAT? VAT law was introduced in our country in 1991. Then the pace of business trade just started, but not like now. If there was a law to pay VAT and there were many challenges to get accustomed to VAT. In the course of time, there are many ideas about VAT now! In our country, the name of the law related to VAT is the Value Added Act-1991, now the Value Added and Supplementary Duty Act-2012. I searched for the definition of value added tax or VAT in both the laws – I did not find it. However, tax or value addition has been explained. The essence of which is this – VAT is self-determining indirect tax. The value added tax or VAT is the tax levied on the actual service level value addition of the price level of the goods or services by adjusting the material tax as opposed to the tax payable on the supplied goods or services. [এখানে সংযোজনের কথা পাঠকগণ মনে রাখবেন]

The NBR’s explanation of VAT assessment is as follows: Suppose a person buys a product for Rs. 1,000 and sells it for Rs. 1,500. The purchase of that product included VAT of Rs. 130.43 for Rs. 1,000 (1,000 * 115 * 100). Again selling at 1500 rupees, VAT stands at 195.75 rupees (1500 * 15/115). As the product sells for Rs 1,500, the price has been increased to Rs 500. VAT / VAT was paid on purchase of the product. So the actual addition will be Rs.500 and the seller will refund the VAT on the purchase level and pay VAT on the actual addition of the selling level i.e. Rs.500.

That is, VAT payable on Rs. 1500 will be Rs. 75.82 (500 * 15 * 115) excluding Rs. vat-faq / ban)
Explaining the above example, it can be seen that (1000-130.43) = 69.57 rupees. The latest buyer / consumer has to pay VAT on the product (130.43 + 195.98) rupees = 326.06 rupees. The seller made a profit = (1500-69.58-65.62) = Rs.565.212 which earned 75% of the value of the goods purchased by the seller or trader. This is an example. In fact, most merchants sell products in the market at a deliberate profit without disclosing the actual purchase price of the product they have purchased. As a result, the consumer has to bear the burden of extra VAT. Marketable food grains, various life-saving medical supplies, various assistive devices used by persons with disabilities, etc. are not being protected from the injustice of VAT.

A closer look at the NBR’s explanation reveals that a trader is only a VAT collector. The latest consumer has to pay VAT at all levels. VAT will be added every time the product is exchanged and traders will have the opportunity to adjust their previously paid VAT. But the end consumer has to pay the added VAT at all levels. Most of our traders are not interested in disclosing his purchase price. Again, it is not possible to monitor how much money you will earn. As a result, the buyer has to pay VAT on VAT. Not only that, VAT is added to VAT. Much like the compounding of interest. This is a great injustice! This aspect needs deep attention.

But if the business could be held accountable, both sides would benefit. The amount of VAT would not be increased unnecessarily, so that consumers at all levels would have an equal opportunity to use the product. On the other hand, if the transparency of income of the traders was ensured, it would be clear how much they are contributing to the management of the government by paying taxes, which they could claim. On the contrary, now traders are being accused of collecting VAT from the people, but not paying it to the government.

On the other hand, since the trader keeps the actual purchase price of the product secret, he has to pay VAT on the entire sale price, which ultimately falls on the last buyer or the consumer. This is also a big reason for the rise in commodity prices. VAT law also supports this. Which is directly unfair. Many people know that there is injustice in collecting or paying VAT, but no one is opening their mouths.

The average VAT match is against a company called Sumis, a cake maker. From July 2019 to April 21, the company has evaded VAT of Tk 8 crore 13 lakh 143 on which the interest comes to Tk 3 crore 39 lakh. The owner of that company says that the people of NBR have inspected the factory and fixed 5% VAT. Now the VAT detective comes and says 15% VAT needs to be paid. Source Daily Prothom Alo Online – 26 June 2021.

The question is, cakes with cream, which is a favorite food of children, also have 15% VAT or 5% VAT. But under no circumstances are buyers being cleared, what% VAT on the price of the cake is actually being collected by the shopkeeper. It is also unfair to collect VAT – which needs to end.
This injustice of VAT is not limited to manual business. We see the same thing in online business. For example: A comparative picture of VAT’s unfairness in the current context of manual business and online shop / e-commerce:
Obligation to register for VAT in case of online / e-commerce: Regardless of the annual turnover, there is an obligation to register under Section 7. (Source: General Order No. 18 / VAT / 2019)

In case of manual business: Annual turnover up to Rs 3 crore is not required for registration. Annual turnover of up to Rs 50 lakh is not required. If the annual turnover is from Rs 50 lakh to Rs 3 crore, there is an obligation to register as a turnover taxpayer.
In case of online / e-commerce, 5% VAT is payable on sales commission. Source: Explanation Letter 02 / VAT / 2019 and Third Schedule of VAT Act and Supplementary Duty Act 2012.

In case of manual business, VAT is 0% up to Rs. 50 lakhs per annum. If the annual turnover is from Rs 50 lakh to Rs 3 crore, the VAT rate will be 4%. But there is no information monitoring system on how much money the seller earned. As a result, if VAT is collected from consumers at different rates, the government gets only 4%.

In case of online / e-commerce, VAT on purchase price of goods sold: There is an obligation to have VAT paid on the purchase price at the purchase stage of the product. Source: 18- Act / 2019/43-VAT, Explanation Letter 02 / VAT / 2019 and SRO No. 234-Act / 2019/70 VAT Service Code J099.60. This law does not apply to manual business.

Income tax deduction in case of online / e-commerce: Merchants demand 3% – 6% extra price as there is an obligation to deduct income tax at source in case of payment to the merchant / vendor in case of purchase of goods. As a result, the price of the product goes up (Item 15 and Rule 18 of sub-section (2) of section 52 of the Income Tax Ordinance 1984).

In the case of manual business, merchants / vendors provide goods at 3% – 6% lower prices as there is no obligation to deduct income tax at source in case of payment of dues to the merchant / vendor. As a result, the price of the product remains low.

Online / E-Commerce Shipping Charge / Parcel Delivery Charge (Income): E-commerce companies add the cost of the product as well as the cost of delivery of the product to the customer (courier service charge) to the invoice. This service of parcel delivery is included in the service code J026.00 courier and express mail service as per SRO No. 18- Act / 2019 / 43- VAT. 15% VAT is applicable on the price of this service. Due to which the consumer has to pay extra VAT by purchasing products online.

In case of manual business, it is not applicable as the customer comes to the shop and takes the product himself.

In case of online / e-commerce, VAT on business related expenses / income tax deduction at source: 5% VAT applicable on cloud services. Source: SRO No. 149-Ain / 2020/110-VAT, Service Code J099.10. Income tax 20% on purchases of goods or services from foreign companies. Section 57 of the Income-tax Ordinance 1984.

In the case of manual business, it does not apply if the source is not a cutting entity.
In case of online / e-commerce, VAT on digital marketing is 15%. Document No. 07.01.0000. / 32 of the National Board of Revenue, Income tax rate at source ranges from 0.75% to 20% depending on the domestic / foreign and goods / services. Source: Section 52AA and Section 57 of the Income Tax Ordinance 1984.
Not applicable to manual business.

In the case of online / e-commerce, there is an obligation to deduct VAT at source on the purchase of all goods or services for which VAT is applicable. SRO No. 149-Ain / 2020/110-VAT. Similarly, there is an obligation to deduct and pay income tax at source.
Reference: Section 52 to Section 57 of the Income Tax Ordinance 1984 and Rule-16.
There is no obligation in manual business.

In the case of online / e-commerce, the reliance on MFS / Payment Gateway for collection increases the financial cost and 15% VAT is payable on this cost. General Order No. 03 / VAT / 2020 Manual business does not have this cost as it accepts cash directly.

In case of online / e-commerce, there is 15 percent VAT on food delivery services. At present 15 per cent VAT is applicable on food delivery services. Which only applies to online and app-based services.

In case of manual business, this VAT is not applicable for offline delivery directly from hotel or restaurant. E-commerce or online business is very important in maintaining financial flow while keeping the business business running in the present Corona Mahari. But it is important to keep an eye on the service sector so that it does not suffer as a result of VAT injustice.

For the integrated management of all organs of government of any country, one has to rely on direct and indirect taxes paid by the citizens of the country. This is normal. But care must be taken so that the people are not harmed or bear the burden of extra taxes due to wrong policies or mistakes in the law. Otherwise injustice will increase in the society, anger of the citizens of the state will increase. A class of unscrupulous businessmen will create economic inequality on the pretext of government VAT. As a result, a discriminatory economy will be created. One class of people will be immensely rich. Most citizens will lose their purchasing power. It will be difficult for any government to handle. We now have the status of a middle developing country. So it is time to ensure fairness in VAT collection.

Author: Income Tax Lawyer, Dhaka.

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