Import stage VAT under new VAT law

Md Abdur Rouf | Sunday, 22 January 2017

The new VAT law shall come into effect from 1 July, 2017. There are some differences between the provisions of the current VAT law and the new VAT law. VAT is collected on goods and services. On goods, VAT is collected at import stage, manufacturing stage and trading stage. The provisions of the new VAT law with regard to its application at import stage slightly differ from the provisions of the present VAT law. 
In the present VAT law, there is Advance Trade VAT (ATV) at import stage but in the new VAT law there is no provision for ATV. ATV has been found to be a distortion in our present VAT system. There are 10 types of distortions in our present VAT system. Removal of these distortions was one of the main objectives of enacting the new VAT law. ATV is not an import-stage VAT. It is trading-stage VAT collected at import stage. We can not collect proper amount of VAT at the trading stage with our present VAT mechanism due to many problems. Goods enter into the trading stage from import and domestic manufacturing. At the import stage, government has enough control over goods. So, while collecting duties and taxes at the import stage, possible VAT on these goods at the trading stage is collected in advance. This is called ATV. 
Since ATV is a distortion of the VAT system, there is no provision of ATV in the new VAT law. But for the reason of revenue protection and cross-checking of accounts, a new tax titled Advance Tax has been imposed at the import stage by the new VAT law. Advance Tax shall be imposed at the rate of 3 per cent that shall be applicable to all imports. Those who take input tax credit shall be allowed Advance Tax credit. Those who do not take input tax credit-- for instance personal importers, shall apply to the Commissioner for refund of Advance Tax.    
Another new aspect of the VAT at import stage under the new VAT law is that Turnover tax-payers shall be eligible to import. It can be mentioned here that under the present VAT law, Turnover tax-payers are not allowed to import. Turnover tax-payers pay 3 per cent Turnover Tax only. So, they are not eligible for input tax credit. In the VAT system, those who pay VAT at standard rate are eligible to avail the facility of input tax credit. Under the new VAT system, Turnover tax-payers shall get decreasing adjustment of the Adance Tax paid at import stage.  
We are in an age of tremendous development of information technology. Geographical boundaries are no longer constraints to the movement of services from one country to another through information technology. Moreover, at present there are multifarious dimensions of the economic activities. So, various types of services are now being rendered.
 So, in the new VAT law there are plenty of provisions regarding the methods to determine which service shall be considered to have been rendered in the country and which service shall be considered to have been exported. The matter can be clarified with an example. Hypothetically, a business firm in Bangladesh sells software online. A business firm located in Africa came to know about this from the website of the Bangladeshi firm. Necessary contact was made with the Bangladeshi firm through e-mail. Payment was made to a bank, say, located in the US. On receipt of the payment, password was given to the African purchaser by the Bangladeshi seller through e-mail. The purchaser then downloaded the software online. There shall be numerous questions under the provisions of VAT law regarding whether this activity shall be considered as export from Bangladesh or not. At present, many such economic activities are being performed. In the new VAT law, some priniciples have been incorporated to determine the exportability of such activities.    
Three taxes are collected under the existing VAT law. These are: Value Added Tax (VAT), Supplementary Duty (SD) and Turnover Tax (TT). SD is imposed on items under about 145 Headings at import stage, and at the manufacturing stage under 20 Headings. But in the new VAT law, SD is applicable to items under 35 Headings, both at import and at domestic stage.      
Three schedules are there in the present VAT law. One is the list of VAT-free goods, one is the list of VAT-free services and the other is the list of SD-applicable goods and services. In the new VAT law, there are two schedules. One comprises the list of VAT-free imports and VAT-free domestic supplies and the other comprises the list of SD applicable goods and services. As per the First Schedule of the new VAT law, the goods that are VAT-free are VAT-free at import, domestic manufacturing and trading stages.   
Dr. Md. Abdur Rouf is First Secretary of the National Board of Revenue (NBR). [email protected]