VAT rebate claim

NBR clears confusion over 'input' definition

Loss of revenue leads to plugging hole in new VAT law

DOULOT AKTER MALA | Monday, 28 October 2019

The National Board of Revenue (NBR) on Sunday identified a number of products and services that cannot be shown as inputs (raw materials) for claiming VAT rebate.
The Value Added Tax (VAT) wing under the NBR has issued an order which stipulates that these products and services won't be considered as inputs for the businesses.
As per the VAT law, businesses are entitled to get VAT refund or allowed to adjust VAT they pay at the time of purchasing or procuring inputs.
The wing issued the order after it found a significant shortfall in its revenue collection in the current fiscal year 2019-20.
Among three wings of NBR, the VAT wing faced the biggest shortfall of Tk 53.54 billion in the first two months (July-August) of the current FY.
Obtaining higher VAT rebate due to absence of definition of inputs has been cited as one of the major reasons for the shortfall in VAT collection.
A number of large manufacturing companies have obtained higher amount of VAT rebate, claiming some unusual services and products as their inputs for production.
As per NBR order, six categories of services and products will not be considered as inputs for production.
Renovation, modernisation, construction, replacement, expansion or repairing of land, building, office, equipment and fixture, machinery, establishment or infrastructure will not be considered as inputs for any production.
Businesses will not be able to claim input rebate on purchase and repair of all types of furniture, office supply, stationary products, refrigerator and freezer, air conditioner, fan, lighting equipment.
The VAT officials will also not consider interior design, architectural planning and design, transport rent and lease, travel, entertainment, workers' welfare, development activities or relevant products and services as inputs.
Rent of business premises, offices and showrooms will not be considered as inputs.
However, as per third schedule, section 3, businesses will be able to claim input tax rebate on imported, purchased, earned or procured products for sale, exchange or handover for the purposes of running business, the order said.
The VAT wing issued the order as per VAT and Supplementary Duty (SD) rules, 2016, rule 118 Ka.
In the order, signed by VAT second secretary Hassan Muhammad Tarek Rikabder, the VAT wing, however, did not specify what will be inputs.
The wing issued the order following complexities faced by field-level VAT offices over definition of inputs.
In the VAT and SD Act-2012, article 2, section 20, there is a definition of 'input tax' which seems unclear to the field-level VAT offices. Also, article 46 has mentioned the area of tax rebates.
Earlier, field-level VAT officials informed the NBR that they have been forced to allow manufacturing companies for obtaining VAT rebate on their claimed inputs due to absence of a clear definition.
In the VAT law-1991, there was specific definition of inputs that are eligible for getting VAT refund.
Under the new VAT law, the manufacturers will have to declare what and how much materials they have used to produce a product.
They have found some large companies have declared unusual things as inputs for their production as new VAT law has not defined what will be inputs.
Some manufacturing companies have claimed--- tailoring shops and tailors, social media and virtual businesses, hotels, restaurants, printing stationary and office supply, human resources supply and management, service charge on contractual manufacturing, furniture, event management and credit rating agency, auction, automatic laundry, indenting firms, building construction or architect, interior, engineering firms and graphic design-- as inputs to obtain VAT refund.
In the VAT law-1991, labour, land, building, office equipment and transportation were excluded from the definition of inputs.
Raw materials, laboratory reagents, laboratory equipment, laboratory accessories, any types of fuels, gas, packaging materials, services, and spare parts etc were defined as inputs in the previous VAT law.

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