Saturday, 2nd December, 2023
Saturday, 2nd December, 2023

VAT refund for businesses made easier

Businesses will be able to obtain VAT refund through purchasing raw materials on credit from now on.

The National Board of Revenue (NBR) issued a clarification on November 11 by allowing the long-awaited options for facilitating business.

Businesses will have to follow some prescribed methods of NBR to obtain the VAT refund.

After the introduction of the new VAT and Supplementary Duty Act-2012 on July 1, 2019, many enterprises were facing the difficulties in obtaining the refund of the paid tax on raw materials that they purchased on credit.

There was not any instruction or guideline for how they will obtain VAT refund in case of purchase of raw materials on credit.

Traders or manufacturers purchase raw materials on credit due to scarcity of the working capital. They do not pay the price instantly through the banking channel.

As per the VAT law section-46, traders will not be able to obtain VAT refund in case of any transaction above Tk 0.1 million without the banking channel.

As per the law, traders will have to obtain refund within four tax periods of VAT returns.

“Such obligations are creating complexities over getting the VAT refund by businesses that purchase raw materials on credit,” the clarification said.

As per the clarification, manufacturers will have to register such purchases on credit made through the VAT invoice (form 6.3), in the purchase account book once the raw materials reach the factory.

They will also have to obtain rebate on the payment through VAT returns in the month it purchases, it said.

Traders will have to make increasing adjustment of input or tax paid on raw materials in their VAT returns for the unpaid portion of the value of taxable supply.

The credit portion of the traders should be paid through the banking channel within six months (tax periods) of purchase on credit, the clarification said.

After the completion of payment, traders will be able to make decreasing adjustment of VAT (claiming rebate) within the same tax periods.

The NBR will be able to cancel the refund claim of businesses in case of any failure on complying with the procedures in the clarification.

The NBR took the decision considering the ground reality of the country’s current business practice.

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