In a recent article titled "Central VAT registration in Bangladesh: An appraisal" (published in the Financial Express on April 29, 2021), Dr. Md Abdur Rouf has rightly pointed out present limitations of central Value Added Tax (VAT) registration and proposed for a revision through the upcoming Finance Act. I would like here to raise few more points to supplement his proposals.
Although the collection of VAT in Bangladesh started from July 1, 1991, VAT registration activities commenced from June 2, 1991 under the VAT Ordinance, 1991 promulgated on May 31, 1991 and this was validated under section 1(2)(a) of the VAT Act, 1991. The VAT Bill was placed in Parliament on July 1, 1991 and passed on July 9, 1991 and published in the Gazette on July 10, 1991 after Presidential accord on the same day. However, the provision on central VAT registration was introduced through the amendment of the VAT Act by the Finance Act 1994 effective from July 1, 1994 for centrally operated business and centrally maintained books and accounts by giving a single VAT registration to the head office of the business entity.
Under the proviso to sub-section (2) of section 15 ["Registration"] of the VAT Act, 1991, the provisions on central VAT registration in July 2010 were: where the supply of taxable goods, except at production stage, or rendering of taxable service or import or export business is conducted centrally and the accounts and records thereof are maintained accordingly, the Board may, by general or special order, direct the head office of such supply of goods, except at production stage, or rendering of service or, where applicable, import or export business to be registered centrally. Thus, central VAT registration was subject to the direction of the National Board of Revenue (NBR). From July 1, 2011, due to the amendments, the provisions on central VAT registration was simplified: if any person, from two or more places, operates the production and supply of his taxable goods or rendering of taxable service or import or export business and maintains all the accounts and records together, then he, voluntarily, can be registered centrally in the manner prescribed by rules [proviso to sec. 15(2)]. Thus, central VAT registration became the option of the business entity and continued till the introduction of new VAT law. It may be a question why this provision on central VAT registration was not incorporated in the VAT and SD Act passed in November, 2012 as a status quo.
Former Finance Minister Abul Maal Abdul Muhith placed the bill on the Value Added Tax Act, 2012 in Parliament on July 8, 2012, and then it was sent to the Parliamentary Standing Committee on the Ministry of Finance. This Parliamentary Standing Committee on September 6, 2012 finalised its report on the bill where the committee proposed that the bill should be named "Value Added Tax and Supplementary Duty Act, 2012" instead of "Value Added Tax Act, 2012." On November 27, 2012 Parliament passed the VAT and SD Bill, 2012 to expand the scope of VAT, SD and turnover tax, to simplify the tax collection process and to make other relevant provisions. Hon'ble President accorded his consent to the Bill on December 10, 2012 and it was published in the Gazette on the same date as the Value Added Tax and Supplementary Duty Act, 2012 (Act No. XLVII of 2012). Under section 1(2) of the VAT and SD Act, 2012, Chapter Two (VAT Registration and Turnover Tax Enlistment; Sec. 4-14), Chapter Twelve (Value Added Tax Authority; Sec. 78-89) and Chapter Fifteen (Maintenance of Forms, Notices, and Records; Sec. 107-110), and section 128 (Online performance of functions, filing of return and payment of tax, etc.), section 132 (Certified copy of documents), section 134 (Acts to be done through a private organisation), and section 135 (Power to make rules) of this Act were to come into force at once, i.e., from December 10, 2012. Thus, VAT registration became effective under this new VAT statute of 2012 from the December 10, 2012. Then the major objective was to introduce "central VAT registration" and separate registration for any branch unit was optional, if we see the original provisions of section 5 ["Registration of central or branch unit"] of the VAT and SD Act, 2012:
"(1) Every person required to be registered for his economic activities shall have only one VAT registration for the central, and all the branch units.
(2) Notwithstanding anything contained in sub-section (1), a branch unit that maintains the records, and keeps the accounts, independently and separately from the central unit, may have a separate VAT registration.
(3) Every branch unit registered separately shall, for the purposes of this Act, be regarded as a separate taxpayer.
(4) Movement of goods or exchange of services from one branch unit to another separately registered branch unit of the same economic activity shall not be treated as supplies and, consequently, there shall arose no output tax liability or input tax credit claim."
But due to absence of any Rules, the registration process under the 2012 Act was not introduced immediately. The Value Added Tax and Supplementary Duty Rules, 2016 were made under section 135 of the VAT and SD Act 2012 as an S.R.O (S.R.O. No. 333-Ain/2016/1-Musak, dated November 3, 2016). Under Rule 1(2) of the VAT and SD Rules 2016, Chapter Two (VAT Registration and Turnover Tax Enlistment; Rules 3 to 15) and definitions in Chapter One (Preliminary) in relation to the said Chapter shall come into force at once, i.e., from November 3, 2016.
Thus, Chapter Two of the VAT and SD Act 2012 and Chapter Two of the VAT and SD Rules 2016 are both on "VAT Registration and Turnover Tax Enlistment." However, the provisions of the Chapter Two of the VAT and SD Act, 2012 (i.e., sections 4 to 14) became effective from December 10, 2012 under section 1(2) and the provisions of the Chapter Two of the VAT and SD Rules 2016 (i.e., Rules 3 to 15) became effective from November 3, 2016 under rule 1(2).
But online VAT registration under the new VAT law actually started on March 23, 2017, under which the "Application Form of Value Added Tax Registration and Turnover Tax Enlistment" [Mushak-2.1] under rule 4(1) and rule 5(1) of the VAT and SD Rules, 2016 was applicable. This Form was published in the Value Added Tax and Supplementary Duty Rules, 2016 on November 3, 2016. But this Form titled "VAT/Turnover Tax Registration Form" [Mushak-2.1] was substituted by S.R.O. No. 226-Ain/2019/62-Mushak, dated June 30, 2019.
Thus, from March 23, 2017 to June 30, 2019, the requirement was that new registrants have to take new 9-digit VAT registration number in the name of BIN (Business Identification Number) and existing VAT registered persons had to re-register to change the previous 11-digit VAT registration number into 9-digit BIN by using the original Form Mushak-2.1. But from July 1 to July 31, 2019, due to changes in the provision on registration and introduction of a new Form, all the existing registered persons had to take 13-digit BIN in place of 9-digit BIN by using the new Form. The initial deadline of July 31, 2019 was subsequently extended up to November 30, 2019.
By the Finance Act, 2019, section 5 of the VAT and SD Act, 2012 has been fully substituted effective from July 1, 2019 when the overall new VAT and SD law also became fully effective. The changed provisions of section 5 ["Registration" in place of "Registration of central or branch unit"] of the VAT and SD Act, 2012 are as follows:
"(1) If any person maintains books and accounts, tax payment and records of economic activities relating to supply of identical or similar goods or services or both from two or more places, he may take one VAT registration number at the said address of maintaining books and accounts under the conditions and in the manner prescribed therefor:
Provided that notwithstanding the supply of identical or similar goods or services, if the books and accounts, tax payment and records of economic activities from any unit are maintained independently, then he has to take separate registration:
Provided further that for the purpose of taking central registration and tax payment, the Board may make rules.
(2) Notwithstanding anything contained in sub-section (1), if any person operates economic activities relating to supply of dissimilar goods or services, he has to take separate registration for each place.
(3) Exchange or movement of goods or services from one central unit to another unit of a person registered under sub-section (1) shall not be treated as supplies and, consequently, there shall arise no output tax liability or input tax credit claim."
An approach from central registration based on centralised record-keeping and accounting after giving huge number of online 9-digit BIN over 2 years 3 months 8 days (from March 23, 2017 to June 30, 2019) has been reversed with seemingly unacceptable conditions of "identical or similar goods or services" for central registration and there is a fresh start of 13-digit BIN from July 1, 2019. In some countries (say, New Zealand), even central group of companies are allowed to get single central registration, because inter-unit movements of goods and services are not adding any value and hence no question arises to tax this "zero value addition". Now the VAT officials are assumed to be expert or are expected to be trained well enough in examining any good or service to certify whether it is identical or similar to another good or service. From the imposition of customs duties on imported or exported "goods" (not "services") with specified H.S. Code [Harmonised Commodity Description and Coding System], this concept of "identical or similar goods or services" has possibly been applied to taxation under VAT laws, which is not at all relevant under the new VAT law. VAT is a consumption tax ultimately paid by the consumers and the registered business entities collect it from their customers and thus work as "tax farmers" or legal taxpayers to the Government Treasury. Registered business entities are legally allowed to shift the VAT burden forward, although the price elasticity of some products may not help them to do that as they wish. VAT is imposed on "value added" (sales of outputs less purchases of inputs) by an economic activity relating to supply of taxable goods or services by any entity, not giving any special focus of "identical or similar goods or services" for any differential or special treatment. Thus, the new system of usual unit registration along with an unusual central registration subject to some bizarre condition of "identical or similar goods or services" would generate manifold VAT registered entities without generating any extra value-adding economic activities and hence without any added revenue from VAT. Rather, it would show hugely enhanced number of new VAT registered entities under each VAT jurisdiction, which would create the demand for new workforce for field administration of both the VAT-payers and VAT-administrators, and an obvious escalation of administrative costs from the viewpoint of compliance costs and VAT collection costs. Under the unit registration system, it is expected to capture every small space of taxable economic activities as a VAT registered unit. When one single entity registered under other regulatory measures will have manifold VAT registration numbers, it is difficult to perceive how it would help modernisation of fiscal administration. Digitalisation is usually expected to centralise non-value adding and inefficient administrative activities and to give concerted effort on value adding activities. It is a big question why after starting a centrally accounts-based online central VAT registration, the process has been revised to an opposite direction. The simplification characteristics of VAT is for its uniform tax rate (15 per cent, although there is also zero rate), which is "identical or similar" to organisations with manifold dissimilar economic characteristics of demand-supply and consequent price or income elasticity. But due to adopting various non-standard rates of VAT (price-based rate of 5 per cent, 7.5 per cent, 10 per cent , 2 per cent, 2.4 per cent, 3 per cent, and 4.5 per cent; and specified amount of VAT based on quantitative measures such as BDT 3 per kg of cotton thread or BDT 200 per SIM), the simplification of unified standard rate has been eliminated to a large extent. Non-central VAT registration may be made mandatory for goods and services having tax rate different from the standard rate of 15 per cent due to the non-compatibility of non-identical or dissimilar rates.
Our new VAT law is initially prepared with very high standard [see the incorporation of the concept of "option" in clause (102) of section 2]. But the long delayed implementation of the laws with almost a turn-around of the registration approach should be revised as pro-central registration for the sake of achieving "ease of doing business", reduced "cost of compliance and complexity" and the introduction of "one entity, one account, one BIN" consistent with other regulatory measures.
Dr Swapan Kumar Bala FCMA is a VAT specialist, currently working as Professor, Department of Accounting & Information Systems, University of Dhaka.