A two-year VAT registration battle between the world’s most successful digital businesses, Google and Amazon, and the Bangladesh National Board of Revenue (NBR) has ended with the e-commerce giants finally registering in the country.
The impasse in the Bangladesh VAT registration battle actually arrived last year when all parties agreed that the affected businesses could file returns and remit VAT through a local agent, believed to be PwC Bangladesh, instead of setting up local entities in Bangladesh. Progress was slow due to legal and technical issues, no doubt exacerbated by the COVID-19 pandemic.
It is understood that Google Asia Pacific Pte, based in Singapore, and Amazon Web Services Inc registered with the NBR online in recent weeks. Previously, it had been reported by local media in Bangladesh that the risks and responsibilities borne by potential local VAT agents in these scenarios meant that such agents were “discouraged to register or act themselves as VAT agents of non-residents.”
Bangladesh VAT: digital services background
Since July 1, 2019, foreign businesses selling digital services to customers in Bangladesh must apply VAT to their sales there. However, the digital services could fall into a standard (15%) or reduced VAT rate (5%) category.
In its 2018-19 budget Bangladesh determined that a ‘virtual business’ had to apply the 5% VAT system to their sales. The term ‘virtual business’ was later clarified to mean digital platforms such as Facebook, YouTube, and Google.
However, since then the definition of affected digital services has been crystallized further. Today, some digital services may actually attract the Bangladesh standard VAT rate of 15%. Bangladesh defines the services that the reduced VAT rate of 5% should apply to as “Information Technology Enabled Services (ITES)” and the following services (list is not exhaustive) are included:
- Digital Content Development and Management
- Animation (both 2D and 3D)
- Geographic Information Services (GIS)
- IT Support and Software Maintenance services
- Software Development and Customization
- Website Development and Services
- Website Hosting
- Digital Data Analytics
- Business Process Outsourcing
- Data Entry and Data Processing
- Call Centre
- Digital Graphics Design and Computer Aided Design
- Search Engine Optimization
- Web Listing
- Document Conversion
- Imaging and Archiving
- Overseas Medical Transcription
- Cyber Security Services
- E-Procurement and E-Auction
Businesses need to perform a significant analysis of their digital services sold in Bangladesh to conclude which VAT category their sales fall under.
Other significant requirements in Bangladesh include:
- No B2B validation required as VAT applies to all transactions, both B2C and B2B
- The term ‘Mushak 6.3’ must be included on invoices issued
- A local tax agent must be sourced and used for registration, filing and payment
With regard to settlement of tax, businesses need to be aware that payment needs to be received by the tax authorities prior to filing the VAT return which is due on the 15th of the following month.
The payment can only be made via the local tax representative who needs to take a cheque to the tax authorities. This makes payment deadlines very tight and generally it is recommended to start the payment process around the 5th day of the month following the tax period.
Bangladesh VAT: an historic perspective
In his speech unveiling the 2018-19 budget, the country’s then Finance Minister, AMA Muhith, said: “With the fast development of internet technology, social media, and mobile application platform-based virtual businesses are booming. In order to bring these online-based virtual businesses within the tax net, a new service code has been defined as ‘Virtual Business’ on which 5 per cent VAT shall be imposed.”
This was a significant development in Bangladesh as it marked the country’s first major attempt to tax the digitalisation of the economy. Previously, in July 2017, just days after new VAT rules were announced, the Bangladesh government reversed a decision to implement the Value Added Tax and Supplementary Duty Act, 2012. The reversal was due to internal pressures.
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