4 Easy Steps to Calculate your Tax & VAT from Bill.

Taxation of goods and services is a complex and diverse area, with a range of methods and systems in place around the world. In the Bangladesh, taxation of goods and services is based on the Income Tax Act, 2023 & Value Added Tax & Supplementary Duty Act 2012. This means that tax is levied on the final purchase price of goods.

One of the main tax systems in place in the Bangladesh is the value-added tax (VAT). This is a tax that is levied on the value added (i.e., the difference between the price of goods and the cost of the goods’ ingredients.) In practice, it is found that a VAT registered supplier have to follow government regulation to supply product or service. But an unregistered supplier not willing to follow government regulation because they are not used to VAT culture or some of them don’t how to calculate VAT. In this blog you will learn 4 Easy Steps to Calculate your Tax & VAT from Bill.

Here the question is Who will deduct VAT & Tax from Bill? What do you mean base amount? How many types of Tax & VAT related bill found in practice?

I will help you answer all these question in this post. You’ll get a practical insight on how to calculate tax & VAT from bill. Just follow & utilize this & boost your productivity. Let’s start.

1. Who will deduct VAT & Tax from Bill?

Answer:

The National Board of Revenue has enacted the following rules in accordance with the provisions of Section 135, Section 49 and Section 127(b) of the Value Added Tax and Supplementary Duty Act, 2012 (Act No. 47 of 2012), namely: –

In accordance with sub-rule (1) (b) of rule 2 VAT withholding entity

• Any government or any of its ministries
• Department,
• A semi-public or autonomous body
• State-owned enterprises
• Local authorities
• Council or similar body
• Non-governmental organizations approved by the Bureau of NGO Affairs or the Department of Social Services
• Any Bank, Insurance Company or Similar Financial Institution
• Secondary or Higher-Level Educational Institutions and
• Limited company
• Any Person or Organization with an Annual Turnover of more than Ten Crore Taka.

The Specified Person means-

(a) Any Company, Firm, Association, Trust or Fund;
(b) Public-Private Partnership
(c) Any Foreign Contractor, Foreign Enterprise or Association or Organization Established outside Bangladesh;
(d) Any Hospital, Clinic or Diagnostic Center;
(e) Any e-commerce Platform having an annual turnover of more than One Crore taka Other than Any Specified Person, by whatever name called;
(f) Hotels, Resort, Motel, Restaurant, Community Centers, Transport Agencies with an annual turnover of more than One Crore taka;
(g) Any Person Other than a Farmer engaged in the Production and Supply of Tobacco Leaves, Cigarettes, Bidis, Jorda, Gul and Other Tobacco Products;

2. What do you mean base amount?

Answer:

“Base amount” means the higher of the –

1. Contract Value; or
2. Bill or Invoice Amount; or
3. Payment;

3. How many types of Tax & VAT related bill found in practice?

There are three types of Tax & VAT Inclusive or Exclusive related bill found in practice.

1. Bill Inclusive VAT & Tax

2. Bill Exclusive VAT & Inclusive Tax

3. Bill Exclusive VAT & Tax and

4. Bill Inclusive VAT & Exclusive Tax (These types of conflicted bill found rarely).

1. Bill Inclusive VAT & Tax

When any bill attaches this condition “VAT & Tax Inclusive or Tax & VAT as per government rule” It’s means final consumer have to pay VAT & Supplier required to pay tax.

Here attached a demo supply bill for calculated VAT & Tax

Calculation Process

There are four steps you should memorized.

Step-1 VAT deduct from bill.

Above mention bill included a term “Including Tax & VAT”. So we have to calculate & deduct VAT as Law (S.R.O No.240-AIN/2021/163-VAT). This bill treated as supply. VAT rate @ 7.5%.

[N.B – If you are confused to treated a bill for supply, you have to collect supplier BIN Certificate to identify nature of this bill.]

Bill Amount = tk. 61,800

VAT = 61,800 x 7.5/107.5 = 4,311.63 or tk. 4,312

So, you must deduct VAT tk. 4,312.

Step-2 Calculate Base Value.

Base Value = Bill Amount – Value Added Tax

                     = 61,800 – 4,312

                     = tk. 57,488

Step-3 Calculate Tax Amount from Base Value.

Tax = Base Value x Rate of Tax

        = 57,488 x 3% (Section-89, Rule-3)

        = tk. 1,725

Step-4 Calculate Payment Amount.

Payment = Base Value – Tax

                  = 57,488 – 1725

                  = tk. 55,763

2. Bill Exclusive VAT & Inclusive Tax

In practice you have found some supply bill attached this condition “VAT Exclusive & Tax Inclusive” Though the final consumer will bear VAT but it’s separated from bill not included in bill amount & Supplier required to pay tax.

Here attached a demo supply bill for calculated VAT & Tax

Calculation Process

There are three steps you should memorized.

Step-1 VAT Directly Calculate on Bill Amount

Above mention bill included a term “Exclusive VAT & Inclusive Tax”. If any bill attachedabove term, you should always treat as bill amount = base value.So, we have to calculate & deduct VAT as Law (S.R.O No.240-AIN/2021/163-VAT). This bill treated as supply. VAT rate @ 7.5%.

Bill Amount = Base Value

Base Value = tk. 98,000

VAT = 98,000 x 7.5%

= tk. 7,350

So, you must deduct VAT tk. 7,350.

Step-2 Calculate Tax Amount from Base Value.

Tax = Base Value x Rate of Tax

        = 98,000 x 3% (Section-89, Rule-3)

        = tk. 2,940

Step-3 Calculate Payment Amount.

Payment = Base Value – Tax

                  = 98,000 – 2,940

= tk. 95,060

3. Bill Exclusive VAT & Tax

In practice occasionally you have found some supply bill attached this condition “Exclusive VAT & Tax” This type of condition arises from customer & supplier verbal or written agreement. This bill specialty is Bill amount = Payment amount. VAT & TAX calculated on gross up method. It’s seeming to be bear VAT by final consumer & Supplier must pay tax but Local Practice it’s called “VAT & TAX bear by the company”.

Here attached a demo supply bill for calculated VAT & Tax

Calculation Process

There are three steps you should memorized.

Step-1 Tax Amount Calculated on Gross up Method:

Above mention bill included a term “Exclusive VAT & Tax”. If any bill attachedabove term, you should calculate Tax amount on gross up method.

Here

Bill Amount = Payment Amount

Payment Amount = tk. 98,000

Tax = Payment Amount x Tax Rate/(100-Tax Rate) (Section-141)

        = 98,000 x 3/97 = tk. 3,031 [Tax Rate–(Section-89, Rule-3)]

So, you must deduct Tax tk. 3,031.

Step-2 Calculate Base Value.

Base Value = Payment Amount + Tax

        = 98,000 + 3,031

        = tk. 101,031

 Or,

Base Value = Payment Amount x 100/ (100-Tax Rate)

                      = 98,000 x 100/ (100-3)

                      = 98,000 x 100/97

                      = tk. 101,031

Step-3 VAT Amount Calculate on Gross up Method.

VAT = Base Value x VAT Rate

                  = 101,031 x 7.5% (As per S.R.O No.240-AIN/2021/163-VAT).

                  = tk. 7,577.32

Step-4 Calculate Actual Bill Amount.

Actual Bill Amount = Base Value + VAT

                                      = 101,031 + 7,577.32

                                      = tk. 108,608.32

4. Inclusive VAT & Exclusive Tax

In practice rarely you have found some supply bill attached this condition “Inclusive VAT & Exclusive Tax” This type of condition arises from supplier end due to ignorance of Tax & VAT Law. It is not possible to calculate this type of bill. Here two questions arise. (a) Which one (Tax & VAT) I calculate first? (b) Is base value same if we calculate according to the condition “Inclusive VAT & Exclusive Tax”. Let’s find out answer.

Step-1 Tax Amount Calculated on Gross up Method:

If any bill attachedthis term “Exclusive Tax”, you should calculate Tax amount on gross up method.

Here

Bill Amount = Payment Amount

Payment Amount = tk. 98,000 [Let’s Bill Amount = 98,000]

Tax = Payment Amount x Tax Rate/(100-Tax Rate)

        = 98,000 x 3/97 = tk. 3,031 [Tax Rate–(Section-89, Rule-3)]

So, you must deduct Tax tk. 3,031.

Step-2 Calculate Base Value.

Base Value = Payment Amount + Tax

        = 98,000 + 3,031

        = tk. 101,031

 Or,

Base Value = Payment Amount x 100/ (100-Tax Rate)

                      = 98,000 x 100/ (100-3)

                      = 98,000 x 100/97

                      = tk. 101,031

Step-3 VAT deduct from bill.

If any bill found this term “Inclusive VAT”. So we have to calculate & deduct VAT as Law (S.R.O No.240-AIN/2021/163-VAT). Let’s this bill treated as supply. VAT rate @ 7.5%.

Bill Amount = tk. 98,000

VAT = 98,000 x 7.5/107.5 = tk. 6,837

Step-4 Calculate Base Value.

Base Value = Bill Amount – Value Added Tax

                     = 98,000 – 6,837

                     = tk. 91,163

(a)Answer: If you found this type of bill you contract with supplier for changing the bill either “Inclusive VAT & Tax” or “Bill Exclusive VAT & Inclusive Tax”. If  supplier deny to do that you can deduct TAX & VAT both inclusive method.

(b) If we calculate according to the condition “Inclusive VAT & Exclusive Tax” base value is not same.

If you face any problem to calculate Tax & VAT, Share it with us in the comments!