Vat System in Bangladesh

VAT System in Bangladesh

Question 1. What are the Advantages and Disadvantages of VAT System?

Answer.

Definition of VAT (Value Added Tax):

Value Added Tax (VAT) is basically a tax to be levied on the value added by an organization at each stage of its rendering services or producing goods. The VAT is a tax on the final consumption of goods or services and is ultimately borne by the consumer although it is collected at every stage of production or distribution and a tax credit is granted at each stage for tax paid at the earlier stage in the chain of transfer/sale of goods or services till it reaches the final consumer.

Introduction of VAT System in Bangladesh:

Bangladesh introduced a system of VAT to overcome the existing drawbacks of indirect taxation on July 01, 1991. At the time of introduction, the VAT was applicable only at the import stage, manufacturing stage and service rendering stage. But now it is extended to all levels with wholesale and retails.

Advantages of VAT System:

Introduction of VAT has some great advantages. The VAT is regarded as a modern and superior tax system. It provides an edge over the earlier excise system as mentioned below:

VAT vs. Excise System

VAT | Excise System |

* Broad based | * Narrow based |

* Single standard rate of 15% | * Different rates with some higher rates |

* No cascading effect of taxes | * Presence of cascading effect |

* Minimized rate of tax evasion | * Problem of tax evasion |

* Increased revenue realization | * Unable in mobilizing the increasing need of revenue |

Other important advantages of VAT are:

1. It is a modern and progressive tax system with credit mechanism.

2. This is an audit and account based system minimizing harassment and forcible enforcement.

3. It ensures proportionate low tax incidence for the manufacturers, service renderers and traders.

4. It is a balanced tax system with equity.

5. Uniform rates of VAT boost...