The concept of supply by Residents and Non-Residents as enshrined in Section 17 of the Value Added Tax and Supplementary Duty Act, 2012 (henceforth called VAT and SD Act) is new to Bangladesh VAT system. The Value Added Tax 1991 did not have residency concept. According to S.2(15), resident means an individual who normally lives in Bangladesh; or stays in Bangladesh for more than 182 days in a current calendar year; or stays in Bangladesh for more than 90 days in a calendar year and stayed in Bangladesh more than 365 days during the four years immediately preceding the calendar years. And any person who is not a resident is a non-resident. This paper examined the concept of supplies made in Bangladesh (S.17) wherein the provision of supply made by residents and non-residents are also described.
Section 17 enshrined a number of situations when a supply will be treated as a supply made in Bangladesh. And any supply made in Bangladesh is made taxable. Goods or services supplied by a non-resident to a resident in Bangladesh or supplied to a VAT unregistered person and the supply is physically provided in Bangladesh, it will be treated a supply made in Bangladesh and the supply will be a taxable one. In this section, the following supplies are defined as 'Supply made in Bangladesh' u/s17 for imposition of VAT under section 15:
• Supplies made by a non-resident carrying on an economic activity from/through a fixed place in Bangladesh (S. 17(1) (kha). The non-resident, may, even carry out economic activity within the geographic territory of Bangladesh (by staying abroad) through setting up of office in Bangladesh as well.
• Supplies made by a non-residents when supply of a good made by a non-resident is transferred, conferred, installed or assembled in Bangladesh.
• Supply of services made to an Unregistered Person if (a) the services are physically provided in Bangladesh by the service provider staying in Bangladesh at the time of supply; (b) the services are directly related to land located in Bangladesh; (c) radio or television broadcasting or telecasting services (e.g. advertising services broadcasted through radio/television) received at an address in Bangladesh. This provision seems to include television broadcasting services provided by foreign TV channels;
• Electronic services delivered to a VAT unregistered person located in Bangladesh. Examples of such services include services delivered digitally by Google, Yahoo, Facebook, and Twitter etc. (Abdul Mannan Shikder, 2021). Revenues of Google, Facebook, YouTube which they generate from advertisements given in their platforms are subject to VAT. Consultancy services delivered by non-residents also come under this section. Royalty payments by hotels located in Dhaka for using the right to use brand name of international hotel chains are also subject to VAT.
• Telecommunication services when it is initiated by a person located in Bangladesh. However, globalroaming services (of a foreign traveler who temporarily stays in Bangladesh) shall not be considered as services made in Bangladesh.
It is thus evident that the main objective of S.17 is to widen the net of VAT. With the inclusion of S.17, VAT shall be collectable on all supplies made within Bangladesh irrespective of the status/location of the supplier. That is, even if the supplier is non-resident, that shall not be an issue in imposing VAT on services supplier within Bangladesh or on people/entities who receive/enjoy services. The provision of section 17 is consistent with the Destination Principle of the VAT system. Intuitively, a destination-based tax is a tax on consumption, whereas an origin-based tax is a tax on production. Incorporation of section 17 in the VAT law of 2012 seems prudent and logical as it gives VAT its consumption tax character by levying VAT in the jurisdiction where the final consumption takes place. As the destination of goods/services is Bangladesh, such supplies have been made taxable irrespective of the status of the supplier.
However, construction of section 17 seems unnecessarily complex. For example, as per destination principle, any goods and or services delivered within Bangladesh from any sources by anyone is taxable. The following expressions: "delivered to a VAT unregistered person", "by the service provider staying in Bangladesh", "services are directly related to land located in Bangladesh" and "the services are physically provided in Bangladesh" enshrined in S.17 seem unnecessary. It is not clear why the expression "delivered to a VAT unregistered person" has been used in defining the section. And then a separate section (S.18) has provisions for "registered recipient".
The current reading of Section 17(1)(Go)(Ee) gives the impression that only supply of services made by a non-resident to a VAT unregistered person shall be considered "supply made in Bangladesh" unless the reader also reads s.18 with S.17. The reality is that services supplied to both unregistered persons and registered persons are VATable. Therefore, Sections 17 and 18 may be merged together with better construction to give the readers/taxpayers a complete message in the same section.
It is adequate to mention that supplies delivered (or received/initiated) to any persons (by any persons) within Bangladesh shall be taxable. In other words, "the place of supply" or "the location of the business of the recipient" (in this case within the boundary of Bangladesh) shall be the main consideration in making the supply a taxable activity. The place of supply is an offshoot of destination principle. The destination principle also aids in collecting VAT from the supply of non-resident persons (Rikabder, 2022 p. 914). In considering the place of supply, there may be different "place of supply rules" such as:
• Goods not dispatched or transported: In the case of goods not dispatched or transported, the place of supply is the place where the goods areat the time of their supply. Example, An UK tourist on a visit to Bangladesh buys a T-shirt from say Infinity Megamall from Bailey Road, Dhaka. In this case, VAT liability arises on the purchase, as the place of supply is where the goods are when the purchase takes place.
• Goods involving installation or assembly: In this case, the place of supply is the place where the goods are installed or assembled, e.g. a VAT-registered firm in Dhaka engages a Singapore-based company to supply and install an equipment in its premises (in Dhaka). The place of supply is Dhaka. So, this supply will be taxable. This place of supply rule seems similar/consistent with the concept of services connected with immovable property as incorporated in the definition of "Supplies made within Bangladesh".
• Telecommunication and electronically-supplied services: Instead of the existing provision in S.17, the place of supply concept may be used to describe supplies made in Bangladesh. In the case of telecom services, the place of supply needs to include the location where the services are not only used /received but also initiated. As successful completion of telecom services requires two networks (not applicable for telephone calls over internet) to work simultaneously (i.e., network to originate the call and the network for termination of the call; example, telephone call originated through Banglalink (originating network) needs the network of Indian Airtel (termination network) to successfully complete a call from Bangladesh to India, VAT-paid revenue for this telecom service is shared between the two operators. As such, non-resident service providers also pay partial VAT in the case of telephone service (Rikabder, 2022).
• Services related directly with Land located in Bangladesh: For VAT purposes, S.17(1)(Ga)(Ee) (Kha)] specifies that services supply that are directly related with land located in Bangladesh shall be deemed 'supplies made in Bangladesh'. This provision concerning supply of services directly related with land made the VAT law complicated. Instead of mentioning "supply of services directly related to/attached to land located in Bangladesh", the expression "the place of supply of service will be the location where the property on which the services are rendered are located, the place where then services are physically carried out, or the place where the customer is located " seems easy to comprehend. For example, drawing up of plans for a building to be built on a particular place of land in Bangladesh, or construction of permanent structures on land and the services of architects providing on-site supervision there may come under such supply. Examples of such installation or supply of services may be detailed in VAT and SD Rules 2016 for greater understanding by tax payers/collectors and other stakeholders. The concept of services connected with immovable property (in our VAT law, connected with land) seems to have been copied from EU VAT Directive. (EU 282/2011/EU)
The concerned authority may review the existing provision of S.17 and simplify the section by inserting that place of supply rules shall be the guiding principle in determining where the supply is made. The place of supply rules may be detailed in the VAT Rules 2016 with proper illustrations. Section 17 may be made simpler by removing the expressions "delivered to a VAT unregistered person", by the service provider "staying in Bangladesh", "services are directly related to land located in Bangladesh".
To conclude, goods and services supplied/consumed in Bangladesh shall be VAT-payable irrespective of the residency status of the supplier. The basic tenet is that as long as the supply is made, used/received or initiated within Bangladesh, the right to VAT shall accrue to Bangladesh and as such that should be taxable in Bangladesh.
Dr. Mohammad Abu Yusuf is a VAT analyst and a lecture at FCTB. He serves an adjunct faculty at the AIUB University and Institute of Chartered Secretaries (ICSB), Bangladesh.
ma_yusuf@hotmail.com
[Bibliography: Alan Schenk and Oliver Oldman, (2007) Value Added Tax: A Comparative Approach, Cambridge University Press