VDS rate 2024-2025 in Bangladesh

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Introduction - VDS rate 2024-2025 in Bangladesh

VDS rate 2024-2025 in Bangladesh – One of the most common day-to-day compliances under VAT & SD Act 2012 for any entity is VAT Deduction at Source (VDS). This requirement applies to both registered and, in some cases, unregistered entities. Government organizations and NGOs are also obligated to apply VDS when applicable. Given the broad scope of VDS, it is essential for everyone to have a comprehensive understanding of VDS rates. In this blog post, we will try to cover VDS rates applicable for the financial year 2024-2025.

What is VDS?

VDS, stands for VAT Deduction at Source, represents VAT withhold at the time of making any payment. According to Section 49 of VAT & SD Act 2012, a withholding entity must deduct VAT when making payments for goods or services received.

For instance, consider ABC Limited, which availed security service from XYZ Security Limited. XYZ Security Limited invoiced a total of Tk. 345,000, inclusive of Tk. 45,000 as VAT. When making the payment to XYZ Security Limited, ABC Limited will deduct Tk. 45,000 as VDS. In other words, instead of paying the full invoiced amount, ABC Limited deducts the applicable VAT amount. This process is referred to as VDS.

When should VAT be Deducted?

VAT deduction, known as VDS, is only applicable when payments are made. In accounting, there are typically two transactions for any goods or services: one is recording the invoice in the accounting system, and the other is processing the payment based on the payment terms. Please note in Bangladesh, VDS is applied at the time of payment, not during the initial invoice recording.

Who have to deduct VAT?

As per Rule 2 of VDS Rules 2021, below are the withholding entities who have to deduct VAT when making payment:

- Government or its ministry, department or office
- Semi Govt or autonomous organization
- State owned organization
- Local entity, Parishad or similar type of organization
- Non-government organization approved by the NGO Affairs Bureau or the Directorate-General of Social Welfare
- Bank, Insurance Company or similar Financial Institution
- Educational institutions upper than secondary or similar limit
- Limited companies; and
- Any entity or organization with an annual turnover exceeding Tk. 10 crore

Above entities are responsible for deducting VAT at source at the applicable rate when making payments to vendors.

Legal Reference for VAT Deduction at Source (VDS)

The rules for VAT Deduction at Source (VDS) are outlined in SRO No. -240-Law/2021/163-VAT, dated 29 June 2021, issued by the National Board of Revenue (NBR). This SRO mentioned the VDS rates, specifying when and where VAT should be deducted.

A comprehensive understanding of this SRO is essential for knowing the applicable VDS rates. Keep in mind that the NBR may update this SRO periodically. You can access the complete SRO, along with its latest amendments, here:

- VDS rate 2024-2025 in Bangladesh.

Apart from that, you can also read below sections/rule of VAT Act:

- Section 49 – Tax withheld at source and increasing adjustment by withholding entity;
- Section 50 – Decreasing adjustment by the supplier after the tax withheld at source;
- Rule 37 – Payment of VAT deducted at source by the unregistered recipient of supply;
- Rule 38 – VAT deduction at source and payment by accounts officer on behalf of unregistered recipient of supply;
- Rule 39 – Decreasing adjustment by the supplier following deduction at source;

(i) VDS Rate for Products

(a) VAT deduction in case of products Delivered by the Manufacturer:

If you have purchased a product directly from the manufacturer, and the Manufacturer delivered the product through Mushak 6.3 (VAT 6.3), you are not required to deduct VAT at source. But in other cases, you have to deduct at source. Here is the summary of VDS Rate applicable when purchasing products from the manufacturer –

Types of Supply	Types of Supplier	VAT Rate as per Invoice	Issued VAT 6.3	VDS Requirement
Products	Manufacturer	15%	Yes	No
Products	Manufacturer	15%	No	Yes
Products	Manufacturer	10%	Yes	No
Products	Manufacturer	10%	No	Yes
Products	Manufacturer	7.50%	Yes	No
Products	Manufacturer	7.50%	No	Yes
Products	Manufacturer	5%	Yes	No
Products	Manufacturer	5%	No	Yes
Products	Manufacturer	2.40%	Yes	No
Products	Manufacturer	2.40%	No	Yes
Products	Manufacturer	Specific VAT Amount	Yes	No
Products	Manufacturer	Specific VAT Amount	No	Yes

(b) VAT deduction in case of products Delivered by Supplier (Other than Manufacturer)

If you have purchased products from a supplier at a 15% rate with VAT Form 6.3 and the supplier provide you with a VAT honor card (VAT 18.5) or VAT Certificate, you are not required to deduct VAT at the source. In any other cases, you have to deduct VAT. Here is the summary of VDS Rate applicable when purchasing products from the supplier –

Types of Supply	Types of Supplier	VAT Rate as per Invoice	Issued VAT 6.3	VAT Honor Card/ VAT Certificate	VDS Requirement
Products	Other than Manufacturer	15%	Yes	Yes	No
Products	Other than Manufacturer	15%	Yes	No	Yes
Products	Other than Manufacturer	15%	No	No	Yes
Products	Other than Manufacturer	10%	Yes or No	Yes or No	Yes
Products	Other than Manufacturer	7.50%	Yes or No	Yes or No	Yes
Products	Other than Manufacturer	5%	Yes or No	Yes or No	Yes
Products	Other than Manufacturer	2.40%	Yes or No	Yes or No	Yes
Products	Other than Manufacturer	Specific VAT Amount	Yes or No	Yes or No	Yes

(ii) VDS Rate for Services

(a) VAT Deduction in Case of 43 Services

In case of 43 services as mentioned under Rule 3 of VDS Rules 2021, you are required to deduct VAT regardless of whether VAT Form 6.3 is issued or not.

Here’s the list of services where VAT deduction is mandatory, regardless of any exceptions. Below are the 43 services for which VAT must be deducted:

SL	Service Code	Service Description		VDS Rate
1	S001.10	AC Hotel		15%
	S001.10	Non-AC Hotel		7.50%
	S001.20	Restaurant		5%
2	S002.00	Decorators and Caterers		15%
3	S003.10	Motor Garage and Workshop		10%
4	S003.20	Dockyard		10%
5	S004.00	Construction Firm		7.50%
6	S007.00	Advertising Agency (see note)		15%
7	S008.10	Printing Press		10%
8	S009.00	Auction Firm		15%
9	S010.10	Land Development Organization		2%
10	S010.20	Building Construction Organization	A. 1-1600 square feet	2%
			B. 1601 square feet and above	4.50%
			C. Re-registration (any size)	2%
11	S014.00	Indenting Organization		5%
12	S015.10	Freight Forwarders		15%
13	S020.00	Survey Agency		15%
14	S021.00	Plant or Capital Machinery Rental Agency		15%
15	S024.00	Furniture (see note)	Furniture Manufacturer (VAT shall be @ 15%, If manufacturer directly sells to customer)	7.50%
15	S024.00	Furniture (see note)	Furniture Sales Centre (Subject to having challan for VAT paid@ 7.5% at the manufacturing stage, otherwise VAT shall be @ 15%)	7.50%
16	S028.00	Courier and Express Mail Service Provider		15%
17	S031.00	Individuals, Organizations, or Agency Engaged in the Repairing or Servicing of Taxable Goods In Exchange for Consideration		10%
18	S032.00	Consultancy and Supervisory Firm		15%
19	S033.00	Izaradar (Lessor)		15%
20	S034.00	Audit and Accounting Firm		15%
21	S037.00	Procurement Provider		7.50%
22	S040.00	Security Service		15%
23	S043.00	Television and Online Broadcasting Media Program Supplier (see note)		15%
24	S045.00	Legal Advisor		15%
25	S048.00	Transport Contractor:	A. Petroleum Goods	5%
			B. Except Petroleum Goods	10%
26	S049.00	Rent-a-Car Provider		15%
27	S050.10	Architect, Interior Designer or Interior Decorator		15%
28	S050.20	Graphic Designer		15%
29	S051.00	Engineering Firm		15%
30	S052.00	Sound and Lighting Equipment Rent Provider		15%
31	S053.00	Participant in Board Meetings		10%
32	S054.00	Advertisements In Satellite Channel Programs		15%
33	S058.00	Chartered Aeroplan or Helicopter Rent Provider		15%
34	S060.00	Purchaser of Auction Goods		15%
35	S065.00	Building, Floor and premisis Cleaning or Maintenance Agency		10%
36	S066.00	Lottery Ticket Seller		15%
37	S067.00	Immigration Advisor		15%
38	S071.00	Event Management		15%
39	S072.00	Man Power Supply or Management Organization		15%
40	S099.10	Information Technology Enabled Services		5%
41	S099.20	Other Miscellaneous Services		15%
42	S099.30	Sponsorship Services		15%
43	S099.50	Credit Rating Agency		7.50%

Note: If the service provider shared VAT invoice (Mushak 6.3) certified by the Revenue Officer (RO) then no VDS. Please read below para for details.

(b) No VDS for services outside the specified 43 services

VAT deduction is not applicable for any services other than the specified 43 services mentioned above. Here is a list of few services not included in the 43 services, for which there is no requirement to deduct VAT.

SL	Service Code	Service Description	VDS Rate	VDS Requirement
1	S012.14	Internet Service Provider	5%	No
2	S026.00	Goldsmith, silversmith and gold and silver shopkeepers and gold repairer	5%	No
3	S057.00	Electricity Distributor	5%	No
4	S069.00	English Medium School	5%	No
5	S080.00	Ride Sharing	5%	No
6	S099.60	Goods sale online	5%	No
7	S064.10	Amusement park and Theme park	7.50%	No
8	S078.00	(a) Marketing of own branded readymade garments	7.50%	No
8	S078.00	(a) Marketing of readymade garments without own brand	7.50%	No
9	S036.20	AC or heat-friendly vessel service	10%	No
10	S013.00	Mechanical laundry	10%	No
11	S018.00	Movie studio	10%	No
12	S023.10	Movie exhibitor (Theater/Cinema)	10%	No
13	S023.20	Movie distributor	10%	No
14	S042.00	Automatic or Machine-driven sawmill	10%	No
15	S047.00	Sports organizer	10%	No
16	S063.00	Tailoring shop & tailors	10%	No
17	S076.00	Social and sporting club	10%	No
18	S012.20	SIM card or e-SIM supplier	Tk. 200/ SIM	No

(c) No VDS if Mushak 6.3 is certified by VAT Authority

For the three services listed below, VAT deduction is not required if the service provider submits a Mushak 6.3 (VAT 6.3) certified by the Revenue Office (RO):

SL	Service Code	Service Description	VDS Rate	VDS Requirement
1	S007.00	Advertising Agency	15%	No
2	S024.00	Furniture Manufacturer – If Furniture manufacturer sells @15%	15%	No
3	S043.00	Television and Online Broadcasting Media Program Supplier	15%	No

(d) No VAT Deduction for Utility Services

As per Rule 5(3) of SRO No. -240-Law/2021/163-VAT, dated 29 June 2021, VAT deduction is not applicable for utility services like fuel, gas, water (WASA), electricity and mobile bill.

No VDS for VAT-Exempt Goods or Services

VAT-exempt goods and services are mentioned in the 1st Schedule of the VAT & SD Act 2012. Additionally, the National Board of Revenue (NBR) issues separate SROs each year to grant VAT exemptions for specific goods or services. VAT exemption means no VAT is applicable, so there will be no VAT deduction.

It’s important to note that products and services exempted by the 1st Schedule of the VAT Act are exempt at all stages and do not require the issuance of a VAT 6.3 form. However, for exemptions granted through an SRO, there will be no VAT but the seller must provide a VAT 6.3 form. If no VAT 6.3 then have to deduct VAT.

NO VDS in case of EFD / SDC Receipts

When purchasing goods or services using a Mushak 6.3 form issued from an Electronic Fiscal Device (EFD) or Sales Data Controller (SDC), VAT deduction is not applicable, provided that the name and BIN number of supply receiver are mentioned on the receipt.

Conclusion - VDS rate 2024-2025 in Bangladesh

When it comes to products, VAT deduction isn’t necessary if you’re buying directly from the manufacturer (with VAT 6.3). However, if you’re purchasing from a supplier, deduction is generally required, with some exceptions.

As for services, VAT deduction is mandatory for 43 specified services listed under SRO No. -240-Law/2021/163-VAT, dated 29 June 2021 (VDS Rules 2021). However, VAT deduction is not applicable for utility services.