Value Added Tax (VAT) is an indirect tax that must be paid by the final consumer and is a consumption tax on the use of goods or services. There is currently a VAT that is both receivable and payable on the commercial front. The government must receive the VAT that was collected from the sale of the items. On the other side, the government will reimburse you for the VAT you paid while making your purchases. More than 150 nations throughout the world have embraced the idea of VAT.
The Different types of VAT are:
- Input VAT-When goods or services are purchased or rendered, input VAT is charged; if a buyer is registered with the VAT tax authorities, they may deduct the amount from the sale.
- Output VAT-On the sale of supplied goods and services, output VAT is computed and charged directly.
Accounting for the VAT component of a business entity is known as VAT accounting. Under Tax Law, it becomes mandatory for every taxable person to have a book of records, which necessitates thorough documentation. The tax burden is reduced, it aids in identifying the consumption tax that must be paid promptly, and keeping such records is now required on a global scale.
Classification of VAT
The three different types of VAT rates are:
- Standard Rate
The majority of the goods and services have been subject to a 5% standard tax. These include things like electronics, cars, petrol, jewellery, food, drink, clothing, entertainment services, cosmetics, hotels, restaurants, and commercial leasing.
2.Zero Rate
Certain types of products and services are subject to VAT at zero rates, which means that even though they are taxed, the rate is zero. The provision of specific transport means, the supply or import of investment precious metals (of 99% purity or more), the provision of residential buildings, the provision of buildings used for charitable purposes, the provision of specific educational services, and the provision of specific healthcare services all fall under this category.
3.Exempt
For items and services falling under this category, exempt VAT is not applicable. It includes local passenger transit, certain residential structures, bare land, and financial services.
VAT Registration
Any company that imports or makes taxable supplies above BD 37,000 must register for VAT. In addition, voluntary registration is required if the sum exceeds BD 188,50. Each person or corporate entity receives a 15-digit Tax Registration Number (TRN), which is provided.
Essential Documents for VAT Accounting
To begin the VAT Accounting procedure, any business must submit several documents. The group of crucial papers consists of:
- All supplies Records and Goods imports.
- Tax credit notes and alternative documents
- All tax invoices
- Reports of goods exported
- Taxable supplies received or made
- Will be due on tax supplies
- Recoverable tax supplies or imports
The National Bureau for Revenue (NBR) has the authority to request additional information as well, including annual account information, general ledgers, VAT ledgers, purchase daybooks, issued invoices, credit and debit notes, etc.
Penalty for Not Keeping Proper Records
Anyone or any organization that does not maintain accurate records is subject to an BD 10,000 fine.
Benefits of VAT Accounting
You are well-informed on VAT and its various forms. The question of why VAT accounting is crucial now emerges. The answer is as below:
- Easy Tax Returns
A corporation can obtain all the relevant tax-related papers in one location by completing VAT accounting, which would significantly simplify the process of preparing the company’s tax return.
2.Offers Adaptability
Vat accounting would provide the predicted total amount that must be paid in taxes if a business decided to expand. The management of the firm may review the VAT accounting report and decide to grow the company under the established budget.
3.Tracing records of VAT
Accounting for VAT enables the business and the relevant authorities to determine whether or not all required tax-related papers have been submitted. The names of the materials that must be correctly filled out and submitted are listed on a checklist.
4.Reduces the Probability of a Tax Audit
The business will have information about all of its transactions by using VAT accounting. The likelihood that the relevant authorities will undertake a tax audit will be much diminished.
5.Serves as evidence
The management will be able to provide all the accurate information about the tax-related transactions carried out by the company if the relevant authority decides to conduct a tax audit of your business with the aid of VAT accounting.
6.Lessens the likelihood of penalties
By ensuring that the business complies with all laws and regulations issued by the relevant authorities, VAT accounting lowers the likelihood that it will be fined by the government. Additionally, it would gradually update the VAT accounting practices.
7.Spreads knowledge of VAT-related programmes
The government periodically introduces new Value Added Tax-related initiatives. Accounting for VAT would raise awareness among businesses about the benefits that diverse businesses might receive.
GSPU VAT Compliance Services
GSPU is a business consulting organisation that focuses on offering accounting and tax services. We offer the following VAT compliance services in terms of VAT accounting:
- VAT Registration process
- Invoicing and VAT treatment
- Maintaining the book of records
- Investigating the issue of record inspection
One of the best VAT consultants, GSPU has been handling the critical accounting and taxes processes for several clients involved in numerous enterprises on a global scale. Our professionals take care of your VAT concerns and make them simpler to cope with while comprehending the nature of your company. Please contact us to find out how. We’d be happy to assist.