In Bangladesh, VAT Deduction at Source (VDS) is a mechanism where certain designated entities are required to deduct Value Added Tax (VAT) from payments made to suppliers or service providers at the time of payment. This system ensures the collection of VAT at the source, facilitating compliance and revenue collection.
Who Must Deduct VAT at Source?
The following entities are mandated to withhold VAT under the VDS system:
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Government entities
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Non-governmental organizations (NGOs) approved by the NGO Affairs Bureau or the Directorate General of Social Welfare
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Banks, insurance companies, and similar financial
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institutions
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Secondary or post-secondary educational institutions
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Limited companies
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Entities with an annual turnover exceeding BDT 100 million
Worldwide Tax Summaries Online
When Is VDS Applicable?
VDS is applied when these entities procure specific goods or services. For instance, services such as those provided by air-conditioned hotels are subject to a 15% VDS rate, while non-air-conditioned hotels are subject to a 7.5% rate.
Key Points to Note
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VDS is not an additional tax but a method of collecting VAT at the source.
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The responsibility to deduct and remit VAT lies with the withholding entity.
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Proper documentation, such as VAT invoices and certificates, is essential to ensure compliance.
This system is designed to streamline VAT collection and reduce evasion by capturing tax at the point of transaction.