No penalty for unintentional non-payment of VAT 

A company –  say A – pays more than Tk100 crore in value-added tax (VAT) per annum against all its products with returns submitted to the National Board of Revenue (NBR). 

Thus, the company is recognised as a regular taxpayer.

A few years later, in a special audit, the NBR accused the company of not paying tax on thermosetting plastic raw material, known as EP-PU.

The revenue officials also issued a claim of Tk60 crore – Tk20 crore in VAT for the previous five years and a 200% fine on that, or Tk40 crore.

It came as a surprise to the company as its officials did not know that they had been required to pay input taxes on EP-PU.

If they had known about the input tax, the company would have paid an additional VAT of Tk4 crore per year. Now, after five years, the company has to pay a huge amount at a time, which is a big burden for the company.

Tangled in such troubles, many companies have to make the rounds in court.

From fiscal 2022-23, the NBR is moving away from the provision of imposing fines for non-payment of taxes due to a lack of knowledge on the part of companies.

The revenue authorities have instructed their VAT commissionerates not to impose fines on companies in the next financial year over not paying taxes by mistake or due to a misinterpretation of laws and for taking input tax credit facilities unintentionally.

The NBR stated this in the interpretation of the finance bill of the national budget proposed on 9 June.

The NBR also said that if a company reopens after being temporarily closed, it will not be fined for the interim period and it will be refunded if it pays tax incorrectly.

A senior official linked to the NBR's VAT policy said that a person or organisation is required to pay tax on raw materials, packaging materials, services, equipment and parts used in the production or service of his or its products except in certain sectors.

"If VAT is not paid on the purchase of these materials, there is a provision to collect penalty and interest. However, there has been no clear explanation as to whether it was not given unintentionally," he added.

In order to simplify the VAT law, exemptions have been given in this case in the next fiscal year.

In a directive sent to the tax commissioners, the NBR said that if a person does not pay input tax by mistake or due to misinterpretation, or if he takes input tax credit facilities, and later pays that tax with interest, then VAT payers cannot be fined.

The NBR has made another major change in terms of fines. If a company was temporarily closed and later reopened but did not submit returns in the meantime nor comply with any tax compliance, VAT officials will not impose any penalty for the interim period.

Regular audits usually review five-year financial statements and treat them as a five-year turnover and impose VAT on companies. Under the proposed rules, if someone stops production within five years, the interim period will be left out of the assessment.

In addition, if an unregistered person pays VAT to the NBR office by mistake, there is no chance of getting that VAT refunded under the existing law.

The NBR is also giving out concessions to such taxpayers in the upcoming financial year. The revenue authorities will refund the money if someone deposits it by mistake.

Snehasish Barua, a partner at Snehasish Mahmud & Co, Chartered Accountants, said, "Exemption from such fines will increase the compliance rate of companies. Doing business will be much easier. Case backlogs in court will be reduced. VAT evasion will also decrease."