VDS Rate 2023 – One of the most common compliance tasks under the VAT & SD Act 2012 for any business entity is VAT Deduction at Source, commonly known as VDS. This requirement applies to both registered and, in some cases, unregistered entities. Even government organizations are obligated to apply VDS where it is applicable. Given the wide scope of VDS, it is essential for all of us to have a comprehensive understanding of the exact VDS rates applicable for the financial year 2023-2024. In this blog post we will let you know the current VDS Rate.
So, what exactly is VDS?
VDS stands for the deduction of VAT as it applies at the time of making a payment. According to Section 49 of the VAT & SD Act of 2012, a withholding entity is required to deduct VAT when making payments for goods or services received. For instance, let’s take the example of ABC Limited, which availed consultancy services from XYZ Consulting Limited. XYZ Consulting Limited invoiced a total of Tk. 230,000, inclusive of Tk. 30,000 as VAT. When making the payment to XYZ Consulting Limited, ABC Limited will deduct Tk. 30,000 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 VAT is to be deducted ?
VAT deduction, or VDS, is only applicable at the time of making payments. From an accounting perspective, there are generally two key transactions related to any goods or service: one involves booking the invoice in the accounting system, and the other entails making the payment as per the agreed-upon payment terms. It’s important to note that in Bangladesh, VDS is only applicable when making payments, not during the initial invoice booking.
The Legal Reference for VAT Deduction at Source (VDS)
VAT Deduction at Source (VDS) is governed by SRO No. -240-Law/2021/163-VAT, dated 29 June 2021, issued by the National Board of Revenue (NBR). This notification specifies the VDS rates at which deductions must be made, as well as where VAT should be deducted and where it should not. If you want to know VDS Rate you should have conversent knowledge on this SRO. Please note NBR may amend this SRO from time to time. You can review the full SRO, including its latest amendments, here :- https://www.taxvatpoint.com/vds-rules-bangla-fy-2023-2024/
(i) VDS Rate for Products
(a) Products Delivered by the Manufacturer:
If you have purchased a product directly from the manufacturer, and they have delivered the product using VAT Form 6.3, you are not required to deduct VAT at the 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 –
(b) Products Delivered by a Supplier (Other than the Manufacturer)
If you have purchased products from a supplier at a 15% rate with VAT Form 6.3 and they provide you with a VAT honor card or VAT Certificate as evidence of their monthly return submission, you are not required to deduct VAT at the source. Consider the below examples to understand VDS rate
(ii) VDS Rate for Services
VAT Deduction in Case of 43 Services
For a specific set of 43 services, you are obligated to deduct VAT regardless of whether VAT Form 6.3 is used. It’s important not to associate these service codes with VAT 6.3 invoices. While you may receive requests or recommendations from service providers stating that they have issued a VAT Form 6.3 invoice and that VAT deduction is unnecessary, it’s crucial not to entertain such requests. In accordance with the aforementioned SRO, VAT must be deducted in these cases and VDS rate will be as follows.
| S.L | Service Code | Service Description | VDS Rate | |
| 1 | S001.10 | AC Hotel | 15.00% | |
| S001.10 | Non-AC Hotel | 7.50% | ||
| S001.20 | Restaurant | 5.00% | ||
| 2 | S002.00 | Decorators and Caterers | 15.00% | |
| 3 | S003.10 | Motor Garage and Workshop | 10.00% | |
| 4 | S003.20 | Dockyard | 10.00% | |
| 5 | S004.00 | Construction Firm | 7.50% | |
| 6 | S007.00 | Advertising Agency (see note) | 15.00% | |
| 7 | S008.10 | Printing Press | 10.00% | |
| 8 | S009.00 | Auction Firm | 10.00% | |
| 9 | S010.10 | Land Development Organization | 2.00% | |
| 10 | S010.20 | Building Construction Organization | A. 1-1600 square feet | 2.00% |
| B. 1601 square feet and above | 4.50% | |||
| C. Re-registration (any size) | 2.00% | |||
| 11 | S014.00 | Indenting Organization | 5.00% | |
| 12 | S015.10 | Freight Forwarders | 15.00% | |
| 13 | S020.00 | Survey Agency | 15.00% | |
| 14 | S021.00 | Plant or Capital Machinery Rental Agency | 15.00% | |
| 15 | S024.00 |
Furniture (see note) |
Furniture Manufacturer (VAT shall be @ 15%, If manufacturer directly sells to customer) | 7.50% |
| 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 Mall Service Provider | 15.00% | |
| 17 | S031.00 | Individuals, Organizations, or Agency Engaged in the Repairing or Servicing of Taxable Goods In Exchange for Consideration | 10.00% | |
| 18 | S032.00 | Consultancy and Supervisory Firm | 15.00% | |
| 19 | S033.00 | Izaradar (Lessor) | 15.00% | |
| 20 | S034.00 | Audit and Accounting Firm | 15.00% | |
| 21 | S037.00 | Procurement Provider | 7.50% | |
| 22 | S040.00 | Security Service | 10.00% | |
| 23 | S043.00 | Television and Online Broadcasting Media Program Supplier (see note) | 15.00% | |
| 24 | S045.00 | Legal Advisor | 15.00% | |
| 25 | S048.00 | Transport Contractor: | A. Petroleum Goods | 5.00% |
| B. Except Petroleum Goods | 10.00% | |||
| 26 | S049.00 | Rent-a-Car Provider | 15.00% | |
| 27 | S050.10 | Architect, Interior Designer or Interior Decorator | 15.00% | |
| 28 | S050.20 | Graphic Designer | 15.00% | |
| 29 | S051.00 | Engineering Firm | 15.00% | |
| 30 | S052.00 | Sound and Lighting Equipment Rent Provider | 15.00% | |
| 31 | S053.00 | Participant in Board Meetings | 10.00% | |
| 32 | S054.00 | Advertisements In Satellite Channel Programs | 15.00% | |
| 33 | S058.00 | Chartered Aeroplan or Helicopter Rent Provider | 15.00% | |
| 34 | S060.00 | Purchaser of Auction Goods | 7.50% | |
| 35 | S065.00 | Building, Floor and premisis Cleaning or Maintenance Agency | 10.00% | |
| 36 | S066.00 | Lottery Ticket Seller | 10.00% | |
| 37 | S067.00 | Immigration Advisor | 15.00% | |
| 38 | S071.00 | Event Management | 15.00% | |
| 39 | S072.00 | Man Power Supply or Management Organization | 15.00% | |
| 40 | S099.10 | Information Technology Enabled Services | 5.00% | |
| 41 | S099.20 | Other Miscellaneous Services | 15.00% | |
| 42 | S099.30 | Sponsorship Services | 15.00% | |
| 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.
No VAT Deduction for Utility Services
As per Paragraph 5(3) of SRO No. -240-Law/2021/163-VAT, dated 29 June 2021, VAT deduction is not applicable for utility services.
Conclusion - VDS Rate 2023
In case of products, VAT deduction is not required if you are purchasing from the manufacturer (with VAT 6.3). If purchased from the Supplier then deduction is required with few exceptions.
For services, it is mandatory to deduct VAT in case of 43 services as mentioned under SRO No. -240-Law/2021/163-VAT, dated 29 June 2021. Please go through VDS Rules 2021 to know the legal framework of VDS rate.
VDS Rate 2023 - Source/ Reference:
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