Conglomerates to get VAT refund on inter-factory raw material transfer

A group of companies even without the central business identification number will qualify for value-added tax (VAT) refund on inter-factory raw material transfer.    

The VAT wing of the National Board of Revenue (NBR) issued a clarification in this regard on 5 November -- settling the issues over transfer of raw materials between factories of a manufacturing company. 

Earlier, a company without central registration had to pay 15% VAT on inter-factory raw material transfer while there was no scope for businesses to get back the money afterwards.

This put the companies in a situation to pay VAT twice on the same raw material for transferring it from one factory to another. The new rules have made business easier for the manufacturers, facilitating trade and investment.

According to the latest NBR clarification, an investor will be allowed to transfer raw materials between factories under their ownership without changing the shapes, nature, characteristics, and quality of raw materials.

The transfer must be completed through specific invoice, officially termed VAT challan 6.3, by paying 15% VAT, it said.

The raw material receiving factory will have to include the raw materials in the purchase account book. It will be able to get rebate on VAT paid by the sending factory upon compliance with the provisions of VAT law, the NBR clarification added.

Officials hope it will make production process of companies smooth and uninterrupted. 

Earlier, all types of companies qualified for VAT refunds on inter-factory raw material transfer under the VAT Act 1991. After the implementation of the new VAT law in 2019, the process became complicated.

For a conglomerate, the new law has a central registration arrangement where the companies do not have to pay VAT on inter-factory transfer. However, inter-factory transfer for companies without central registration got stuck under the new law.

The NBR gave this clarification in response to applications submitted by Nasir Group of Industries Ltd and Heidelberg Cement Bangladesh Ltd.

However, some businesses still find the clarification "unreasonable."

On condition of anonymity, a Heidelberg Cement Bangladesh official said although there is a chance to get a refund later, a huge amount of money will be stuck in the meantime which will increase product prices in the end.

He commented that inter-factory transfer should be kept completely out of VAT instead of the refund system.