FT Online

2019-08-20 13:24:01 BdST

Ride-sharing cos, not drivers, will pay VAT

The value added tax (VAT) on ride-sharing businesses will be payable only by the mobile app-based companies from their portion of service charges while the amount received by drivers or car owners will enjoy exemptions.

The full amount of service charges received from passengers will not be VAT-able, according to a clarification of the National Board of Revenue (NBR).

The ride-sharing companies will have to pay 5.0 per cent VAT on their portion of service charges.

Passengers and drivers of the ride-sharing services such as Uber, Pathao, Shohoz and others will be exempted from payment of the VAT, said the clarification issued by the VAT wing of the NBR on Monday.

The clarification, signed by first secretary (VAT policy) Hasan Muhammad Tarek Rikabder, came after the VAT wing found that field-level officials and some other stakeholders are confused about the VAT collection process with regard to the ride-sharing services.

Companies that are operating the apps like Uber, Pathao, Shohoz and similar others will be liable to pay the VAT on the charges they receive, the clarification said.

In the budget for fiscal year (FY) 2019-20, the NBR kept 5.0 per cent VAT on ride-sharing service unchanged as in the previous year under the new VAT and Supplementary Duty Act-2012.

Although the government had fixed 7.5 per cent VAT in the proposed budget, it finally brought down the rate to 5.0 per cent in the Finance Act-2019.

Mr Rikabder said the VAT wing has issued the clarification in line with the new definition of the ride-sharing services mentioned in the VAT and SD law-2012.

"We would like to make it clear that the VAT will not be imposed on the income of drivers of the ride-sharing services," he said.

In the clarification, the NBR said some private vehicles owners provide the services using the apps on commercial purpose.

Owners of such vehicles either themselves drive the cars or appoint drivers to provide the services. Passengers pay against the services as per the rates determined by the mobile app-based companies.

Owners of the ride-sharing vehicles or drivers share a part of the service charges to the mobile app-based companies.

As per VAT law, service charges of the driver are considered 'personal services' and thus exempted from payment of VAT.

However, the app-operating companies will have to pay the VAT on the part of the service charges they receive from drivers.

The companies will have to pay the VAT before submission of VAT returns.

The ride-sharing industry is fairly new in Bangladesh having immense potential for growth.

Earlier, Uber in a letter requested the NBR to keep ride-sharing sector outside of the ambit of VAT until the company overcomes this nascent stage.

According to an estimate by the Policy Research Institute (PRI), the size of ride-share market in Dhaka is around Tk 22 billion a year.

Presently, cars, motorbikes, CNG auto-rickshaws and other motor vehicles are providing ride-sharing services in Dhaka, Chattogram and other major cities.

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