Compliance of withholding entity following VAT deduction at source

Some entities have been given the responsibility of deduction of value-added tax (VAT) at source. Those are government entities such as ministry, division or attached department, semi-government or autonomous body, state-owned enterprise, local authority, council or similar organisation, non-government organisation (NGO), bank, insurance company or financial institution; secondary and post-secondary educational institution and limited company.

The entities are called withholding entities. While these entities make payment following purchase of goods or service, they then need to deduct VAT at source if the purchase attracts short VAT rates: 5 percent, 7.5 percent or 10 percent.

If the purchase attracts 15 percent VAT rate, the entity does not need to deduct VAT while making payment. Rather, VAT is given to the seller along with the price of the purchased goods or service to be forwarded to the government through monthly VAT return or treasury deposit. 

If an entity has deducted VAT, it has to be deposited to the government treasury.

Two types of entities have two methods of depositing VAT to the government treasury. The withholding entities who are registered under VAT and require submitting monthly VAT return, they make increasing adjustment in the return.

Such increasing adjustment is equal to deposit of VAT to the government treasury.

Within 3 working days of submission of VAT return, the entities require issuance of a withholding certificate in Mushak-6.6 form. The form must then be submitted to the seller of goods or service.

If the withholding entity does not require to be registered under VAT, then it does not submit monthly VAT return.

Such entity shall deposit VAT to the government treasury using treasury challan within 15 working days of deduction. A withholding certificate in the above manner has to be issued to the seller of goods or service within 3 working days of deposit.

The writer is a VAT expert currently working as specialist for a World Bank-financed VAT-related project.