The National Board of Revenue has eased rules to allow local businesses to receive VAT rebates on the raw materials bought on credit.

On November 11, the revenue authority's VAT wing issued a clarification, describing the guidelines to claim input tax rebates for the raw materials purchased on credit.

Traders have to clear dues and follow procedures to claim the rebate, known as the input tax credit, within six tax periods (six months) of a credit purchase, according to the guidelines.

Manufacturers had been facing difficulties to avail refunds or adjust VAT paid on the purchases due to specific provisions in the VAT and Supplementary Duty Act-2012. And so, traders have been demanding a solution for these complexities from the NBR.

As per the law, traders are not allowed to get refunds on a purchase of over Tk 1 lakh if the payment is not completed through an official banking channel.

Traders are also required to obtain input tax credit within four tax periods (four months). But in practice, manufacturers used to buy raw materials on credit and payments were not made instantly through a banking channel.

In its clarification, the revenue board said that businesses face difficulties to claim input tax credit because of such provisions. So, the clarification has been issued to remove these complexities, it said.

As per the prescribed procedures, businesses will have to register such purchases made through VAT invoices in the purchase account book once the raw materials reach the factory.

Businesses will also have to take rebates on payments through VAT returns in the same month of purchase, it said.

Traders will have to make increasing adjustments of input tax in their VAT returns for the unpaid portion of the value of the taxable supply. The credit portion should be paid through a banking channel within six months (tax periods) of purchase on credit.

After completion of payment, traders will be able to make decreasing adjustments of VAT within the same tax periods, the clarification said.