VAT Guide to Value Added Tax - sri lanka inland revenue ...

18.15 Leasing Advance
Sometimes it is possible that the leasing advance be treated as a supply different from
leasing and as a supply not specified in the VAT Act. In that case the advance should be
taxed at 20% irrespective of the type of asset leased. Then in the example in para 18.5
Rs. 200,000/- advance will be taxed at 20% while the lease installment is taxed at 10%).
A ruling to this effect will be issued shortly This is applicable to advance payments which
will not be set off against subsequent rentals..
18.16 Leasing of immovable properties
The time of supply is the same as in the case of finance leasing described under para
18.5. Any advance is taxed at the time of payment of advance at the rate applicable to
(lease) rent.
18.17 Some Examples
Eg.1 Bank B on 20.09.2002 purchases a bus with seating capacity more than 28 seats
from the importer A in order to give it on lease to C who is in public passenger transport
business. The leasing is under the Finance Leasing Act. A,B, and C are all registered
persons. B files returns monthly while the others are quarterly taxpayers. Price paid is
Rs.1,600,000 + VAT. It was leased to C on 05.10.2002 on terms that C should pay
300,000/- advance at the time if signing the agreement plus 72 monthly installments of
25,000/- each (i.e six years). In addition C was required to insure the bus as the
exclusive user and to assign the insurance policy to the bank. After July 2003 the
installments went into arrears and in August 2004 the bus met with an accident. The
insurance company D paid in November 2004 accident damages for a claim of 350,000/-
made in October 2004 and the bank recovered arrears from the insurance claim. C
decides to settle the lease prematurely and purchase the bus on 28.02.2005. i.e after
paying 30 installments. Amount payable to purchase as decided by the bank is
equivalent to 15% less than the balance 42 installments i.e Rs.892,500/- What are the
VAT implications?
Taxable Period ending 30.09.2002
A - Importer A’s Output tax on the sale of the bus = 16,000,000 @ 10%
= 160,000/-
because the VAT rate applicable to passenger bus with more than 28 seats is 10%.
B - Banks input tax on the purchase of the bus = NIL
because input tax credit on leasing stock is not allowed as the leasing installments are exempt from
VAT in respect passenger bus with more than 28 passenger seats.
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