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

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Sale before 01.08.2002 – GST Regime Landed cost = 162.02 GST paid to Customs = 16.87 ∴ Actual cost = 145.15 Assume the profit margin = 15.00 ∴ Sale price (Marked price) = 160.15 GST payable @ 2.5% = 20.01 Final price to the consumer = 180.16 VAT payable to the government = Output tax – Input tax = 20.01 – 16.87 = 3.14 (*Note: The importer can afford to sell it at a price (160.15) below the landed price (162.02) because the GST paid to Customs (16.87) which is included in the landed price is not a part of his cost since it can be recovered by way of a deduction from the amount payable to the government. Sale after 01.08.2002 – VAT Regime Case 1 – If the goods imported before 01.08.2002 are sold after 01.08.2002 In this situation an importer is entitled to a special input credit Sec.78(i) That is even the NSL embeded in the stocks remaining unsold as at 31.07.2002 is treated as input tax. Vide para 9.4.4 ∴ Input tax allowable = 16.87 + 10.15 Landed price = 162.02 ∴ Actual cost to the importer = 162.02 – (16.87 + 10.15) = 135.00 Assume the same profit margin = 15.00 ∴ Marked price for sale = 150.00 VAT at 20% = 20.00 Final price to the consumer = 180.00 VAT payable to the government = Output tax – Input tax = 30 – 16.87 – 10.15 = 2.98 Thus it can be seen that the importer can keep the same profit margin as during GST period but sell the goods at a lower final price to the consumer than during GST regime if the other (non-tax) factors remain unchanged. 172
Case 2 - When the goods imported after 01.08.2002 are sold Landed price = 150.00 VAT paid to Customs = 25.00 ∴ Actual cost to the importer = 125.00 Assume the same profit margin = 15.00 ∴ Marked sale price = 140.00 VAT @20% = 28.00 ∴ Final sale price to the consumer = 168.00 • Therefore under VAT an importer can keep the same profit margin as under GST but sell the goods to the consumer at final price very much lower (168/-) than under GST, (180.16) assuming other non-tax factors remain unchanged. • It was observed that the VAT paid to customs does not form part of the cost to the importer. Similarly VAT charged by him on the sale price does not form part of his turnover because that is a statutory collection made on behalf of the government (The importer is required to pay 1% of 140/- i.e Rs.1.40 as turnover tax to the Provincial Council. In the previous case where the sale price was 150/- he is required to pay Rs.1.50 as T.T.) N.B. Unlike in turnover tax, VAT on sales is not an amount received or receivable in respect of the transaction but an amount charged separately and statutorily on behalf of the government which the supplier has to account for in respect of each invoice. (whereas under T.T. the liability of the supplier is based not on the amount of T.T indicated in the invoice but on the basis of a pooled turnover.) Price difference between VAT Registered Person and Un-registered Person • The other important thing to note is that if the person importing and selling the above goods is not a VAT registered person then the VAT paid at the Customs becomes part of the cost of his goods. Then in the last case referred to above his cost is Rs.150/- and he cannot afford to price mark the goods at Rs.140/-. In order to keep the same profit margin of Rs.15/- the unregistered person should sell them at 150 + 15 = 165. Thus there cannot be a significant (final) price difference between the registered person and the unregistered person because the registered person is also entitled to input credit on other expenses such as electricity, telephone, transport vehicles etc. in addition to input credit (of 25/-) on VAT paid to Customs. The VAT registered persons price may then, perhaps be less than the price of the un-registered person. In any event the price difference can never be as high as the VAT rate . (i.e 20%) iv. The effective rate of VAT on imports (a) The above example represents a case where the rate of Customs Duty = 25%. When CIF = 100 and CD = 25% then GST = 16.87 and NSL = 10.15. The the effective rate when GST and NSL taken together as a percentage of CIF = 16.87 + 10.15 = 27.02%. (b) Similarly when the Customs Duty = 10%. 173
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But for the best to the September 0
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Preface The Value Added Tax Act was
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Chapter - 1 Introduction 1.1 Purpos
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However from the point of view of t
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The following test which has been a
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iv. Import of any fabric, yarn, gre
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Chapter - 3 The definitions of conc
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Eg. 1 : If “A” wants to termina
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c. Time of supply in relation to su
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Thus, any trade, business, etc. are
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a business in Sri Lanka and not to
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When the recipient is not a registe
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• There are two types of registra
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(ii) continued without making an ap
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(d) (e) (f) input credit has been c
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4.13 Activity Code Number “Suppli
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the H.S. classification it may be b
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5.8 Payment of tax on Assessments T
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5.11. Collection of VAT on Imports
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6.3 Approval For Deferment Facility
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iv. If an importer declares only pa
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6.6 Deferment on Local Supplies (Te
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7.4 Tax Invoice Tax invoice should
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7.11 Use of tax fraction to compute
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Lower Rate - 10% Goods and services
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Chapter - 9 Calculation of Tax 9.1
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accounted for in respect of all the
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transferred to a taxable activity a
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Eg. If A is an ice-cream vendor who
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(3) In the above case if the regist
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• claim (deduct) only the allowab
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• “Value of Supply” has to be
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VAT chargeable = 900,000 x 20% = 18
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• The Director General of Customs
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10.5.6 Milk - item (iv) • Liquid
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(i) Insurance - xi(i) • Only the
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in Sri Lanka and consumed in Sri La
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Chapter - 11 Refunds 11.1 Unlike in
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11.7 Set off of refunds against fut
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• To make an additional assessmen
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a genuine taxpayer who does not wis
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Penalties Tax payers should comply
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15.3 Keeping of records regarding e
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15.8 Example of a VAT Account VAT A
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the trading house or the other pers
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16.4 Concessions available to Expor
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v. Importation of services are not
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Chapter - 17 Hire Purchase Transact
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(a) Under the existing provisions V
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y the hire-purchase company to the
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Chapter - 18 Leasing & VAT 18.1 Lea
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installments. Any VAT not recovered
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18.13 Leasing inputs • Leasing in
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18.15 Leasing Advance Sometimes it
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Thus output tax of B on the termina
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Chapter - 19 Mortgages 19.1 Mortgag
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• Services provided by internatio
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Chapter - 21 Some Obligations Under
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However an adjusted figure must be
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Chapter 23 Construction Contracts 2
Page 122 and 123: Government agencies mentioned above
Page 124 and 125: Chapter - 24 Rulings 24.1 Following
Page 126 and 127: • None of the companies covered b
Page 128 and 129: which he has supplied to the garage
Page 130 and 131: instructions can be exempted if suc
Page 132 and 133: ii. iii. any other registration tha
Page 134 and 135: i. Membership fees and or subscript
Page 136 and 137: Chapter - 25 Zero Rated Supplies 25
Page 138 and 139: (ii) (iii) (iv) Services directly c
Page 140 and 141: Supply of facilities for crew chang
Page 142 and 143: 4. Yard to Port Transporting contai
Page 144 and 145: Chapter - 26 Travel Trade, Tourism
Page 146 and 147: ii. iii. But “travel insurance“
Page 148 and 149: 26.6 VAT ON MICE Tourism VAT rate a
Page 150 and 151: x. Supply of goods & vehicles free
Page 152 and 153: and for VAT purposes the two compon
Page 154 and 155: (i.e the lottery organizer) on whic
Page 156 and 157: The VAT charged on above should be
Page 158 and 159: 1.2.3 Other imported materials exce
Page 160 and 161: The sub-contract awarder should pay
Page 162 and 163: 2.3.1 Imported goods (except fabric
Page 164 and 165: 5.2.2 To BOI garment manufacturing
Page 166 and 167: Annexure - 2 First Schedule to the
Page 168 and 169: 4. Supply of any services to any Di
Page 170 and 171: Services 1. Electricity more than 3
Page 174 and 175: GST = (CIF + CD + Surcharge + Ex.Sp
Page 176 and 177: to indicate the date of payment of
Page 178 and 179: The period within which the Board o
Page 180 and 181: Mrs. S.N.P. Abrew - Senior Assessor
Page 182: 182
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