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

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%.
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