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

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Chapter - 1 Introduction 1.1 Purpose of this brochure This brochure provides a basic knowledge and guidance to the public and taxpayers on Value Added Tax. This is not an exhaustive document and does not cover special situations and exceptions to the general principles stated in the law. This will also serve as an introductory manual to the officers. 1.2 What is V.A.T? The Value Added Tax replaces the existing Goods and Services Tax but the concepts and principles of VAT are the same as those of GST with which you are already familiar. VAT is a tax on domestic consumption of goods and services. Thus goods imported into Sri Lanka and goods and services supplied within the territorial limits of Sri Lanka are the subject matter of this tax. It is a multi-stage tax levied on the incremental Value Added at every stage in the production and distribution chain of Goods and Services. The tax is borne by the final or the ultimate consumer of goods or service (Vide Para 9.5) He does not pay it direct to the government but to the ultimate supplier who supplied the goods or service to him. However the government will receive in the end, through all the intermediary suppliers in the chain of production and distribution, an amount equal to the amount paid by the final consumer, because each intermediary supplier in that chain is responsible to pay to the government, only the VAT he collects on the supplies made by him (output tax) less the VAT he paid on the supplies obtained by him (input tax). Thus the seller or the supplier of good/service does not pay tax himself as he is entitled to re-claim from the government the VAT he pays, on his factors of production, from the monies that he collects for the government. He is a mere collector of tax, from the consumers, on behalf of the government. The VAT collected by him from his customers is not a part of his profit or turnover because he is responsible to account for VAT collected by him on every invoice. The collector (i.e the seller or suppler of good/service) becomes a “ trustee” for that money on behalf of the government. 6
1.3 The scope of the tax VAT is charged on import of goods into Sri Lanka and supply of goods and services into Sri Lanka in the course of carrying on a carrying out a “taxable activity” in Sri Lanka – Sec. 2. Taxable Activity means any trade, business etc., Please see Definition in Para 3.7. By implication therefore a supply which is not made in the course of a taxable activity and a supply which is not a “taxable supply” are outside the scope of VAT. In addition • Independent trading activities concerning retail and wholesale supply of goods and commodities (Section 3), and • Certain imports – Sec. 2(3). have been specifically excluded from its scope. These excluded imports are enumerated in Section 2(3). Vide Para 2.4.1. Notwithstanding exclusion there is provision for voluntary inclusion, in the case of persons engaged in retail and wholesale trading activities if a person wishes to get himself included into the VAT net. Supply of goods and services within the scope of VAT are confined to i. supplies where the supplier is carrying on or carrying out a taxable activity in Sri Lanka, and ii. goods are in Sri Lanka at the time of supply in the case of supply of goods or iii. services are performed in Sri Lanka by the supplier or his agent in the case of supply of services - Section 9. A person or a company resident outside Sri Lanka too can be engaged in carrying on or carrying out a taxable activity in Sri Lanka without having its business presence in Sri Lanka. A foreign company can conduct business in Sri Lanka by establishing a branch office in Sri Lanka, through an agency in Sri Lanka, through internet or through an independent agent who may canvass for clients, canvass for orders and also attend to other activities concerning that business (such as indenting agents who canvass for orders, insurance and survey agents who canvass for clients and prepare survey reports in order to assess the insurance claims made to a foreign insurance company). However it appears that the VAT Act has not brought within its scope all such situations although all are situations of carrying on or carrying out taxable activities in Sri Lanka. When a foreign company has a branch office or a permanent agency in Sri Lanka it can be brought within the scope of the normal provisions of the Act. When a person in Sri Lanka carries on a taxable activity on behalf of a foreign company it can be brought within the scope of VAT under Section 55. Please see para 3.7 (ii) Eg. 2. But it is doubtful whether conducting business in Sri Lanka through an indenting agent, through any independent agent or through internet are within the scope of the VAT Act. 7
Page 1 and 2: But for the best to the September 0
Page 3: Preface The Value Added Tax Act was
Page 8 and 9: However from the point of view of t
Page 10 and 11: The following test which has been a
Page 12 and 13: iv. Import of any fabric, yarn, gre
Page 14 and 15: Chapter - 3 The definitions of conc
Page 16 and 17: Eg. 1 : If “A” wants to termina
Page 18 and 19: c. Time of supply in relation to su
Page 20 and 21: Thus, any trade, business, etc. are
Page 22 and 23: a business in Sri Lanka and not to
Page 24 and 25: When the recipient is not a registe
Page 26 and 27: • There are two types of registra
Page 28 and 29: (ii) continued without making an ap
Page 30 and 31: (d) (e) (f) input credit has been c
Page 32 and 33: 4.13 Activity Code Number “Suppli
Page 34 and 35: the H.S. classification it may be b
Page 36 and 37: 5.8 Payment of tax on Assessments T
Page 38 and 39: 5.11. Collection of VAT on Imports
Page 40 and 41: 6.3 Approval For Deferment Facility
Page 42 and 43: iv. If an importer declares only pa
Page 44 and 45: 6.6 Deferment on Local Supplies (Te
Page 46 and 47: 7.4 Tax Invoice Tax invoice should
Page 48 and 49: 7.11 Use of tax fraction to compute
Page 50 and 51: Lower Rate - 10% Goods and services
Page 52 and 53: Chapter - 9 Calculation of Tax 9.1
Page 54 and 55: 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
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Government agencies mentioned above
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Chapter - 24 Rulings 24.1 Following
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• None of the companies covered b
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which he has supplied to the garage
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instructions can be exempted if suc
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ii. iii. any other registration tha
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i. Membership fees and or subscript
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Chapter - 25 Zero Rated Supplies 25
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(ii) (iii) (iv) Services directly c
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Supply of facilities for crew chang
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4. Yard to Port Transporting contai
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Chapter - 26 Travel Trade, Tourism
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ii. iii. But “travel insurance“
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26.6 VAT ON MICE Tourism VAT rate a
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x. Supply of goods & vehicles free
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and for VAT purposes the two compon
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(i.e the lottery organizer) on whic
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The VAT charged on above should be
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1.2.3 Other imported materials exce
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The sub-contract awarder should pay
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2.3.1 Imported goods (except fabric
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5.2.2 To BOI garment manufacturing
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Annexure - 2 First Schedule to the
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4. Supply of any services to any Di
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Services 1. Electricity more than 3
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Sale before 01.08.2002 - GST Regime
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GST = (CIF + CD + Surcharge + Ex.Sp
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to indicate the date of payment of
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The period within which the Board o
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Mrs. S.N.P. Abrew - Senior Assessor
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VAT Guide to Value Added Tax - sri lanka inland revenue ...

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