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

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Chapter – 17 Hire Purchase Transactions & VAT 17.1 Hire purchase agreement means an agreement under which goods are sold and i. the possession of goods is delivered by the owner to a person on condition that such person pays an agreed amount in periodical installments : and viii. either the property in goods will be passed to the hire -purchaser on the payment of the last installment or an option to purchase the goods can be exercised in accordance with the terms of the agreement. 17.2 The VAT treatment of a hire-purchase conditional sale or a credit sale transaction is based on the premise that unlike in the case of a lease transaction where only the possession of goods passes to the lessee while the ownership remains with the lessor, in the case of a hire-purchase conditional sale or a credit sale both the possession and the ownership in goods passes to the hire-purchaser. Thus for VAT purposes an hirepurchase conditional sale or a credit sale is treated as having two components namely (i) Supply of goods and (ii) Supply of a financial service Thus the total consideration in the invoice pertaining to a hire-purchase transaction may have a “cash price” component and a “hire-purchase charges” component. The hirepurchase charges component is in effect a finance charge. If the hire-purchase charge is not separately disclosed to the customer the total consideration is treated as the cash price of goods. i. The “value of supply” in the “supply of goods” component, as explained in para 3.8(5), is the cash price of goods determined in accordance with the provisions of the Consumer Credit Act No. 29 of 1982 or the market value of goods, whichever is higher, in the case of new goods. If they are second hand goods (i.e if they have been used in Sri Lanka for more than 12 months) then the value of supply is the value as per agreement less hire-purchase charges. The hirepurchase company should charge VAT on this value at the rate applicable to the particular goods. If the goods belong to 20% category (Eg. Television, motor cycle) then 20% of the value of supply as computed above should be charged as VAT. If the goods belong to 10% category (Eg. Computers, refrigerators, airconditioners) then 10% of the value of supply should be charged as VAT. If the goods are exempt as per First Schedule to the VAT Act supply of goods component in a hire-purchase sale will be exempted from VAT. 96
ii. (a) The financial services component was exempt from GST under item (xvi)(h) of the exemption list provided the finance charge or the hire-purchase charge is separately disclosed to the purchaser. (b) However, it appears that the VAT Act has brought about a change by restricting the exemption to the financial charges of second hand goods only. Vide item (xi)(h) of the First Schedule to the VAT Act. Please see the preambles to the two items i.e item (xvi) of the GST Act and item (xi) of the VAT Act. They both speak of exemption of financial services only and not of exemption of “supply of goods’ (c) It is noted that the intention was to exempt both components (i.e both finance charge and supply of goods) in the case of second hand goods while exempt only the finance charges component in the case of new goods. It is expected that this will be clarified by an amendment to the law. (d) The exemption of finance or hire-purchase charges depends on the fact whether it is separately disclosed to the purchaser or not. If it is not separately disclosed and only the total consideration is disclosed then the total consideration is treated as the price charged for supply of goods. Question of exempting finance charges does not arise. 17.3 The following example will illustrate the VAT treatment of a hire-purchase transaction under the existing provisions and under the intended clarification. Eg 1 -. The Buyer B purchased a new computer from the hire-purchase company H on hire purchase terms. The cash price is Rs.125,000/- and the finance charges amount to Rs.33,000/- so that the total hire-purchase price is Rs. 158,000/- The hire-purchase charge is disclosed separately to the buyer B. The other terms are that an initial payment of Rs.50,000/- should be made while the balance Rs.108,000/- should be paid in 36 installments of Rs.3000/- per month. Assume that the cash price determined in accordance with the Consumer Credit Act and the market value do not exceed Rs.125,000/- Computers are categorized as industrial machinery and the rate of VAT is 10%. Then the invoice from H to B must contain the following minimum details: 97
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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
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
Page 56 and 57: transferred to a taxable activity a
Page 58 and 59: Eg. If A is an ice-cream vendor who
Page 60 and 61: (3) In the above case if the regist
Page 62 and 63: • claim (deduct) only the allowab
Page 64 and 65: • “Value of Supply” has to be
Page 66 and 67: VAT chargeable = 900,000 x 20% = 18
Page 68 and 69: • The Director General of Customs
Page 70 and 71: 10.5.6 Milk - item (iv) • Liquid
Page 72 and 73: (i) Insurance - xi(i) • Only the
Page 74 and 75: in Sri Lanka and consumed in Sri La
Page 76 and 77: Chapter - 11 Refunds 11.1 Unlike in
Page 78 and 79: 11.7 Set off of refunds against fut
Page 80 and 81: • To make an additional assessmen
Page 82 and 83: a genuine taxpayer who does not wis
Page 84 and 85: Penalties Tax payers should comply
Page 86 and 87: 15.3 Keeping of records regarding e
Page 88 and 89: 15.8 Example of a VAT Account VAT A
Page 90 and 91: the trading house or the other pers
Page 92 and 93: 16.4 Concessions available to Expor
Page 94 and 95: v. Importation of services are not
Page 98 and 99: (a) Under the existing provisions V
Page 100 and 101: y the hire-purchase company to the
Page 102 and 103: Chapter - 18 Leasing & VAT 18.1 Lea
Page 104 and 105: installments. Any VAT not recovered
Page 106 and 107: 18.13 Leasing inputs • Leasing in
Page 108 and 109: 18.15 Leasing Advance Sometimes it
Page 110 and 111: Thus output tax of B on the termina
Page 112 and 113: Chapter - 19 Mortgages 19.1 Mortgag
Page 114 and 115: • Services provided by internatio
Page 116 and 117: Chapter - 21 Some Obligations Under
Page 118 and 119: However an adjusted figure must be
Page 120 and 121: 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
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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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