Value added tax

Chapter 310, Finance (Provision for payment of taxes) Act of the Laws of Saint Vincent and the Grenadines provides for the payment of consumption tax which is collected by the Customs and Excise Department. This is the tax that would be abolished to give way to Value added tax (VAT) in Saint Vincent and the Grenadines. The government has already put forward its intention in a white paper captioned “Proposals for Value Added Tax (VAT)”. Along with the consumption tax other taxes such as the telecommunication surcharge, stamp duty, travel tax, entertainment tax and hotel tax which cover services will be replaced by VAT.{{more}}

VAT is becoming very popular. It was first introduced in France in 1954 and it is today used in countries of the European Union including the United Kingdom. It is now operational in countries such as India, Australia among others. In the Caribbean, it is in effect in Jamaica, Barbados, Haiti and Trinidad and Tobago. A few other states in the Caribbean besides SVG are preparing to introduce it.

The government has instituted a special unit to set the foundation and to educate the people about the proposals. The laws relating to VAT are not already in place but the principle on which the system operates is given some coverage in preparation for its introduction.

VAT is an indirect tax, indirect in the sense that it is not charged on a person’s income but on the goods and services that he chooses to buy. The consumer does not pay the tax directly to government but to businesses which in turn pay it to the government. VAT resembles a sales tax in that it is paid by the end purchaser or the consumer. It is different in that it has value added at different stages of the production/distribution and some of it is refundable.

Input and Output

VAT has an input and an output component. The input component is the tax that a business pays to other businesses for material and supplies used to manufacture its goods. The input component is eventually retained by the business when it deducts this from the taxes that it collects from the consumers who pay the output tax when goods and service are bought.

VAT will also be paid at the customs and will be recovered by the businessman when he sells to the end purchaser. At present the consumption tax ranges from 5 percent to about 65 percent. Government proposes a 15 to 16 percent VAT. This is not unlike what obtains in some countries of the European Union where the minimum standard rate of VAT is 15 percent. It must be noted that Customs will continue to collect custom duties and an import tax (on international goods).

Because VAT is collected by businesses they have to shoulder the cost of collecting the taxes. This means that they would have to put in place an invoicing system, keep good records and make monthly returns.

Registration of businesses, zero rated goods, exempted goods

Businesses that administer VAT must be registered with the relevant authority. To do so that business must be engaged in an economic activity with taxable supplies of at least $60,000. Those businesses that are not registered would not be able to claim input VAT but will have to pay output VAT.

Some supplies will be zero rated, that is, taxes will be charged on the supplies at zero percent and others will be exempted from VAT. A business with zero-rated supplies will be able to claim the input which is unlike exempted supplies where the business will not be able to reclaim input tax.

• Ada Johnson is a solicitor and barrister-at-law.

E-mail address is: exploringthelaw@yahoo.com