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VAT versus GST
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On July 1, 2012, the Value Added Tax (VAT) will replace the Goods and Services Tax (GST). VAT and GST present
certain similarities—both are indirect taxes levied on sales, and the final consumers bear the ultimate
burden of the tax. But VAT will correct some undesirable effects of the GST, such as the cascading and
distorting ones. In that respect, VAT significantly improves the tax system.
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How does GST work?
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GST was implemented in 2003 and is levied on the importation of all goods, unless exempted under the Goods
and Services Tax Regulations 2003. GST is also levied on the sales turnover of specified manufacturers of
goods produced in Seychelles and on specified service providers. Initially GST was imposed at the point of
entry and at the point of sale for professional service providers. Over the years, only holders of the Tourism
Incentive Act (TIA) certificate benefitted from a GST concession on imported goods. In 2010, the concession
was extended to other businesses. Actually, GST works as a turnover tax without deduction of the input tax.
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How does VAT work?
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VAT is a broad-based tax, levied on all imported goods at the point of entry by Customs and on domestic
supplies of goods and services made by VAT registered businesses, with a few exemptions specifically
designated in the Value Added Tax Act 2010.
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VAT versus GST?
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When a VAT registered taxpayer purchases goods or incurs expenses for the purpose of his/her business, he/she
is allowed to offset the tax paid on these inputs (input tax) against the tax collected from his/her customers
(output tax). The difference - if any - is remitted to Seychelles Revenue Commission. In contrast, if input tax
exceeds output tax, there is a VAT credit that can be either carried forward or refunded. So, these typical
VAT mechanisms prevent double taxation and cascading effects allowed by GST. The following table provides
examples of respective GST and VAT mechanisms.
GST Mechanism
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GST
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VAT Mechanism
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VAT
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A is an importer he imports a good whose value is 100
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15
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A is an importer he imports a good whose value is 100. He will pay VAT SR 15 to customs
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100 * 15% = 15
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A sells the good to B (local manufacturer) SR 200. A will not pay GST on his turnover
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0
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A sells the good to B (local manufacturer) SR 200. A will collect VAT (SR 26) from B but will deduct (SR 15). His VAT liability will be SR 11
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26 - 15 = 11
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B sells the good (SR 300) to a service provider C. B will pay GST (33) on his turnover
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33
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B sells the good (SR 300) to a service provider C. B will collect (39.1) from C but will deduct SR 26. His VAT liability will be SR 13.1
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39.1 - 26 = 13.1
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C sells a service to D a Seychellois household. The service costs SR 400, C will apply the GST on his turnover (SR 52,1)
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53
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C sells a service to D a Seychellois household. The service costs SR 400, C will collect VAT (SR52.1) from D, but will deduct SR (39.1). His VAT liability will be SR 13
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52.1 - 39.1 = 13
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Total tax levied
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SR 101
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SR 52.1
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Conclusion
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With VAT, the total amount collected is equivalent to the last taxable supply (400 x 3/23 = SR52.1),
meaning that there is no tax on tax effect. The VAT fraction (3/23) is used to derive the exact amount of
VAT when the selling price of a good or a service is VAT inclusive.
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For more information
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You can contact Seychelles Revenue Commission on 4293737 or email us at advisory.center@src.gov.sc.
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