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What are the Benefits of being VAT Registered?

As of July 1 2012 Value Added Tax (VAT) will replace the Goods and Services Tax (GST). GST is currently charged on importation, certain services provided and certain manufactured goods. VAT has a broader basis as it will be charged on all domestic transactions (supplies of goods and services) and importations, except for those specifically exempted under the Value Added Tax Act 2010.

Unlike GST, businesses will have to register in order to charge VAT on their sales. Under the VAT Act 2010, businesses making an annual sales turnover exceeding the SR 5 million threshold will be compulsorily required to register for VAT. In contrast, businesses making an annual sales turnover below the SR 5 million threshold will be able to choose whether they want to be registered on a voluntary basis or not. All VAT registered businesses will have to charge VAT at 15% on all their taxable supplies (sales of goods and services which are VAT chargeable).

What are the benefits of being VAT registered?
  1. Input Tax Credit:
    Whenever a business purchases a good or a service from a VAT registered business, the business incurs an input tax. Input tax is the VAT paid on purchases including imports.

    For example, in July 2012 a business imports a computer with a Customs value of SR 6 000, the business pays 15% of that value to Customs, which is SR 900 (6 000 x 15% = 900). This SR 900 is called input tax. For registered businesses, this input tax is deductible (will call it input tax credit). The moment the VAT registered business pays the SR 900 to Customs, the SR 900 becomes a credit for the VAT registered business. This input tax credit is offset against the output tax. The output tax is the VAT collected when the VAT registered business makes a sale to its customers.

    For example, in that same month, July 2012, the VAT registered business makes a total sale worth SR 10 000 (VAT inclusive) (*). The corresponding VAT amount is SR 1 304.35.

    (*) Remember that in order to calculate the exact VAT amount which has been incorporated in a VAT inclusive price, the VAT inclusive price has to be multiplied by 15 and divided by 115. In this example, it is SR 10 000 x 15/115 which gives SR 1 304.35.

    This SR 1 304.35 is the output tax. The VAT registered business will be able to offset the SR 900 (input tax credit) against the SR 1 304.35 (output tax) and remit only the difference to Seychelles Revenue Commission (SRC), which is SR 404.35 (1 304.35 – 900 = 404.35).

    Only a VAT registered business will be able to claim an input tax credit. A non-VAT registered business will not be able to offset the VAT incurred when making purchases. For a non-VAT registered business, input tax incurred on purchases is an expense. In contrast, for a VAT registered business, input tax incurred on purchases is neutral. With an input tax credit, it is as if the VAT registered business never incurred the VAT in the first place.

  2. VAT Credit carry forward:
    Whenever an input tax credit cannot be offset against the output tax collected, that is the input tax exceeds the output tax, the input tax is carried forward as a VAT credit.

    For example, in the month of August 2012, the VAT registered business incurs an input tax of SR 2 000 on purchases but only collects an output tax of SR 1 000 on sales. The VAT registered business is now in a VAT credit situation of SR 1 000 (1 000 – 2 000 = - 1 000). In other words, SR 1 000 of the input tax credit cannot be offset. Therefore the VAT registered business does not remit any VAT to SRC but instead is able to carry forward the VAT credit (SR 1 000) to the next VAT period (September 2012) where it can be offset against the output tax collected in September 2012.

    Since only a VAT registered business can receive an input tax credit, only a VAT registered business can carry a VAT credit forward.

  3. VAT Refund:
    Only a VAT registered business can claim a VAT refund.

    The normal rule is that a VAT credit has to be carried forward for three (3) consecutive months. It can be refunded by SRC if after the expiration of the 3 months the VAT credit has not been offset against the output tax.

    For example, if the VAT registered business has not been able to offset the SR 1 000 in the month of September, October and November, the SR 1 000 will be refunded to the VAT registered business.

    There is a different rule for registered businesses making exclusively zero-rated supplies such as exporters. For them, the credit will be refunded every month, as they will never be able to offset the input tax incurred on purchases. The list of zero-rated supplies appears under the Second Schedule of the Value Added Tax Act 2010.

  4. Deferred Payment:
    Only a VAT registered business will be able to request for a deferred payment.

    Whenever a VAT registered business imports a capital item whose CIF (cost, Insurance and freight) value is at least equal to SR 100 000, it will be entitled to benefit from the deferred payment mechanism. This mechanism means that the business will not have to pay the VAT due on the capital item at the point of entry (Customs) but will report it on its next VAT return. This system will avoid cash flow issues for importers.

    For example, if the VAT registered business imports a capital item whose value is SR 150 000, the corresponding VAT is SR 22 500 (150 000 x 15% = 22 500). This SR 22 500 is an input tax credit for the VAT registered business and under the deferred payment facility it will not be paid at Customs. Instead, this SR 22 500 will be reported on the VAT return as both an input tax and an output tax.
For more information
You can contact Seychelles Revenue Commission on 4293737 or email us at advisory.center@src.gov.sc.
The Value Added Tax Act, 2010 is available here.


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