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VAT versus GST

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.

How does GST work?
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.

How does VAT work?
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.

VAT versus GST?
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

GST

VAT Mechanism

VAT

A is an importer he imports a good whose value is 100

15

A is an importer he imports a good whose value is 100. He will pay VAT SR 15 to customs

100 * 15% = 15

A sells the good to B (local manufacturer) SR 200. A will not pay GST on his turnover

0

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

26 - 15 = 11

B sells the good (SR 300) to a service provider C. B will pay GST (33) on his turnover

33

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

39.1 - 26 = 13.1

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)

53

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

52.1 - 39.1 = 13

Total tax levied

SR 101



SR 52.1



Conclusion
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.
For more information
You can contact Seychelles Revenue Commission on 4293737 or email us at advisory.center@src.gov.sc.


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