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Transitional Issues when moving from GST to a VAT system

On July 1st, 2012, the Goods and Services tax will be replaced by the Value Added Tax. Consequently, certain businesses will experience an overlap in taxes as they may likely have goods in stock or have a contracted service still operational well beyond July 2012. It is on purpose therefore that the Value Added Tax Act 2010 has addressed this by providing certain transitional provisions.

How will already registered businesses be identified as VAT registered taxpayers?
In order to update the registration details of existing businesses a form will be issued by Seychelles Revenue Commission (SRC) to businesses for them to indicate their 2011 annual sales turnover (based on their best estimation) or their turnover for the last 12 months and confirm if they should be VAT registered. Businesses whose annual sales turnover falls below the SR 5 Million threshold will also be asked to confirm whether they want to be registered or not.

What will happen to goods that are in stock on July 1st, 2012?
If the goods were imported with GST six months prior to July 1st, 2012 (between January to June 2012) and are still in stock by and sold after July 1st, 2012, then these goods will be liable to VAT. GST would have already been paid but to prevent tax to be paid twice on the same goods, a provision has been made in the VAT Act 2010 to allow GST incurred to be considered as an input tax credit and be deductible against output tax collected under the VAT regime, provided that:
  • The goods have been imported no more than six months before the introduction of VAT
  • The goods are used entirely for business purpose
  • The goods are used to make other taxable supplies or are sold with VAT
  • The same goods are exempt under the Value Added Tax Act 2012
  • There are satisfactory documents to prove that GST has been paid, e.g. a Bill of Entry
  • The goods have been imported no more than six months before the introduction of VAT
  • The goods are used entirely for business purpose
  • The goods are used to make other taxable supplies or are sold with VAT
  • The same goods are exempt under the Value Added Tax Act 2012
  • There are satisfactory documents to prove that GST has been paid, e.g. a Bill of Entry
If the goods were purchased with no GST six months prior to July 1st, 2012, but are taxable under the VAT system, then VAT will be charged on the sale of these goods. However, there will be no deductions allowed as no GST was incurred on the purchased goods.

It is important to note that only a VAT registered business will be liable to charge VAT on the sale of goods and services. As a result, a non-VAT registered business will not be able to deduct the GST incurred within the transitional period after VAT has been implemented since VAT will not be chargeable.

When can GST incurred be deducted against the VAT collected?
GST incurred on purchased goods will be deductible only in the first VAT period upon the introduction of VAT. The first VAT period is July 2012 hence a GST credit can be claimed on the July 2012 VAT return which is submitted by August 21st, 2012.

What happens to services contracted prior to July 2012?
In order to determine if VAT is chargeable, the time of supply plays an important factor. The time of supply dictates when VAT is chargeable and as per the Value Added Tax Act 2010, VAT is chargeable on the date an invoice is issued or payment is made, whichever happens first.

When VAT is chargeable:
  • If the services have been completed prior to July 2012, but both the invoice and the payment are made after July 1st, 2012, then VAT is chargeable.
When VAT is not chargeable:
  • If the services have been completed and an invoice has been issued prior to July 1st, 2012, but payment is made thereafter, then VAT is not chargeable on the supply. The time of supply is considered to have taken place prior to VAT implementation.
  • If the services have been completed and payment has been made prior to July 1st, 2012, but an invoice is issued thereafter, then VAT is not chargeable on the supply. The time of supply is considered to have taken place prior to VAT implementation.
  • If the services are completed after July 1st, 2012, but an invoice is issued and/or payment is made prior to that, then VAT is not chargeable on the supply. The time of supply is considered to have taken place prior to VAT implementation.
  • If a partial payment is made prior to July 1st, 2012, but the invoice is issued and the remaining payment is made thereafter, then VAT is chargeable only on the remaining payment made after VAT implementation. The invoice will therefore reflect a partial payment with no VAT and the remaining payment with VAT.
For more information
Please 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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