Introduction
Seven days into the new year and seven days under the Value Added Tax system it is clear that there is widespread non-compliance with the requirements of the VAT Act, subsidiary regulations and the amending legislation.
I have made a few purchases on which VAT is applicable and in not one case have all the requirements been met. A sales invoice which clearly states VAT has been charged was missing a TIN (Tax Identification Number) and I received a tax invoice which did not state it was a tax invoice! Other stores have had difficulty adapting their receipts for sales to other registered persons to include all the information required – in particular, the names, addresses and TINs of both parties must be included.
In one case notwithstanding the fact I did not want a receipt I was not offered one. While these are very minor areas of non-compliance which I am sure can be cleared up by contacting the business in question or failing that a call to the GRA helpline, if scarce resources are required to correct the minor things this means they are being drawn away from serious areas of non-compliance such as failing to register, charging VAT when not authorised to do so or not remitting VAT altogether.
The Guyana Revenue has a mammoth task to ensure that steps are taken to educate businesses so they can bring their practices into line, failing which they must take action lest widespread non-compliance becomes accepted as the norm.
In this week’s column I will attempt to clear up the confusion in three areas which I think business are struggling to grapple with and explain how I think they can be resolved.
“Vat Exclusive Method” does not mean putting up a notice that 16% VAT will be added at the till There seems to be widespread confusion about what “VAT exclusive means” – this means displaying the VAT exclusive price together with the amount of VAT not excluding the amount of VAT from the display altogether. I am flabbergasted that even this publication reported on incorrect application of the VAT exclusive method as if it was in compliance – SN 03 January 2007 – “The VAT registration certificate at the cafeteria was visible…There were also signs notifying the public that the shelf prices did not include VAT and this would be calculated at the cashier.”
I quote directly from the GRA guide to VAT “Prices advertised or quoted must include the amount of tax or show the tax-exclusive price and the amount of tax with equal prominence” (my emphasis). Stores which state their prices are VAT exclusive and VAT will be charged at the till are thus not displaying the amount of tax and are thus not in compliance.
The whole point of this requirement is that you know the price that you are going to pay for an item before you get to the till – personally I have difficulty enough adding prices in my head without trying to add an extra 16% on top! I do not think that walking around with a calculator should be necessary.
I am not sure what the penalty for non-compliance is in such cases. It would be a pleasant surprise for the consumer if the sticker price was deemed to be VAT inclusive – and the stores carrying out such a practice were required to refund the difference between the sticker price and what was paid at the till.
Zero rated and exempt goods
In some cases consumers buying zero rated or exempt goods from businesses selling both rated and non-rated goods have been charged on the non-rated goods. It is easy to see how this has come about, particularly if the VAT exclusive method of showing prices has been applied incorrectly in the way I describe above – a shopper comes to the till, the VAT exclusive prices are added up and then 16% is added to the total, without regard for the actual rates of tax that should be charged on each item.
Unfortunately, if a point of sale system is not set up to handle different rates of tax on different goods it will make life difficult. One way to get around this in the short term involving limited system changes would be to issue separate bills for rated and non-rated supplies – assuming the point of sale system can handle different tax rates. Even if VAT inclusive prices are displayed it still leaves the issue of how much VAT has been collected – which, if zero rated goods are included can only be determined by looking at the cost of each item on an individual basis. However, if the supplier is allowed to issue a sales invoice then the VAT inclusive method will not require this calculation to be done at point of sale – the amount of the VAT is only required to be shown on a sales invoice “if separately stated”. Though more onerous for subsequent record keeping this allows stores to operate until their point of sale systems are brought up to speed.
Sales invoice and tax invoices
Perhaps the greatest confusion comes with the differentiation of sales invoices and tax invoices, in particular which one needs to be issued in a given situation and the information which needs to be shown on them. The following flowchart illustrates when each should be used. A sales invoice is only required to show a limited amount of information including: the name, address and TIN of the registered person making the supply; a description sufficient to identify the goods supplied or services rendered; the price of the supply; the amount of the VAT if separately stated and the issue date of the sales invoice.
In addition to the information required for a sales invoice a tax invoice must carry the following: the words “tax invoice” in a prominent place; for a supply to a registered person, their name, address and TIN; an individualised serial number; and the total tax charged, the consideration for the supply and the consideration including tax.
It seems to be a common misconception that a sales invoice can be used to reclaim tax, however only tax invoices can be used to do so. One of my suppliers prepared what they claimed was a tax invoice but did not include my name, address or TIN and was not able to add same to the receipt at the time of sale. Notwithstanding that section 67 (3) of the VAT Act makes it an offence to knowingly or recklessly fail to provide a tax invoice, with penalty on conviction of a fifteen thousand dollar fine and imprisonment for 6 months, because my supplier was not prepared or able to issue a tax invoice I told them I may be forced to switch to a supplier which could issue tax invoices. In the meanwhile I will seek guidance from the GRA whether I can add the missing information myself!
It remains to be seen how strict the GRA will be when determining whether or not an invoice which is lacking all the necessary information (or contains information which is written on afterwards) is allowable for reclaiming input tax.
One thing that is confusing is whether the supplier has the onus of determining whether or not they are making a supply to a registered person or not. Will it be a valid defence to say that they did not know? It is certainly in the interests of a registered recipient to obtain a tax invoice, so my advice is to always make sure you know which document you are expecting and make sure it carries the right information. If you find after the fact that you received a sales invoice when you were expecting a tax invoice you have up to 40 days to request a tax invoice in writing and the supplier has up to ten days to provide it.
