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Friday, 09 March 2007 |
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Input Credit
Input Tax is paid by a
VAT registrant on purchases
of business
inputs. Credit for
input tax is allowed if
the goods/services are
used in making taxable
supplies and not
exempt supplies.
Returns
Every VAT registrant
will be required to file
a VAT return every
month on the 20th of
the following month
(or the following working
day) whether or
not tax is payable in
respect of that month.
The return is to be
filed with the Comptroller
of Inland Revenue
in the form prescribed
by the Comptroller
and contained
in the Legislation.
Payments
The VAT payable by a
registrant for a tax
period (one month) is
the total amount of
VAT collected in
respect of taxable supplies
made during the
month (output tax),
less the total VAT paid
on inputs for the
month (input tax).
The deadline for payment
is the due date
for filing the return.
Assessment
In general, a VAT registrant
is allowed to self-assess his VAT liabilities.
However, if the Comptroller is not satisfied with the return filed, he
may issue an assessment or an amended assessment in cases where
the amounts reported on the self-assessed form are not accurate.
If a registrant fails to file a Return as required by law, the Comptroller
may issue an assessment and payment would be due as specified
in the
Notice of Assessment.
Refunds
A credit exists where a registrant’s input tax for the month exceeds
the output tax for that month. With the exception of exports, the
difference will be carried forward to the next month and will be
treated as a deductible input credit for that month. Further excesses
will be carried forward consecutively for a maximum of six
months or the registrant may ask that the amount be applied to
another tax type where a liability exists. However, if after six
months excess credit remains, the registrant may request a refund.
If the refund is not paid within one month of the application, it will
attract interest at a rate of 1% per month.
With regards to a registrant engaged in exports, or taxable activities
which regularly generate credits, the registrant may request a
refund.
This will be processed within three months after the application has
been lodged. Thereafter, it will attract interest at the rate of 1% per
month.
Accounting and Records
One of the strengths of the VAT is that it requires registrants to
maintain adequate books and records, documenting business transactions
completed for the period. Records must be up to date and
must clearly show the figures reported in the VAT return for the taxable
period. These books and records, including electronic data,
must include the following:
Purchases and Sales Books
Purchase Invoices/Import and Export Documentation
Sales Invoices, Sales Receipts, Services Billing Invoices
Credit or Debit notes
Income and Expenditure Records
Cash Register Tapes or similar records
Bank Statements
VAT Invoices received and VAT Invoices issued
Accounting Instruction Manuals, Systems, Programmes and any
relevant documentation in use to describe the accounting system.
The proposed legislation requires the registrant to issue an invoice
for every taxable supply made to another VAT registrant, which
must contain all information as prescribed in the legislation. A VAT
invoice cannot be issued to an unregistered person, instead a sales
receipt must be issued stating clearly the amount of VAT charged.
Objections and Appeals
A taxable person dissatisfied with an appealable decision may lodge
an objection with the Comptroller of Inland Revenue within 30 days
of the decision. The objection must be in writing and must specify
in detail the grounds upon which the objection was made.
If within the 30 days allowed for an objection to the decision of the
Comptroller, which has the effect that an amount is payable by the
person to the Comptroller, the person’s obligation to pay 50% of the
amount assessed is suspended until notice of the Comptroller’s decision
on the objection is served on the person.
A person dissatisfied with the decision of the Comptroller may, within
30 days after being served with that notice, lodge a notice of
appeal to the Appeal’s Commission and copy such notice to the
Comptroller.
A person dissatisfied with the decision of the Appeal’s Commission
may, within 30 days after being notified of the decision, lodge a
notice of appeal with the High Court stating the question of law on
the appeal.
The burden of proving that an assessment is excessive or that a decision
of the Comptroller is wrong is on the person objecting to the
assessment or decision.
Penalties
The proposed VAT legislation makes provision for several penalties
including penalties for:
Failure to register
Failure to notify IRD of change of address
Issue of false invoice
Failure to pay VAT due
Failure to file VAT return
Failure to comply with notice for recovery of tax
Failure to maintain proper records
Non-compliance with price quotation requirements
Failure to comply with notice to give information
Making false or misleading statements
Treatment of Selected Sectors
Tourism
Tourism services encompass hotel accommodation and other goods
and services consumed by tourists while in Grenada. According to
the destination principle, VAT should be charged on the full amount
paid by tourists on acquiring goods and services in Grenada. However,
given the competitive nature of the industry, a reduced VAT
rate of 10% is proposed for Hotel accommodation while the other
goods and services provided by the hotel would attract the standard
rate of 15%.
Diplomatic Missions and Staff
Diplomatic missions (including offices of international organizations)
and their staff who have been accorded duty free status will
continue to be exempted from import duty and VAT in respect of
goods imported by them.
In keeping with the principle that VAT must be paid on all transactions
except where goods are zero rated or exempted, Diplomatic
Missions and staff would be required to pay VAT on local purchases
and periodically apply to the Comptroller of Inland Revenue for a
refund of the VAT paid.
Financial Sector
Financial services include the services provided by the following:
Banks
Credit Unions
Insurance Companies
Other similar institutions (Western Union, Money Gram etc.)
These institutions are exempt from VAT on the services they provide,
mainly due to the difficulty of identifying the value added upon
which the tax must be applied to traditional savings and lending
activities. However, financial institutions will be required to pay
VAT on their purchases but will not be eligible for refund of the tax
paid.
Services outside of traditional money transactions are taxable and
would only be exempt where they present administrative difficulties
in determining what part of the tax on inputs generally should be
attributed to these services for the purposes of tax credits. Unless
otherwise approved, in general, financial institutions would be
required to apply the apportionment ratio specified in the law to
allocating input tax credit.
Exports
In principle exports are usually free of duties and taxes to maintain
competitiveness on the international market. Likewise with the
VAT, all exports of taxable supplies would be zero rated. However,
since a zero rated supply is deemed taxable (at a rate of zero), a company
involved in the export of goods would be entitled to claim a
refund for the VAT paid on inputs used in producing the goods for
export.
Small Businesses
Small businesses and small traders whose sales fall below the proposed
threshold of $100,000 would not be required to register for
VAT and therefore cannot charge VAT on their sales. VAT paid on
purchases would not qualify for a tax credit. Therefore, small
businesses most likely will increase the price to the consumer, to the
extent of any VAT paid on purchases.
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