Understanding the Law
April 13, 2006

Questions and answers about VAT

Last week we looked at VAT and this week I will try to answer some of the questions that you are asking. From 2007, VAT will affect our lives and we need to be prepared for it by asking the relevant questions now.

What preparatory work is the unit engaged in?

The unit was set up by government to consider the introduction of VAT to replace the old consumption tax. It has looked at the current tax system, its efficiencies and the lack thereof. It has also looked at the operation of VAT in many countries including those of the European Community and those closer at home in the Caribbean. It has looked at the shortcomings of their systems with a view to establish a more efficient one.{{more}}

As a person who has made more than $60,000 per year in sales could you tell me how I would relate to VAT?

You have to first register with the VAT administration. This will enable you to claim VAT on the payments that you make to your supplier. In other words, you would be able to deduct this from the VAT that you would collect when you sell the goods to your customers. The tax that you pay to your supplier is input VAT. If your customers are end purchasers, they would not be able to reclaim input VAT. The VAT that customers pay to you is output VAT and will be paid to the government after you take out your expenses for input VAT.

As a taxable person would I be eligible for a refund?

If your input VAT exceeds your output VAT then you would be eligible for a refund.

What about the business that makes less than $60,000 per year and is not registered?

Registration for such businesses is optional. The business that is not registered is not likely to escape VAT because when it imports goods it would have to pay VAT at the Customs. Because it is not registered it would not be able to reclaim the VAT that was paid at the Customs. It is however likely that it would include this expense in the selling price in the old way so the burden will still fall on the consumer.

What are some of the items that are zero rated?

According to the St. Vincent and the Grenadines Proposals for Value Added Tax (VAT) 2007, zero rated items include exports, duty free goods to tourists, fisheries related supplies, packing material for agriculture, electricity produced by the St. Vincent Electricity Services Ltd, games of chance by non-profit organization, sale of real property among others.

What are some of the items that are exempted?

A list of some 16 items of goods and services are given in the above mentioned document. Some of these are financial services, insurance services, residential rents, educational service, daycare services, transportation services, medical services, water supplied by CWSA, courier services among others.

What are some of the effects on the consumers?

As an end- purchaser, the consumer will pay tax when he buys goods and services. He would have been paying consumption tax before but this was absorbed in the price of the goods so it might not have been noticeable. Consumption tax ranged from 5 to 65 percent. That tax which is now VAT will be between 15 to 16 percent.

As a taxable person, how will I relate to the VAT administration?

You would be required to file a VAT return monthly. You would have at least 15 days after the month to do so. You would be required to pay your tax during that time.

• Ada Johnson is a solicitor and barrister-at-law.

E-mail address is: exploringthelaw@yahoo.com