VAT FAQs
What is VAT?
The Value Added Tax system or VAT as it is commonly known is a tax on consumption. VAT is an indirect tax charged on imports and on the added value to goods and services, supplied by one business to another or to a final consumer. VAT is designed to ensure that consumer spending is taxed evenly and fairly.
VAT is not a tax on the seller for it is the buyer who pays the tax.
VAT will not be an additional tax, but a replacement for some existing indirect taxes. It will be a broad-based, comprehensive and simplified system of taxation on transactions.
What is Value Added?
Value Added is the value that a business adds to its raw materials or purchases before selling the good/service. It is the mark up on the selling price.
How and when is the tax charged?
VAT will be charged as a percentage of the value added to the good/service at each stage of production/distribution. That percentage, also known as the VAT rate, is the standard rate at which VAT will be charged. This is one of the policy decisions that will need careful planning and execution before it is determined.
How does VAT differ from Consumption Tax (CT)?
Because both VAT and CT are taxes on consumption, VAT and CT cannot operate together. Under the VAT system, tax is charged only on the value added at each stage of the production or supply chain. Any tax that VAT will replace will cease to exist when VAT is implemented.
Are there any benefits from changing to a VAT system?
Yes. VAT will improve, simplify and modernize our tax system. VAT is a fairer system because everyone contributes at the same rate and the treatment is the same regardless of the consumer. A VAT will compensate for the shift in our economy from goods based to service oriented. VAT will also provide relief for businesses that are registered, as they will be able to set off the VAT they have paid on purchases, against the VAT they have charged on sales. Only the difference is paid to the government.
Under a VAT System, we expect taxpayer compliance to increase while the administrative cost will reduce.
Who can charge VAT?
In order to charge VAT, a business must meet a Threshold. The threshold will be a determined minimum sales amount for a business in one year. These businesses must register with the VAT Office. Under the VAT system, it is these businesses that are referred to as the taxpayers.
VAT on Imports:
Businesses who import goods and services will pay the VAT to the Customs & Excise Department at the time of the importation of the good/service.
VAT on domestic products.
Businesses supplying goods and services will pay the VAT to the government at the end of each monthly tax period. Final consumers will pay the VAT only when taxable goods and services are purchased.
Under a VAT system not all goods and services will be charged a tax. Goods and services will be classified into three main categories, namely: Taxable; Zero rated and Exempt.
Taxable goods and services – Consumers will be charged a VAT at the established rate. A VAT-registered business will charge VAT on the sale of taxable goods and services and pay VAT on its purchases.
Zero-rated goods and services – A final consumer will pay VAT at a rate of zero percent. Essentially, this means the consumers pays no tax on the item. A VAT-registered business will be able to claim a credit for any VAT paid on inputs.
Exempt goods and services – No VAT is charged to the consumer. Unlike the zero rated goods the VAT-registered business is not entitled to claim any input tax credit, on purchases.
It is important to note however, that when a good or service is exempt or zero rated, everyone consuming the item will be allowed the same treatment. This means that no VAT will be charged, whether the item is produced locally or imported. Furthermore, VAT will be charged only on goods consumed locally. Items manufactured in Saint Lucia for export will not be taxed. This enables local producers to be more competitive in external markets.
Registration Threshold
All businesses generating taxable sales above a certain threshold will be required to register for VAT. In this manner the small businessman will not be burdened by any additional paperwork or having to comply with the VAT Law, by making monthly tax returns and by having to charge and collect the tax.
Registered Businesses
A VAT registration certificate will be issued to all registered businesses, who will be expected to display it in a prominent location at the business premises.
Unregistered businesses
These businesses do not meet the threshold and cannot charge VAT on the sales, nor can they claim from government the VAT paid on purchases.
How will VAT affect me?
Since VAT will replace and reduce the number of indirect taxes on goods and services, oftentimes the final price of these goods and services will be reduced. The prices of goods and services which currently have little or no taxes may increase slightly. However, in order to not have an adverse effect on the lives of vulnerable groups in society, some goods will be exempted from VAT and others will be taxed at a rate of zero percent.
Things you should know about VAT:
1. VAT is a tax on consumer spending.
2. VAT is a visible tax.
3. VAT will replace some indirect taxes which are currently included in the price of the items you purchase.
4. VAT does not affect direct taxes.
5. VAT will not replace Income Tax or Customs Import Duty.
6. Consumption Tax and VAT cannot exist together.
7. VAT WILL replace Consumption Tax.
8. Most goods and services will be charged VAT.
9. Certain basic foods and other essentials are zero-rated, that means there is NO VAT on the selling price.
10. Certain goods and services are exempt therefore you pay no VAT on their selling price.
11. Only Registered Taxpayers can charge and collect VAT. These entities MUST prominently display a CERTIFICATE OF REGISTRATION at the business place.