Value Added Tax (VAT)
What is Value Added Tax (VAT)?
Value Added Tax (VAT) is a tax on spending that is levied on the supply of goods and services in Fiji at the rate of 9%, with effect from 1 January, 2016. The VAT Act requires most businesses and organizations involved in taxable activities in Fiji to:
– register for VAT with FRCS within 21 days of becoming so liable;
– charge and collect 9% VAT applicable to the range of goods and services they supply;
– lodge their VAT Returns and pay the VAT collected to the FRCS when due.
Characteristics of VAT:
1. Tax on Spending
- This is a tax on spending, borne and paid by the final consumer of goods and services.
- Goods and services can be supplied by Registered Persons, Government Departments and Non – Profit Organizations.
2. Indirect Tax
- It is said to be an indirect tax in the sense that it is not deducted directly from wages and salaries. An example of a direct tax is PAYE. It is deducted directly from the wages or salaries before we receive our pay. Unlike VAT, you pay VAT when you spend and that is why it is said to be paid indirectly.
3. Broad Based Tax
- VAT is said to be a broad based tax because it covers a wide range of goods and services in its tax net.
- Likewise it covers a lot of people regardless whether you’re employed or unemployed. Once you spend, you pay.
Who must register for VAT?
Any person carrying on a “Taxable Activity” (other than a produce supplier) where annual gross turnover exceeds the registration threshold of $100,000.
- Any person who carries on a taxable activity (other than a produce supplier) where annual gross turnover has exceeded the threshold of $100,000.
- Produce Suppliers
- Persons carrying on taxable activity where annual gross turnover < $100,000.
- Are those who supply produce in a raw and unprocessed state and;
- Whose produce constitutes at least 90% of the total value of supplies and the balance of the goods and services supplied by that person is produce but not in a raw and unprocessed state.
How to register?
If required to register, complete all the sections in one of the following relevant forms:
- Completed Application Form of Registration of Sole Trader Businesses form (IRS001)
- VAT Supplementary Registration (Form IRS018)
- Provide any of the following ID’s;
- driver’s license
- FNPF/FRCS Joint ID Card.
- Voter Registration Card
For Companies, Estate, Trust and Partnership
- Application of Registration of Companies, Partnerships or Trusts form (IRS003)
- VAT Supplementary Form (Form IRS 018)
- for a partnership (whether or not a written partnership deed exists), a copy of its Partnership Deed/Agreement.
- for a trust (including a unit trust), a copy of its’ Deed of Trust.
- for an estate of a deceased person, a copy of probate statement from the executor.
- for a charitable organization or non-profit body, a copy of its ‘Certificate of Incorporation and Memorandum/Articles of Association/Registration Certificate.
- for a company whether public or private a copy of its’ Certificate of Incorporation and Memorandum/Articles of Association.
When to Collect VAT
The rules governing value, place and time of supply are:
- value of supply made: this determines the VAT which should be collected & remitted to the Revenue Collection Division
- place of supply: this determines whether a supply is subject to VAT at a standard rate (9%), zero rate, or whether the supply is not subject to VAT
- time of supply: this determines when the liability to VAT occurs
Where most transactions will be at arm’s length (i.e. buyer and seller are not connected, and time of sale will be quite clear). In these instances, the value of supply will be the price paid; the place of supply will be where the item sold is situated; while the tax liability will arise at the earlier of invoicing, payment, or delivery.
If a person is registered on a payments basis VAT will be remitted once payment is made or received, regardless of the tax liability.
What is a Taxable Activity?
Taxable Activity includes:
- An activity being conducted continuously or
- whether or not for profit
- involving the supply of goods and services to another person for a consideration.
“Consideration”, in relation to the supply of goods and services to a person, includes any
payment made or any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of any goods and services, whether by that person or by any other person, but does not include any payment by any person as an unconditional gift to any non – profit body.
Definition of Taxable Activity excludes the following:
- Hobbies or recreational activities pursuit
- Employment contracts [salary & wage earners]
- private transactions. (e.g. the occasional sale of domestic or household items, personal effects or private motor vehicles.)
- Activities of a non – profit body other than activities which is in competition to an activity carried on by any other person.
Registered Persons are:
- legally entitled or required to charge VAT on the supplies they make
- able to claim the VAT charged on purchases acquired to operate their taxable activity.
TYPES OF SUPPLIES
WHAT SUPPLIES ARE SUBJECT TO VAT?
Supplies subject to VAT are listed under Section 3 of the Vat Decree [Taxable Supplies]. Section 3 implies the use of word “supply” in a very wide sense.
In relation to goods, a supply is made by way of sale, exchange, lease, hire, hire purchase, lay by
In relation to services, you provide, render, grant or confer.
1.“Deemed Supplies” – treated as supplies for Vat purposes
- Goods and services appropriated to other use [non – taxable]. Adjustment for input tax already claimed where the good or services are not used in the taxable activity.
- Sale in satisfaction of a debt [where the sized goods or services were part of the taxable
- Assets retained on cessation of business or upon deregistration.
- Grants received from state
- Supplies by public authorities
- Supplies by local authorities.
- Insurance indemnities received.
- Monies retained upon cancellation of lay-by sales.
- Provision of employee benefit if not zero-rated or exempt.
- Disposal of taxable activity as a going concern.
- Basic food items that comprises powdered milk, tea, wheat, rice, flour and sharps from wheat, edible fats and oils; crude and refined oils and prepared or preserved canned fish
- Prescribed medicines
- Imported fish supplied to fish processors
- Residential accommodation only for residential apartments that provide hotel like accommodation and facilities (compulsory where turnover exceeds $100,000 or otherwise could register voluntarily). Residential apartment that provide hotel like accommodation and facilities are those that provide:
- Self-serviced or self-contained apartments/flats (beds/TV set/drawers/Air condition/Fans);
- Security Services;
- Laundry Services;
- Housekeeping Services;
- Free TV channels;
- Provision of swimming pools;
- Provision of meals; and
- Provision of Recreational Area example a gym.
Goods means all kinds of personal and real property; but does not include choses in action or
2.Exempt Supplies – VAT Act (Schedule 1)
Exempt supplies include the following:
- Supply of financial services;
• Person engaged in the supply of residential accommodation, irrespective of the annual gross turnover will be exempted from VAT;
• supply of education by an educational institution;
• supply of any goods and services incidental to the provision of education by an educational institution;
• supply and provision of the right to partake in any gambling;
• supply by any non-profit body of donated goods and services.
VAT is not chargeable on the supply of exempt goods and services. The supplier will not be able to claim any input tax credit involving purchase or production of exempt supply.
3.Zero Rated Supplies – Second Schedule (VAT Decree Second Schedule)
Zero rate supplies include the following:
- Exported goods
- Supplies of ship stores
- Supply of taxable activity as a going concern to another registered person
- Services in connection with goods outside Fiji.
VAT is charged at 0% on the supply of goods and services. The supplier can claim any input tax credit involving purchase or production of zero rated supply.
Returns and Taxable Periods
How often will VAT returns have to be furnished?
The period covered by the VAT return is referred to as the taxable period.
- Registered persons, whose annual turnover is FJ$300,001.00 or more, will have to lodge monthly VAT returns, with effect from 1st January 2012.
- Registered persons, whose annual turnover is FJ$300,000.00 or less, will have to lodge yearly VAT returns.
Accounting Basis for VAT
How to account for VAT in returns?
How VAT is accounted for depends on the accounting basis that is adopted. Every registered person is required to account for VAT on an Invoice Basis.
Accounting for VAT on an Invoice Basis generally means that in relation to supplies made the registered person accounts for the VAT in the earliest taxable period in which:
•an invoice for the supply is issued, or
•any payment is received
•delivery of goods and services takes place.
However a registered person may apply to account for VAT on payments basis and this will be subject to the Commissioner of Inland Revenue’s discretion. The Payments Basis generally means that the registered person accounts for VAT in the taxable period in which a payment is made or received. The main difference between the invoice basis and the payments basis is that debtors and creditors are not taken into account in determining the total supplies/sales for VAT purposes.
Cancellation of Registration.
A registered person shall cease to be liable to be registered where at any time; the Commissioner of Inland Revenue is satisfied that the value of that person’s taxable supplies in the next 12 months will not exceed FJ$100,000.00.
Where a registered person is a produce supplier he may apply for cancellation of registration at any time after having been registered for a period of twelve months. Every person who ceases to be liable to be registered may request the Commissioner of Inland Revenue in writing to cancel the registration. The Commissioner shall cancel the person’s registration with effect from the last day of the taxable period during which the Commissioner was so satisfied or from such other date as may be determined by the Commissioner. The Commissioner shall notify that person of the date on which the cancellation of registration takes effect.
Adapting your accounting system
Once you register, you should start preparing your accounting records to accommodate VAT. To support your VAT charges and input tax credit claims, you must keep tax invoices and other accounting records for at least seven (7) years, and make them available to Audit/Compliance auditors, when requested.
Calculating VAT refunds or payments
As a VAT registered person, you are responsible for filing VAT returns on which you will report:
- The amount of VAT you have collected, or you have invoiced, from your customers during each reporting period.
- The amount of VAT you paid, or owe, on business purchases made during the same period, and
- The difference between these two amounts (payable/refund).
You claim input tax credits for the VAT paid, or owing, on:
- Purchases directly related to the taxable products or services you supply to customers.
- Other items (overhead or indirect expenses) bought or rented for your business (e.g. electricity, office supplies etc.).
Lodging returns, payments and refunds
Every registered person must “…on or before the last day of the month following the last day of every taxable period, without notice or demand furnish to the Chief Executive Officer a VAT return…” (Section 33 of VAT Act)
Monthly VAT Returns
|Month Ending||Due Date for Lodgement|
|31 January 2016||29 February 2016|
|31 December 2015||31 January 2016|
3 Monthly VAT Returns
||Due Date for Lodgement|
|January – March 2016||30 April 2016|
|October – December 2015||31 January 2016|
|January – March 2014||30 April 2014|
Yearly VAT Returns
|Year Ending||Due Date for Lodgement|
|31 December 2016||31 January 2017|
|31 December 2015||31 January 2016|
Payment must be accompanied with your VAT return if payable and be received by the returns due date.
You can either mail or lodge your VAT return in person to any of our (Customer Service Centres) Fiji wide (Suva, Nausori, Lautoka, Labasa, Savusavu, Sigatoka, Nadi, Levuka, Ba and Rakiraki).
The following penalties apply under the Tax Administration Act
- Late payment penalties – 25% of any tax remaining unpaid.
- An additional 5% for every month of default on the balance of the unpaid tax.
- Late lodgment penalties – 20% of any tax remaining unpaid.
- An additional 5% for every month of default on the balance of the unpaid tax.
- VAT penalty of 300% on tax payable will apply in case of VAT evasion
- Any VAT registered person who does not comply with the new VAT rate to reflect in the prices of goods and services will be liable to a fine not exceeding $50,000 or upon conviction be liable to a fine not exceeding $100,000 or ten years’ imprisonment.
- A further enforcement action for not lodging returns on due date may include a court fine not exceeding $25,000 or to imprisonment for a term not exceeding 10 years’ or to both a fine and imprisonment.
For more information, please email email@example.com, or visit any of our office nearest to you.