What is VAT?
Value Added Tax or VAT as it is commonly known is an indirect tax charged on taxable imports and the added value to taxable goods and services, supplied to one business to another or to a final consumer.
VAT is NOT an additional tax, but a replacement for some existing indirect taxes. It will be a broad-based, efficient and simplified tax on transactions.
What are the current Consumption Tax rates in Saint Lucia?
The Consumption Tax is levied on goods imported into or manufactured in the State, with rates ranging from 0% to 35%.
What is the VAT rate in Saint Lucia?
The standard rate is 12.5%, with a reduced rate of ten per cent (10%) on the supply of hotel accommodation services by a hotel and the supply of food and beverage and other related services including tours by other providers in the tourism sector.
Which tax legislations were replaced by the VAT Act?
The following tax legislations have been replaced by VAT:
- Consumption Tax Act, Cap. 15.03
- Environmental Protection Levy Act, Cap.15.20
- Motor Vehicle Rental Fee Act, Cap.15.23
- Mobile Cellular Telephone (Tax) Act, Cap.15.36
- Hotel Accommodation Tax Act, Cap.15.10
How does VAT affect Prices?
The prices of goods and services have (in some cases) decreased, increased or remained the same.
Are there any benefits from changing to a VAT system?
Yes. VAT will improve, simplify and modernize our tax system. Businesses that are registered for VAT (known as taxpayers) will be able to offset the VAT payable, against the VAT they have charged on sales. Only, the difference is paid to the Inland Revenue Department (IRD).
Any excess may be available to set against future VAT liability or for repayment. The flow of tax to the Government will be improved, since VAT is collectible and payable at each stage in the transfer of goods or the supply of services.
Can anyone charge VAT?
No. Only those businesses that are registered for VAT with IRD can charge VAT. A list of registered businesses have been made public.
What are the requirements for VAT registration?
In order to charge VAT, a business must be trading in taxable supplies and meet a particular Threshold. The threshold is the minimum sales of taxable supplies for a business in one year. The threshold for Saint Lucia is $400,000.00.
How does a consumer know that a business is registered?
Every registered business or person will be issued a Certificate of Registration, which must be displayed in a conspicuous place. If the business or person cannot show the consumer the Certificate of Registration, the consumer should not pay the VAT, and must report the incident immediately to the IRD.
Is VAT charged on all domestic products?
Not all goods and services will be charged under a VAT system and these will be classified as Exempt or Zero-rated.
What are taxable goods and services?
Taxable goods and services will attract a VAT rate of 12.5%, 10% and 0%. Only a VAT-registered business can charge VAT on the sale of taxable goods and services.
What are Zero-rated goods and services?
Zero-rated supplies are goods and services that will be taxable but at the rate of zero percent (0%).
Even though a zero percent rate is charged on supplies to the consumer, a VAT registered person is allowed to claim input tax on purchased/expenses used in making the zero-rated supplies. This mechanism ensures that VAT is completely removed from the supply.
What are exempt goods and services?
Exempt supplies are those goods and services that are not directly subject to VAT. This means that VAT cannot be charged on the sale of exempt supplies. Businesses and persons engaged in supplying exempt goods and services cannot claim input tax credit on purchases associated with the exempt supplies.
What is the "Time of Supply"?
A supply of goods or services occurs on the earliest of the date on which:
- the goods are delivered or made available or the performance of services is completed;
- an invoice for the supply is issued by the supplier; or
- any consideration for the supply is received.
Should a consumer be given a receipt each time a purchase is made from a registered business?
A registered business must issue a receipt to the consumer each time a purchase is made.
Further, customers that are registered businesses must be given a proper tax invoice for every purchase, from a registered business.
Would VAT be charged on all imports?
Not all imports of goods and services will be charged VAT and these will be classified as exempt or zero rated.
Would VAT apply to Hire Purchase Transactions or Finance Leases?
VAT would be charged on the cash value of the item being sold. The cash value is the consideration at which the goods are normally sold by the dealer for cash.
How are Capital Goods treated?
The Comptroller may exempt from tax, capital goods imported, if the following conditions are satisfied before the importation:
- the importer is a registered person;
- the importer has a valid license under the Fiscal Incentives Act, Cap.15.16;
- the importer has not commenced taxable activity;
- the Minister of Finance approves of a Master List of the capital goods eligible for exemption;
- the goods are consigned directly to the approved importer;
- the capital goods eligible for exemption are goods to be used in a taxable activity;
- the importer whose investment has been approved under the Fiscal Incentives Act, Cap.15.16 has filed all required returns and paid all taxes due under all tax acts;
- the importer agrees to pay the amount of tax otherwise payable on the import of the capital goods if the importer violates the terms of the license agreement, if the importer’s registration is cancelled as a result of the expiration of the license, or if the registration is cancelled.
When is a VAT refund payable?
The credit is carried forward and used as an input tax deductible in three consecutive tax periods, after which the taxable person may file with the Comptroller a claim for refund for the remaining amount.
Additionally where more than fifty percent of a registered taxpayer’s activity is zero-rated a claim for a refund may be made after one month.
How do you treat businesses that have in stock large inventory of goods when VAT is introduced?
In principle, no input tax would be allowed in lieu of consumption tax and other taxes paid on imports (and domestic supplies) prior to implementation date. However, three options have been identified to facilitate the smooth transition from the consumption tax regime to VAT:
- Depletion of stocks to minimum levels
- Government in conjunction with the Saint Lucia Air and Sea Ports Authority (SLASPA) will allow free storage at the ports for a three month period
- During the transitional period only, businesses which have existing storage facilities will be afforded the option of converting these facilities to bonded warehouses, where goods can be stored without payment of duties until removal from said facility
What are exports?
Exports are goods and services supplied to a person or business outside of Saint Lucia, supported by documentary evidence provided to the Comptroller of Customs and Excise, where necessary.
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.
Should prices always be VAT inclusive?
All VAT registered businesses must display VAT inclusive prices.
Is VAT charged on Electricity and Water?
The supply of electricity and water is zero-rated.
Should Duty-Free businesses charge VAT?
Goods sold to visitors and residents for export, upon the shop owner being satisfied that the conditions outlined under the Tourist (Duty-Free Shopping System) Act, Cap 15.31 are complied with, will be zero-rated. However, if registered duty free vendors sell locally they are required by law to charge and collect VAT.
Are there any provisions in the proposed VAT Act to deal with Delinquent Taxpayers?
The VAT Act allows for temporary closure of the businesses with outstanding tax obligations and for other serious penalties and fines.
How would contracts already signed before the implementation of VAT be treated?
Even if no provision was made for VAT, the registered person must charge VAT on taxable supplies made after the effective date.
What will happen to items already on the shelves at implementation date?
Items already on the shelves at implementation date would have consumption tax included in the prices. At implementation date, these items will now also attract VAT.
Are street vendors affected by VAT?
If the street vendor meets the threshold of $400,000, he or she is required by law to register, and therefore must charge and collect VAT. Street vendors below the threshold will not be able to charge or collect VAT, however they will pay VAT on their purchases.
How would the policing of the VAT change compared to the present system?
Under the VAT system, the Input/Output Credit system enforces the issue of having correct invoices, which allows for paper trail (one business’ output is another business’ input), therefore encouraging the self policing nature of the tax.
Further, the VAT legislation makes provisions for the strict enforcement of penalties for those who are in violation. Staff will be provided specifically for monitoring and enforcement. There will also be more coordination between the Customs and Excise Department and the Inland Revenue Department.
Are medical services exempt?
The supply of medical services, except for elective services that are cosmetic in nature, is exempt from VAT.