Value Added Tax Explained - A Simpler way of paying tax continued
Stabroek News
November 3, 2006
(Submitted by the Guyana Revenue Authority and published as a public service
What is wrong with the current system of taxation?
Some of the current taxes, like the Consumption Tax, keep cascading. This means that a businessman's mark up includes the tax resulting in higher markups and ultimately higher prices to consumers. Every time a transaction takes place, therefore, the consumption tax is embedded in that cost and may reach as high as 250% by the time it reaches the final consumer. VAT does not cascade. There is an 'offsetting' mechanism, whereby businesses are allowed to deduct the VAT paid on their purchases from the VAT they charged on their sales. Hence VAT should not be included in their markups. Under the present system, the actual amount of domestic tax in the costs of exports cannot be determined and therefore cannot be refunded. This prevents local goods from competing, successfully in the global market. The present system carries varying tax rates and a narrow tax base which impact the prices of some activities more than others. VAT will bring a number of these taxes under one umbrella, with one rate of tax (16%) making our tax system simpler and more efficient.
Who will pay VAT?
Everyone will pay VAT when they buy certin goods and or use some services in the country.
What will be taxed?
All goods and services will be subject to 16 % VAT except those that are zero-rated or exempt.
VAT EXEMPTIONS
What will not be taxed?
The government has granted exemptions to some goods and services from VAT. As the legislations states currently, VAT WILL NOT be paid on the following: Water from GWI, Electricity from GPL, Educational services, financial services such as: Bank loans, Insurance premiums, money transfer, foreign exchange trading, bank deposits, Hire purchase, Medical services such as: Services provided by a qualified medical practitioner, Services provided by a registered hospital, maternity home, nursing home, convalescent home, or clinical laboratory, services (including meals, nursing and personal care and assistance) provided to a patient staying in a qualified medical facility, prescription drugs, rent for residential purposes, leasing of land for residential purposes.
Who will be excluded from charging VAT?
Any business that is not registered for VAT, businesses that have gross sales below $10M and are not registered and exporters will be excluded from charging VAT.
When does the VAT become payable? The VAT will be paid or becomes payable when goods are imported, sold and when a service is provided. For VAT which ever of the following occurs first, at that point, the VAT becomes payable.
1. Goods are delivered
2. Services are performed
3. An invoice is issued
4. Consideration is received