Parmesar made a presentation on VAT on behalf of Chartered Accountant firm Solomon Parmesar, which has joined the list of companies offering enlightenment on VAT.

What also emerged from the VAT workshop held at Hotel Tower on Friday was that many people were still unsure of how VAT would work, even though its implementation was just a little over a month away.

Parmesar warned that based on the information he had received from the Commissioner General two weeks ago, VAT would be implemented come January. And it was not likely that there would be any relief through lowered corporation or income tax soon, he said.

Parmesar opined that government was unlikely to take the step to lower these taxes until and unless it was sure VAT would not have a negative impact on the revenue base. He said it would take one or two years after the implementation of VAT to measure its impact on the revenue base; any steps to be taken by government, he added, would be taken after this two-year period.

The PNCR-IG has already asked the government to rethink the January 1 deadline, noting that there has been an outpouring of sentiment against the deadline. The party said it also believed that VAT should be lower than 16% if revenue neutrality was truly the objective.

But Parmesar said a meeting with Commissioner General Kurshid Sattaur, the Crown Agents (the implementers of the tax) and the Accounting Association did not give any indication that the implementation of VAT would be delayed.

Representatives of retailers, wholesalers, manufacturers, insurance companies, companies offering financial services, seafood processors, hospitals, credit unions, a bar and variety stores attended the workshop.

The questions asked were similar to concerns raised at previous workshops and they include cash flow problems, the ability of GRA to implement the VAT, the administration and collection of VAT by businesses; if there will be a list of zero-rated food items; what will become of goods in stock and when the relevant forms for VAT refunds and returns would be available.

The GRA is yet to answer many of these questions and Parmesar believes this was increasing the anxiety among business persons.

Seeking direction

Among the many concerns raised by the participants were how the GRA would treat with companies conducting explorations and with pension schemes, since these were not clearly spelt out in the regulations. Parmesar said pension schemes would pay VAT whenever they conducted an audit and exploration companies, during the course of their exploration, would pay VAT on services and goods.

According to the regulations, investment funds like pensions, retirement annuity or preservation funds are exempt. Clarifications on whether VAT would be payable when posting packages using courier services like DHL and Federal Express are still to be had.

The VAT regulations also stipulate that businesses could issue sales invoices with limited information for items sold to an unregistered person at a cash value of less than $10,000. It is not known what information would be considered 'limited' by GRA. However, the tax invoice for registered persons was clearly spelt out and the regulation notes that it must clearly state tax invoice; have the name and address of both parties and their TINs; the individualized serial number and the date on which the tax invoice is issued; a description of the goods; the quantity or volume of the goods or services supplied and the total amount of the tax charged; the consideration for the supply, and the consideration including tax.

Finding answers

A major question that Parmesar could not answer, because the answer was still to come from the GRA, was what would become of stock in hand at the end of December. The accountant said he had raised the issue since April and up to two weeks ago "they were still looking at it," noting that an answer was still to be provided.

Parmesar said VAT would bring about some savings, for example, where goods faced consumption tax (c-tax) above 16%, they would now only be liable to pay 16%. On the other hand, businesses that faced c-tax below 16%, would be liable to pay 16%. Items like clothing, carpets, electronic appliances carry 30% c-tax, while rice, onion, garlic, ink, paper and that face a 10% c-tax were likely to rise. It is also his view that the longer the retail chain the more expensive the items would be to the consumer.

He warned that though goods would face lower taxes as a result of the repealed c-tax, this did not mean that the prices of these items would be cheaper since across-the-board VAT could add to increase in operation cost. He noted that the c-tax could not be viewed in isolation. The VAT principle is that the consumer would bear the burden and not the businesses that are registered to charge the tax, since they would be able to reclaim the VAT paid through the customer.

Every business that has a turnover of $10M and above is required by law to register, but there is also voluntary registration for companies who can show good accounting records and have a fixed address. The GRA would likely visit businesses to satisfy itself that the owners/managers would collect and remit the tax, the accountant said.

Parmesar applauded VAT, stating that vendors and many others who did not pay taxes or who declared false amounts would now be required to stop cheating the system. He believes it would be difficult to 'doctor' books, because if one needed a refund all the invoices must be produced and if there were large disparities between the two, and an audit shows that fraud exist there will be no VAT.

"We are going to get more thieves," said one window manufacturer, who noted that VAT thrives in robust economies. Parmesar countered: "it is a better tax system than before," adding "you got to start somewhere."

Another participant noted that building a low-income wooden home would become almost impossible, because wooden building materials would now face the 16% VAT. Some building materials face a 10% c-tax, while others face none.

"Many small businesses will be closed…," a participant said, because the operation cost will increase. Parmesar agreed that many small businesses would indeed be "hurt".

And the accountant added that there would be a great impact on doctors, because they would not be able to claim VAT refunds on exempt items such as prescription drugs. No input tax could be claimed on the purchase or sale of exempt goods and services, but this does not mean that these businesses would not be paying VAT on services like accounting, payroll and on telephone.