Two VAT rates will be applicable after April 1
Following the announcement by the Minister of Finance & Economic Development that the Value Added Tax (VAT) rate will increase from 12% to 14% effective April 1, 2021, this will mean that for some time, some businesses will need to apply both 12% and 14% on sales. The VAT Act has what are referred to as transitional measures whenever a VAT rate changes and these, by default, result in the application of two VAT rates for a given time. In this article, the phrase ‘effective date’ shall be used to mean April 1, 2021, which is the date when the VAT rate is set to increase to 14%. The instances where this will apply are stated below.
Goods sold before 1.04.21
The VAT Act provides that where goods are sold and delivered before the date of change in the VAT rate, i.e. 01.04.21, VAT must be charged at 12%, regardless of the fact that an invoice is raised post the effective date. The same treatment will apply when payment for such goods is made after the effective date. On the other hand, goods sold after the said date will have to be subjected to VAT at 14% instead. Technically, VAT-registrants will apply both 12% and 14% on different transactions. The Act is silent on the treatment of services provided before the effective date but in respect of which an invoice is raised after the VAT rate changes. Technically, the services must ideally be subjected to VAT at 12% if they were provided before the effective date. The mentioned silence creates divergent views on the matter.
Overlapping VAT periods
VAT registrants who file VAT returns for the period beginning on March 1, 2021 and ending on April 30, 2021 will also have to charge VAT at the two positive rates. Transactions falling between March 1-31, 2021 will be subject to 12% whilst 14% will apply for those made on or after April 1, 2021. Again, such VAT registrants will need to file VAT returns showing both 12% and 14%. The same will also apply on purchases of goods and services which are acquired in the above-mentioned two-month filing period.
Credit notes
A credit note issued after April 1, 2021 in respect of a sale made before the said effective date will need to reflect VAT at 12%, where it was charged VAT at that rate. The fact that the VAT-registrant issues it after the effective date does not compel traders to use 14%.
Successive sales
Certain sales which are provided over some period and in respect of which payment becomes due in instalments may also be subjected to VAT at the two positive rates. For instance, training which begins on say March 14, 2021 and ending on April 13, 2021 will have the March leg subjected to VAT at 12% whilst the April 2021 portion is levied tax at 14%.
Dwellings
Contracts for the sale or construction of dwellings will still be subject to VAT at 12%, despite the fact that the agreement would have been concluded before April 1, 2021.
In other words, a house which is sold before the effective date but which is transferred after that date will still be subject to VAT at 12%. This will be of interest to banks, individuals purchasing houses as well as to property developers.
Further, an agreement for construction services in respect of a dwelling entered into before the effective date will not suffer VAT at 14% even when such services are rendered after the effective date.
This means that construction companies will also charge VAT at the two rates for some time.
Practical matters
Based on the above analysis, it means that VAT registrants must correctly configure their systems in such a way that they are able to charge VAT at either 12% or 14%.
The switch to the 14% rate does not affect sales which are subject to VAT at 0% and neither must it affect those which are exempt from VAT such as residential rent.
*Hore is managing tax consultant at Aupracon Tax Specialists. This article is of a general nature and is not meant to address particular matters of any person. Feedback and comments can be relayed to jhore@aupracontax.co.bw or +267 7181 5836