VAT return filing, the return lines
THE Fiji Revenue & Customs Service (FRCS) continues to support Government in ensuring that all tax policies with the relevant laws are implemented effectively to ensure that maximum compliance is achieved. As such, the tax office continues to be committed to its role in ensuring that all persons carry out their tax obligations diligently as required under the tax laws.
As we continue to address tax and Customs issues on a weekly basis, it is important to understand that the tax office intends to provide quality assistance to every Fijian.
Whether it be for individuals or nonindividuals, profit or not for profit — the ultimate goal is to maximise “voluntary compliance”.
Hence, to enable this, it is important that we maintain a platform of continuous partnership. A partnership that embraces absolute integrity, commitment and consistency towards helping Fiji grow.
In this week’s article we look at the value added tax (VAT) return and what the 13 VAT return lines relate to when completing a VAT return.
Value added tax return
All VAT registered persons (known as registered persons) are required under the VAT Act to file a VAT return either on a monthly, quarterly or annual basis.
The value added tax return is a form prescribed for the purpose of reporting all taxable sales, which includes those charged with VAT at 9 per cent and those charged at 0 per cent.
In other words, it is the duty of the registered person to file a VAT return to the tax office on a periodical basis. It is important to understand that VAT is, government trust fund and it is imperative that the registered person declares the correct amount of VAT collected by him to the tax office in his VAT returns at the end of each taxable period.
Failure to declare any VAT collected to FRCS is an offence and the tax office will ensure that offenders face the full brunt of the law.
The VAT return lines
The VAT return is made up of 13 VAT return lines that a registered person is required to complete before submitting to the tax office. It is vitally important for all VAT registered persons to know and understand what each line relates to, the different VAT principles that apply and how VAT is basically calculated in a VAT return.
Line 1 – Total Taxable Supplies
Other than an exempt supply, Line 1 of the VAT return refers to the total value of sales from taxable supplies.
In general, a supply can either be exempt or taxable.
For VAT purposes, a taxable supply can be defined as a sale of taxable goods and/ or a delivery of taxable services. Taxable means that VAT is charged on the transaction.
Taxable supplies are those supplies of goods and services that have been charged VAT at the rate of either 9 per cent or 0 per cent.
How a registered person accounts for VAT in line 1 depends on the method of accounting used. For the purpose of line 1 of the VAT return, the total value of taxable supplies includes:
1. Cash and credit sales — for registered persons that use accrual/invoices basis to account for VAT
2. Cash sales — for registered persons that use cash/payment basis to account for VAT
The use of proper accounting basis for VAT by the registered person cannot be over emphasised as it affects the entire VAT return for a period if the accounting basis is incorrect.
Exempt Supplies
An Exempt Supply is one that is not subject to VAT. In fact, any persons making a supply that is listed under the First Schedule of the VAT Act is not required to charge VAT even if the value of the supply exceeds $100,000.
For example, the supply of financial services by the banks, the supply of education by an education institution etc. These are supplies that does not include VAT. On the other hand, a registered person cannot claim an input VAT for expenses incurred to derive these exempt supplies.
Line 2 – Zero Rated Supplies
Line 2 of the VAT return refers to those supplies where VAT has been charged at 0 per cent. These includes all supplies classified in the 2nd Schedule of the VAT Act. A zero rated supply is a transaction where
VAT does not increase the prices of goods and services.
Technically, zero rate VAT means that zero VAT is charged on the invoice, similarly no VAT is received/collected by the registered person. However, input VAT credit is allowed to the registered person for deriving the zero rated supplies.
Although no VAT is being collected for this type of supply, the registered person is still required to declare the value of zero rated supplies in line 1 and 2 of the VAT return.
Line 3 – Total Supplies Subject to VAT
Line 3 of the VAT return basically refers to the difference or the result of subtracting Line 2 from Line 1. The intention of having line 3 is to calculate the total value of supplies that were charged VAT at the rate of 9 per cent.
In other words, if the total taxable supplies in line 1 includes zero rated supplies then the registered person must reduce the amount by subtracting zero rated supplies (Line 2) from the total taxable supplies (Line 1).
The basic reason of why zero rated supplies must be correctly declared in Line 1 and 2 is to ensure that Line 3 is correctly calculated. The calculation basically takes the zero rated supplies out from the total taxable supplies declared in Line 1 of the VAT return to ensure that the registered persons calculates the exact value of supplies charged at the rate of 9 per cent. The amount in Line 3 basically confirms the total value of supplies subject to 9 per cent VAT for the period.
Line 4 – Calculating the VAT collected
Line 4 refers to the calculation of VAT collected for the period. As such, Line 4 basically requires a registered person to calculate the actual VAT collected for the period by multiplying the total of line 3 with the VAT fraction. The current VAT fraction is 9/109 which is determined by using the tax fraction formula provided below:
a/100 + a where ‘a’ is the rate of tax(VAT). Hence the tax fraction calculation below is computed with reference to the formula above:
Tax Fraction = 9/100 + 9= 9/109
The example below shows the calculation in Line 4 through the use of the Tax fraction.
The total in line 3 is $100,000VIP hence the calculation for the VAT collected for the period would appear as follows:
Line 5 – VAT on output adjustments
A VAT output adjustment is not a sale transaction; it is merely correcting a VAT transaction that was made in the current or subsequent period. It is NOT right to cancel a disputed invoice and simply reissue a new invoice as this will distort the tax point of the original invoice. Therefore, recording the correct adjustment is vital in filling of VAT returns.
Line 5 – VAT Output Adjustments include those listed below:
• VAT on goods and services taken for private use
• VAT on goods and services appropriate to non-taxable use other than private use
• VAT on barter transactions
• VAT on fringe benefits provided to employees
• VAT on bad debts recovered
• VAT on insurance indemnity payments received
• VAT on assets retained at the time of ceasing to be registered
• VAT on debit notes issued
• VAT on credit notes received
• VAT payable due to change in accounting basis
Line 6 – Total VAT charged on taxable supplies
To calculate the total VAT charged on taxable supplies the registered person is required to add line 4 and 5 of the VAT return to determine the Total VAT collected for the period.
Line 7 – Total VAT paid on local purchases and expenses
Line 7 of the VAT return refers to the local VAT paid on actual purchases of the business.
This includes all VAT incurred by the registered person upon purchasing goods and services for the business.
As such, the condition under line 7 ensures that VAT paid on purchases is claimed on the basis that the registered person has a valid tax invoice.
In other words, where a registered person does not have a valid tax invoice for a particular claim — the claim cannot be made.
The registered person is required under the VAT Act to issue a proper tax invoice where a supply has been made. As such the registered person must ensure that;
• the words TAX INVOICE written as the header;
• date of issue and invoice number;
• name, address and TIN of supplier
• name and address of the person receiving the goods or services;
• quantity and nature of the goods/services supplied; and
the unit price, discount price, reductions and consideration exclusive of VAT & Rate and amount of VAT separately for ease of claiming.
The tax office urges every registered persons to issue proper tax invoices to its customers as this is one of the VAT obligations under the VAT Act.
Failure to issue a Tax Invoice or a proper Tax Invoice is an offence captured under Section 71 (m) and 71(C) of the VAT Act which will result in penalties and fines to the registered person.
VAT input schedule
The VAT input schedule is a summary of all local purchases made in a taxable period by the registered person. The VAT input schedule basically includes:
• Date of Purchase
• Supplier Name
• TIN of Supplier
• Tax Invoice Number
• Amount Paid for Supplies
• VAT paid for supplies
It is mandatory for all registered persons to provide a VAT input schedule when making a VAT claim on local purchases.
Effective from taxable period January 2019, any VAT return that does not have an accompanying input schedule will be subjected to full audit and consequential penalties for any discrepancy ascertained. It is important that the registered persons understand the purpose of the input schedule and the information required for this.
Furthermore, without the VAT Input Schedule, FRCS will not allow VAT claims on local purchases/expenses.
Line 8 – Total Customs VAT
Line 8 refers to the total VAT paid to Customs for goods imported under the registered person’s name to Fiji for the period.
A registered person must always ensure that the Customs Entry is under the registered business/entity name and the imported goods are used for business related purposes.
All Customs imports for the registered business/entity must always be correctly accounted in Line 8 of the VAT return.
Claims made in Line 8 will depend on the type of single administrative document(SAD).
The registered person can only claim VAT on IM4 and not IM7. An IM7 entry is where goods are still in bonded warehouses in which duty and VAT is not payable even though on the Customs entry the assessment may have shown the figures for both.
The registered person must also note that custom VAT is claimable once paid, regardless of the accounting basis.
Line 9 – VAT on input adjustments
Similar to Line 5 of the VAT return, Line 9 refers to VAT input adjustments made
The VAT return is made up of 13 VAT return lines that a registered person is required to complete before submitting to the tax office. It is vitally important for all VAT registered persons to know and understand what each line relates to, the different VAT principles that apply and how VAT is basically calculated in a VAT return. – Fiji Revenue and Customs Service
during the period. These includes:
• VAT on bad debts written off
• VAT on credit notes issued
• VAT on debit notes received
• VAT refundable due to a change in accounting basis
Line 10 – Total VAT on purchases
Line 10 refers to the Total VAT on Purchases by the registered person for the period. In other words, Line 10 requires the registered person to add the amounts in Line 7, 8 and 9 to determine the Total VAT paid on purchases for the period.
Line 11 – VAT on purchases not wholly used in making taxable supplies
Line 11 refers to apportionment of input tax. This basically relates to goods and services that are supplied to the registered person which are not used wholly for the purpose of making taxable supplies. The input tax portion that is not subject to VAT will not be claimable in Line 11 hence the apportionment is calculated as follows: Line 12 – Total input tax
Line 12 refers to the total input tax or the total VAT paid on purchases and expenses during the period. As such, the registered persons is required to subtract the amount in Line 11 from the amount in Line 10 to determine the total VAT paid on purchases for the period.
Line 13 – Amount to pay/refund due
At the end of each period, VAT is either paid to FRCS or refunded to the registered person. For this purpose, Line 13 basically requires the registered person to subtract Line 12 from Line 6 of the VAT return. In other words, subtract the total VAT paid on local purchases/expense in Line 12 from the total VAT collected in Line 6 of the VAT return.
NIL VAT returns
Finally, all VAT registered persons are still required to file a VAT return even if there was no VAT collected and/or no VAT paid for a particular period. So often we have found registered VAT payers to be inconsistent with their lodgment obligations when it comes to periods where they have NIL VAT.
It is even unfortunate to note that VAT registered businesses and companies delay lodgment when they know it is a NIL VAT return.
This causes a lot of unnecessary demand notices being issued by the tax office to the registered taxpayer to lodge an outstanding VAT return.
The tax office wishes to advise and urge VAT registered taxpayers to be consistent with their lodgment obligations as the VAT law requires them to — even if it means lodging a NIL VAT return.
While lodging a NIL return, do ensure that a letter explaining the reason for a NIL return is submitted with the VAT return.