08.19.11

VAT vs. GST

Posted in Business and Economy, Seychelles legislation at 1:37 pm by Robert Klien

It has been discussed recently that Seychelles’ tax reforms will end with the Value Added Tax (VAT) due to come into effect on July 1, 2012. So, on July 1, 2012, the VAT will replace the GST (Goods and Services Tax).

GST was implemented in Seychelles in 2003 and is levied on the importation of all goods, unless exempted under the GST Regulations 2003. GST is also levied on the sales turnover of specified manufacturers of goods produced in Seychelles and on specified service providers. Initially, this tax was imposed at the point of entry and at the point of sale for professional service providers. As the years went by, only holders of the Tourism Incentive Act (TIA) certificate benefited from a GST concession on imported goods. Then, in 2010, the concession was extended to other businesses. As a fact, GST works as a turnover tax without deduction of the input tax.

VAT is a broad-based tax, levied on all imported goods at the point of entry by Customs and on domestic supplies of goods and services made by Vat registered businesses, with a few exemptions specifically designated in the Value Added Tax Act 2010.

There are certain similarities of VAT and GST. First of all, both VAT and GST are indirect taxes levied on sales, and the final consumers bear the ultimate burden of the tax. However, VAT will correct some undesirable effects of the GST, such as the cascading and distorting ones. So, VAT is to significantly improve the tax system.

When a VAT-registered taxpayers purchases goods or incurs expenses for the purpose of their businesses, they are allowed to offset the tax paid on these inputs (input tax) against the tax collected from their customers (output tax). If the difference occurs, it is remitted to the Seychelles Revenue Commission. If input tax exceeds output tax, there is a VAT credit that can be either carried forward or refunded. So, these typical VAT mechanisms prevent double taxation and cascading effects allowed by GST.

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