The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Value-Added Tax (VAT) will be charged on pre-existing business contracts from the July 1, 2014, implementation date onwards, a top government official confirmed yesterday.

John Rolle, the Ministry of Finance’s financial secretary, told Tribune Business that purchasers of goods and services would become liable to pay VAT under those contracts, despite the documents being signed pre-implementation.

“The VAT will not invalidate business contracts, regardless of when they were executed,” he said in a e-mailed reply to Tribune Business questions.

“It would be applied to existing contracts against supplies and services provided after July 1, 2014.

“The legal provisions would ensure that tax liabilities do not alter the meaning or terms of such contracts. The law would create an obligation for buyers to pay the tax, without increasing the compensation received by sellers.”

Mr Rolle indicated that this might be offset in some instances by concurrent reductions in import tariffs, adding: “Of course, to the extent that certain base costs are reduced (that is, the Customs duty component of costs), it would make sense for businesses to pass these reductions on to customers.”

Still, the news that purchasers will be liable to pay VAT on pre-existing contract purchases may cause some alarm in the private sector, which will have to adjust business and budgeting plans.

Companies and individuals may also have to come up with more money, especially if it is a services, not goods, contract as the price will automatically increase by 15 per cent.

Meanwhile, Mr Rolle confirmed that companies will only have to pay the ‘net’ amount of VAT they collect to the Government, not the gross.

He clarified that the 3,000-plus firms registered to pay VAT will be responsible for calculating the amount of tax payable on their sales, and then subtracting that which they paid on their ‘inputs’. The resulting ‘net’ amount will then be paid to the Government monthly.

“Firms will always remit the net tax to government,” Mr Rolle told Tribune Business. “They would report total collection from customers (output), and total payments to suppliers, Customs, etc. (input taxes). However only the net difference is to be remitted to government.”

Several companies had expressed concerns to Tribune Business that they would have to remit the ‘gross’ amount of VAT generated on their sales to the Government, plus the supporting paperwork determining the amount they had paid on their inputs.

The fear was that the Government would have the responsibility of calculating the ‘net’ amount, then remitting the difference back to the company - a process that could be subject to delays in both processing and payment, creating cash flow havoc.

That will not be the case, and Mr Rolle’s reassurances are backed up by the Government’s Tax Reform ‘White Paper’.

This says: “When a VAT registrant buys supplies and inputs, it will pay VAT on those purchases. When that registrant prepares its periodic VAT remittance report for transmittal to the Government, it will be allowed to claim an input tax credit if the goods and/or services purchased are utilised in making taxable supplies but not exempt supplies.

“VAT payable by registrants for a tax period (one month) is the total amount of VAT collected in respect of taxable supplies made during the month (output tax) less the total VAT paid on inputs for the month (input tax).

“The deadline for payment is the due date for filing the return. Late payments will attract a penalty and interest per month as prescribed in the regulations.”