Taxable and non-taxable goods and services


08-October-2012

In the Vat system, a Vat-registered business that makes both taxable and non taxable supplies (traders that sell both taxable and exempted goods, construction companies that build commercial constructions and individual dwellings, insurance companies that sell general and life insurances, DMCs that provide their own services and buy-in to resell accommodations of transportation tickets) cannot claim 100% of the Input Tax.

What is the input tax?
When a Vat-registered business imports goods or purchases goods or services from another Vat-registered supplier, Vat charged at 15% is known as an input tax.

Is input tax always deductible?
As a general principle, when a Vat-registered business purchases goods or services, the Vat incurred can be claimed as an input tax credit if these goods and services are directly connected with the making of taxable supplies.

There are however situations where these goods and services are used for the making of non-taxable supplies (or for private purposes), in these cases the Vat incurred in these goods and services is not claimable as an input tax credit.

There is also a small category of expenditures upon which the Vat incurred by a Vat- registered business may not be eligible for deduction This includes: passenger vehicles, spare part or repair and maintenance for such vehicle unless the business activities involves the dealing in or hiring of these vehicles, and expenditure related to residential accommodation. In the case of DMCs an example could be tax paid on excursion on catamarans both for business purposes and private use.

Input tax credit can only be claimed or is deductible if goods and services on which Vat was paid are directly connected to the making of taxable supplies.

If a business makes a mixture of taxable and non-taxable supplies then only a part of the input tax will be claimable as a credit.  Its input tax credit will need to be apportioned.

So it is important for a business to know what is the relative share of its taxable supplies on its total turnover to determine what is the proportion of input tax claimable as a credit. Only the Vat incurred on goods and services used for the making of taxable supplies is deductible. To do so the business will use the apportionment formula (below).

The apportionment
The input tax credit allowed is calculated according to the following formula:
 Where:
• ‘a’ is the total amount of input tax incurred from the purchase and expense used for both the taxable and exempted supply;
• ‘b’ is the value of all taxable supplies made; and
• ‘c’ is the value of all supplies made by the taxable person during that Vat period in Seychelles.
However, if:
• is more than 0.90 - the taxable person is allowed credit on the whole value of the input tax,
• is less than 0.10 - the taxable person is not allowed any input tax credit on the whole value of input tax.

Example

The total input tax of a business is SR67.000.
Its taxable supplies are: SR750,000
Its total turnover (sales) is SR1,230,000
Then the percentage of deduction allowed is:
The 60% needs to be applied to all your input tax. If this input tax is 67,000, so the input tax credit allowed will be 60% of SR 67,000 = SR40,200.

For more information
You can contact Seychelles Revenue Commission on hotline number 4293745 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it. . The Value Added Tax Act, 2010 is available on the Seychelles Revenue Commission website (www.src.gov.sc).

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