Vat: A neutral tax |09 December 2011
Since Vat is a consumption tax on the sale of goods and services, the Vat collected by businesses is offset against the Vat incurred on purchases and expenses made when doing business and the difference is remitted to the Seychelles Revenue Commission (SRC). Vat should be remitted to the government and not be retained as personal profit by any business.
The table below shows how Vat is neutral for a business. Basic Items Pty is a Vat-registered supermarket (retail business) based in town computing its Vat liability in the month of July 2012.
| Activities of Basic Items Pty | Input Tax | Output Tax | Vat Payable |
| Paid commercial rent of SR50,000 *(Vat inclusive). |
SR6,522 | ||
| Purchased electronic materials used in the supermarket, including till machines for an amount of SR100,000 (Vat inclusive) | SR13,044 | ||
| Paid the July 2012 telephone bill at SR5,000 (Vat inclusive) |
SR653 | ||
| Paid public utilities, including water and electricity for SR2,000 | SR0 | ||
| Sold SR2,000,000 (Vat-inclusive) worth of taxable goods | SR260,870 | ||
| Remitted only SR240,651 to SRC. |
SR240,651 | ||
*(Recall that in order to calculate the Vat amount in a Vat-inclusive price the formula used is: Vat-inclusive amount x 15/115, therefore, 50,000 × 15/115 = 6,522).
Summary of the Table:
In order for Vat to be levied on the taxable supplies that Basic Items Pty uses to operate its supermarket; the taxable supplies have to be purchased from another Vat registered business. As public utilities are zero-rated under the Value Added Tax Act 2010 there is no Vat to deduct on PUC invoices. The total input tax credit that Basic Items Pty will receive for the month of July 2012 is the sum of all of the Vat incurred in the month of July 2012 which is SR20,219 (6,522 + 13,044 + 653). Basic Items Pty charges Vat to its customers on the sale of its goods in the supermarket. Basic Items Pty is able to offset its input tax against its output tax: SR260,870 – SR20,219 and the difference, which is SR240,651, is remitted to SRC.
Basic Items Pty will have not incurred any Vat cost when making its business nor will it make additional profit from the Vat collected. Vat is therefore a neutral tax and is neither a cost nor a profit to the business.
Other input taxes which can be offset include:
• VAT on annual premium insurance
• VAT on importation of goods imported to be sold
• VAT on services purchased for the business
For more information
Please contact Seychelles Revenue Commission on 4293737 or email us at advisory.center@src.gov.sc. The Value Added Tax Act, 2010 is available on the Seychelles Revenue Commission website (www.src.gov.sc).
Submitted by the Seychelles Revenue Commission