UNIT 3 VALUE ADDED TAX

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CHAPTER 11 VALUE ADDED TAX

LEARNING OBJE TI!E"# After studying this chapter you should be able to understand: Classification of Supplies Registration and Deregistration Group registration Accounting for Input and Output Tax Sale and Lease ac! Arrange"ents Repurchase Agree"ents Ad"inistration of #alue Added Tax

11.1 - INTRODUCTION VAT is a broadly based tax on general consumer expenditure and is charged upon the sale of goods and services made in the course of business by taxable persons. The basic feature of the tax is that organizations must charge tax at the standard rate (currently 17.5 ! on supplies of goods and services unless they are the sub"ect of specific relief contained in the la#. The VAT Act 1$$5 provides for t#o forms of relief% &ero rating e.g. boo's% children(s clothes% and )xemption. Thus the legal basis of Value Added Tax in &ambia is to be found in the Value Added Tax Act of 1$$5% supplemented by VAT *egulations made by the +inister of ,inance by #ay of -tatutory .nstruments and amended by subse/uent Amendment Acts passed by the 0ational Assembly each year. The ma"ority of organizations supply goods and services #hich are either standard rated or zero1rated2 in both cases they can recover the VAT that they have suffered on their purchases% so that the result is that they are both buying and selling at prices that are net of VAT. This is because VAT is a Tax on Turnover% not on 3usiness 4rofits. -ome organizations ma'e supplies #hich are VAT exempt #hich means that they cannot recover the VAT incurred on their expenditure on goods and services5 the full cost including VAT% #ill therefore represent a charge to their relevant budgets. 3ut for 6ompanies #hich ma'e both Taxable and )xempt -upplies% a *elief 'no#n as partial exemption relief is given. 7e #ill loo' at this later in this chapter.

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11.2 MEANING OF SUPPLY The starting point for any discussion of VAT should ideally be the scope of #hat this Tax covers. 8ou must have learnt from $a%e& T.' Taxation% that VAT is charged on taxable -upplies of goods and services made in the *epublic of &ambia by a taxable person in the course of furtherance of any business carried on by him. .t is also chargeable on goods imported into &ambia% #hether such goods are imported into &ambia for 3usiness or personal use. 8ou must have noted that #e have not mentioned imported services because they are not sub"ect to VAT. -ervices rendered by a ,oreign -upplier are the sub"ect matter of #hat is conveniently called Re#erse $AT. 8ou can learn more on *everse VAT in 6hapter 19. 7e must therefore proceed to define #hat -upply is for VAT purposes. Supply is the all1embracing term given to the infinite variety of transactions met in the commercial #orld. .n its ordinary meaning :-upply; means to :,urnish or -erve;. Thus a taxable supply is a supply of goods or services made in &ambia% other than an exempt supply. A taxable supply is either standard rated or &ero rated. 3ut an exempt supply is not chargeable to VAT. 6ertain events are or may be deemed to be supplies5 S!l" Suppl#!$ #here a person ac/uires or produces goods or does anything for the purpose of that business #hich #ould be a supply of services if made for a consideration1 those goods or services are deemed to have been both supplied to and by him. The private use or disposal of assets is deemed to be a supply of services or goods respectively. <n ceasing to be a Taxable person all goods forming part of the assets of the business are deemed to have been supplied. =o#ever% this #ill not apply #here the business is transferred as a going concern to another Taxable person. T%&%'l! P!($)* The term person includes individuals% corporations% partnerships% "oint ventures and organizations #hich supply services. Supply )" G))+$, >oods are supplied if exclusive o#nership of the goods passes to another person. This includes the follo#ing5 A -ale of goods A gift of goods 7here goods are obtained by a taxable -upplier for the purposes of a business carried on by him. Any other dealing #ith the goods% other than the supply in relation to a service% #hich the +inister of ,inance% by regulation% declares to a be a

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supply of the goods for the purposes of the Value Added Tax Act2 but does not include an importation of the goods% or any dealing #ith the goods #hich the +inister% by regulation% declares not to be a supply of the goods for the purposes of the Value Added Tax Act. Supply )" S!(-#.!$, -upply of a -ervice includes5 The provision of >oods on ?ease% =ire or ?oan. A Treatment of any >oods Any other activity #hich the +inister of ,inance% by regulation% declares to be the supply of a service. CLASSICATION OF SUPPLIES E&!/p0 Suppl#!$ The position of an exempt supply in the scheme of Value added Tax is as follo#s5 0o Tax is charged on it. .t is not ta'en into account in determining #hether a trader is a taxable person. .nput Tax attributable to it is not normally available for credit. As can be seen some supplies of goods and services (mainly services! are classified as :)xempt; from VAT. -uch supplies are outside the scope of VAT and hence :.nput Tax; suffered by the supplier in connection #ith the supply is not R!.)-!(%'l!1 @nder the first schedule to the VAT Act% the follo#ing items are exempt from VAT. F))+ %*+ L#-!$0).2 Suppl#!$, Li#estoc! Ani"al products Dairy products %ish Agricultural products Infant food &esticides and %ertili'ers (ealth Supplies )ducational Supplies oo!s and *e+spapers Transport Ser#ices Con#eyance, etc of Real )state &roperty %inancial and Insurance Ser#ices Gold %uneral Ser#ices

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 Ga"ing and etting Supplies Tra#eler-s effects. So"e agricultural &roducts. 3!() R%0!+ Suppl#!$ The current rate of VAT is 17.5 but certain supplies are &ero *ated. This means that <utput Tax is chargeable at &ero rate but input Tax suffered by the supplier remains recoverable. -ome of the &ero rated supplies include5 F))+$ %*+ A4(#.ul0u(! A4(#.ul0u(%l p()+u.0$ A fresh vegetables% fruit and nuts% maize and mealie1 meal% -oya beans% millet% etc2 except #hen any of the above product is5 Canned, fro'en or free'e dried/ or Supplied by a restaurant, cafeteria, canteen etc. A*#/%l P()+u.0$, +eat and offal of cattle% s#ine% sheep% goat% game farm animals etc. +il'% except po#dered mil' in cans or tins etc. ,ish A uncoo'ed% frozen or dried. Note# The 'ero0 rating in this category generally co#ers foodstuffs, and certain agricultural outputs. This pri"arily centers on unprocessed basic foodstuffs and agricultural outputs and does not include basic foods, +hich are either fro'en, canned, or free'e dried. S0%*+%(+ R%0!+ Suppl#!$, The -tandard *ate is currently at 17.5 . This means that output VAT is chargeable at that rate and .nput VAT suffered by a trader is recoverable. The 17.5 is based on the Tax )xclusive value of the goods or services supplied. This is e/uivalent to 7BC7 of the Tax .nclusive value of the goods or services supplied. This fraction is 'no#n as the VAT ,raction. 3!() R%0!+ V!($u$ E&!/p0 Suppl#!$ 3oth mean that there is no VAT charged on the supply% so #hatDs the differenceE E&!/p0 Suppl#!$, The position of an exempt supply in the scheme of VAT is as follo#s5 0o tax is charged on it .t is not ta'en into account in determining #hether a trader is a taxable person. .nput Tax is not available for credit The person ma'ing only exempt supplies #ill have no opportunity to reclaim .nput Tax on his purchases.

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3!() - (%0!+ Suppl#!$ &ero Arated supplies are taxable supplies The 4erson dealing in &ero rated supplies has the opportunity to reclaim :.nput Tax; on his purchases. ,or instance% most farmers have &ero rated supplies #hich means that in most% if not all cases% :.nput Tax; #ill exceed :<utput Tax;% hence al#ays claiming a refund from the &*A.

11.3 - VAT REGISTRATION

S!.0#)* 25617 )" 08! VAT A.0 $0%0!$ 08%0, ()ote# 1)#ery supplier +ho is carrying on a business in 2a"bia +hose Taxable turno#er exceeds the turno#er prescribed by the 3inister, by statutory order, shall "a!e application to be registered.4 A 'u$#*!$$ for the purposes of VAT is any pursuit that is engaged in trade% #hether by manufacture% production% #holesale% retail or the provision of a service. The current turnover limit re/uired for /%*+%0)(y registration is FGHH million. This means that if a trader is going to ma'e taxable supplies in the course of business in any 1G months in excess of FGHH million% then the la# compels him to register for VAT. Another interpretation is that the trader is re/uired to register for VAT if his Taxable supplies are li'ely to exceed FGHH million in the course of the 1G months period. This is 'no#n as 6ompulsory *egistration and from April GHH5 this is the only form of VAT *egistration in &ambia. 4rior to April GHH5 a trader had an option of Voluntary *egistration even if he did not meet the FGHH million Turnover threshold. 3ut the +inister has removed this option and due to the general outcry of most -mall 3usiness )nterprises #ho #ere benefiting from voluntary *egistration #e can never say for sure that Voluntary *egistration has gone for goodI 7e might see the +inister reversing his decision sooner than later. C)/pul$)(y R!4#$0(%0#)* 3usinesses are re/uired by la# to apply for VAT registration if they deal in Taxable -upplies and their turnover exceeds the three threshold limits stated belo#5 F GHH million in any 1G +onths2 F5H million in any three consecutive J +onths2 or

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 Taxable turnover is expected to exceed either of the above limits in the subse/uent 1G or J +onths respectively.

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E""!.0#-! D%0! )" R!4#$0(%0#)* 6EDR7 A/!*+/!*0 A.0 N).2 )" 199: (.nsertion! provides that the date #hen a business becomes registerable for VAT is as follo#s5 .n the case of a NE; 3usiness5 1 The Kate of 6ommencement of trading. .n the case of a C)*0#*u#*4 3usiness5 i. 5ithin one 3onth of an application being "ade or fro" the Date the application +as recei#ed by the Co""issioner General/ or ii. If the application is not "ade +ithin one 3onth of the Taxable turno#er beco"ing due, on the Day follo+ing the first period during +hich the 6788 "illion Li"it +as )xceeded. M!%*#*4 )" T%&%'l! Tu(*)-!( Taxable turnover means that part of the turnover of a business that is attributable to Taxable supplies. ;8) $8)ul+ R!4#$0!(< All legal entities that deal in Taxable supplies can as a matter of fact register for Value Added Tax. These include the follo#ing5 .ndividuals (-ole traders! 6ompanies 4artnerships Trusts >roups of companies2 and Loint ventures P().!+u(! ")( VAT (!4#$0(%0#)* All VAT registration applications should be made using the official application form called !AT * obtainable from the VAT Advice 6enter or the nearest &*A office. VAT registration is free. The application #ill be processed and a VAT number allocated #ithin t#o #or'ing days from the date the application form reaches the VAT *egistration @nit% and a VAT 6ertificate #ill be issued #ithin five #or'ing days from the date the VAT *egistration number is allocated. P(! (!4#$0(%0#)* *!.!$$#0#!$ 3efore registering for VAT the .ndividualB 3usiness must ensure that they are registered for Tax 4ayer .dentification 0umber 6TPIN7 before submitting their application form. This 0umber is becoming increasingly important at &*A as they move closer to the implementation of the .ntegrated Tax administration -ystem 6ITAS7 that #ill lin' all the Taxes.

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O'l#4%0#)*$ %"0!( R!4#$0(%0#)* All -uppliers #ho have been registered for VAT are re/uired to do the follo#ing5 Kisplay their VAT registration 6ertificate -ubmit VAT *eturns and ma'e payments as re/uired 4rovide Tax .nvoices +aintain sufficient records and retain them for a minimum of 5 years for VAT purposes. Advise &*A of any change in business (name% address% telephone number% o#nership% cessation of business% etc. Allo# <fficers of &*A to enter their business premises and examine their goods and records. G()up VAT R!4#$0(%0#)* S!.0#)* 2: 6=7 of the VAT Act re/uires that #here several 6ompanies constitute a recognized group% registration may be effected in the name of the >roup or =olding company and such registration displaces any re/uirement under the VAT Act for individual group members to apply separately. O08!( 0yp!$ )" R!4#$0(%0#)* P%(0*!($8#p$, 1 7here t#o or more individuals in partnership carry on a business involving the supply of goods or services% registration may be effected in the name of the firm 1 S.2: 627 )" 08! VAT A.0. Clu'$ %*+ )08!( u*#*.)(p)(%0!+ )(4%*#>%0#)*$, 1 ,or clubs% associations% and other unincorporated organizations% #hich carry on a business involving the supply of goods or services% registration may be effected in the name of the organization A S.2: 637 VAT A.0. ?(%*.8!$ @ D#-#$#)*$, 1 The registration of a 6ompany carrying on business in several divisions may% if the 6ompany so re/uests and the 6ommissioner >eneral sees it fit% be effected in the name of those divisions% and such registration displaces any re/uirement under the VAT Act to apply for or effect registration of the 6ompany A S.2: 6A7 VAT A.0. E&%/pl!, DANTINA CBINYANTA, Kantina commenced self1employment as a Tax consultant on 1.HC.HM. =is .ncome for the first 1G +onths of trading is forecast to be FGG5 million

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ANS;ER,
DANTINA CBINYANTA Kantina #ill become liable to compulsory or -tatutory VAT registration #hen his Taxable turnover during any 1G months period exceeds FGHH million. =e #ill also be liable to compulsory registration if his Taxable turnover exceeds F5H million in any consecutive three months. This #ill happen on G9 ,ebruary GHHM #hen the taxable turnover is expected to exceed FGHH million% i.e.% 11B1G N GG5%HHH%HHH O FGHM%GC$%$$$.$$ -ince this is a ne# business% the effective date of registration is the date of commencement of trading #hich is 1.HC.HM. <n H1.HC.HM Kantina is re/uired to apply for VAT registration at the &*A VAT office in his area or district. D!-(!4#$0(%0#)* A person ceases to be liable to be registered #hen5 At any time The &*A is satisfied that the annual turnover #ill from that date be less than FGHH million. There is a change in the legal status of an entity e.g. #hen a partnership is dissolved. .f the business ceases trading permanently. .f the business is sold as a going concern. .f the person registered as an intended trader and his intention to ma'e supplies ceases. E""!.0#-! D%0! )" D!-(!4#$0(%0#)*. Keregistration #ill normally ta'e effect from the last day of the month in #hich deregistration application is approved by the 6ommissioner >eneral. A$$!0$ B!l+ )* D!(!4#$0(%0#)* -toc' in trade% plant and other assets held by a taxable person #hen he deregisters are deemed to be supplied by him at that time. =e is therefore re/uired to pay VAT on the Value of any such -toc's because as far as the &*A is concerned the person is in effect% ma'ing taxable supplies to himself as a ne#ly unregistered business.

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11.= ACCOUNTING FOR OUTPUT TAX As #e noted earlier% the tax chargeable on -upplies made is referred to as <utput Tax. There are currently t#o rates of Tax A a &ero rate and the -tandard rate of 17.5 .Tax is charged on the value of the goods or services supplied. 7here the consideration for a supply is paid in money% value represents the traderDs Tax exclusive selling price less the amount of any cash discount offered. Accordingly% if +r.+#amb#aDs Tax exclusive selling price for a product is F1% HHH%HHH and he offers a cash discount of 5 for payment #ithin one month% VAT #ill be charged on F$5H%HHH (F1%HHH%HHH A F5H%HHH!. Pl%.! )" Supply To be #ithin the scope of the &ambian VAT system a -upply must be made in &ambia. -upplies that are made outside &ambia are outside the scope of &ambian VAT. The place of -upply is not al#ays as obvious as #e #ould li'e to assume% especially #here -upplies of services are concerned. 3ut there are rules in ascertaining the 4lace of -upply. G))+$ The place of -upply is the location of the goods #hen they are allocated to a customerDs order. 7here a trader supplies goods that are assembled or built for the first time on site% then the place of supply is the place #here the assembly or building ta'es place. S!(-#.!$ The simple general rule is that a trader supplies services in the place #here he belongs. And a trader belongs #here he has a business or some other fixed establishment A e.g. a 3ranch. 7here services are supplied #holly or partly in &ambia% the 6ommissioner >eneral may determine that such services are supplied in &ambia #here5 i. The business supplying the ser#ices is registered in 2a"bia/ or ii. The business operates on a +e ,acto basis in 2a"bia/ or iii. In such other circu"stances as the Co""issioner General "ay consider rele#ant. The place of supply of *adio% television% telephone or other communication services% #here the signal or service originates outside &ambia% shall be treated as being supplied at the place #here the recipient receives the signal or service% provided that a consideration is payable for receiving the service or signal.

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NON TAXA?LE SUPPLIES 6ertain supplies are not considered to be supplies for VAT purposes5 -ale of repossessed goods Transactions #ithin a VAT >roup of 6ompanies. >oods lost or destroyed1 ho#ever% this does not cover the situation #here cash is stolen% as the supply #ill already have occurredI The rescission of a voidable contract as in -B Lit.e&/and 0 o. !1 E% annuls the -upply. =o#ever% the disposal of stolen goods as in E !1 O/ive&, or sale sub"ect to the reservation of the title as in !e&mit&on !1 E, is considered to be supplies. TAX POINT The obligation to account for VAT on a supply is determined by the prescribed accounting period in #hich the Tax 4oint falls. The Tax 4oint is the time #hen the taxable supplies are made. The Tax 4oint is important because it is an indication of #hen the Tax becomes payable to or recoverable from the &*A. The Tax 4oint for goods is different from the Tax 4oint for -ervices. ,or VAT purposes the time #hen a supply of goods or services ta'es place can% as indicated above% have far reaching effects not only because it may determine a personDs liability to registration% but also because it helps to indicate the amount of Tax (VAT! #hich must be paid in a particular period. =ence% the Tax 4oint is very important in Tax 4lanning circles. T%& P)#*0 ")( G))+$ S!.0#)* 13 627 VAT A.0 stipulates that the time of supply of goods is the earliest of the follo#ing times5 The time #hen goods are removed from the premises of the -upplier2 The time #hen the goods are made available to the person to #hom they are -upplied2 The Time #hen payment for the -upply is received2 The Time #hen a Tax .nvoice is issued. T%& P)#*0 ")( S!(-#.!$ S!.0#)* 13 6A7 VAT A.0 stipulates that the Time of supply of -ervices is the earliest of the follo#ing times5 The Time #hen the payment for the services is received2 The Time #hen a Tax invoice is issued2 or The time #hen they are actually rendered or performed.

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T%& P)#*0 ")( P%(0#.ul%( T(%*$%.0#)*$ D!p)$#0$ +ost deposits serve primarily as advance payments and #ill create Tax 4oints #hen the supplier of the goods or services receives them. =o#ever% it must be noted that deposits #hich have the character of a ?ien% i.e. 7hich are not a consideration for the supply% do not by themselves create a Tax 4oint% e.g. #hen a deposit is ta'en as security to ensure the safe return of goods hired out and the deposit is refunded #hen the goods are returned safely. D(%C#*4$ .f a person ta'es out goods for private purposes% the Tax 4oint is the time #hen the goods are ta'en or set aside for this purpose. S%l! )( R!0u(* C)*$#4*/!*0$ 7here a person supplies goods on sale or return agreement% the goods have not been supplied or sold because that person still o#ns the goods until such a time as the customer adopts them. Adoption means the customer pays for them or other #ise indicates his #ish to 'eep them. @ntil the time of adoption% the customer has an un/ualified right to return them at any time% unless a time limit has been agreed. The Tax 4oint for these consignments is the earliest of the follo#ing Times5 i. Date of Adoption ii. Date of pay"ent/ or iii. Date of in#oicing. M!0!(!+ Suppl#!$ 7here )lectricity% #ater or any other commodity measured by meter is supplied% the Time of supply is the earliest of the follo#ing Kates5 The Time #hen the meter is next read after consumption of the commodity% except to the extent that payment is sooner made2 or The Time a Tax .nvoice is sooner issued% in respect of the supply. P()p!(0y %*+ L!%$!8)l+ .f a person receives periodic payments of rent or ground rent% the Tax point is that prescribed by the contract% i.e.% #hen the -ervice is performed% or the date #hen he receives the payment% or the date of the Tax invoice% #hich ever happens first.

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SECTION 1D OF TBE VAT ACT VALUE OF SUPPLY A preliminary principle concerning the value of supplies is that VAT is charged on the Taxable Value of the -upply% at the prescribed rate of Tax. This is the -tandard rate of 17.5 . S!.0#)* 1D 617 7here goods or -ervices are supplied for a monetary consideration% the amount by #hich that consideration exceeds the Tax payable in respect of the -upply shall be the Taxable Value of the goods or -ervices. This means that the Taxable Value represents the TraderDs Tax )xclusive selling price less the amount of any cash discount offered to the buyer. S!.0#)* 1D 627 7here goods or -ervices are supplied5 <ther than for a monetary 6onsideration2 ,or a consideration that consists only partly of +oney2 or ,or a consideration that is less than the open mar'et value of the goods or services2 The amount by #hich their <pen +ar'et Value exceeds the Tax 4ayable in respect of the -upply shall be the Taxable Value of the >oods or -ervices. <pen +ar'et Value is the Tax exclusive amount% #hich a customer #ould pay if the price #ere not influenced by any commercial% financial or other relationship bet#een himself and the -eller. VARIATION OF TBE ?ASIC TAX POINT 7e established above that as a general rule% goods are treated as supplied #hen they are collected% delivered or made available to a customer and services are treated as supplied #hen they are performed. This is 'no#n as the basic Tax 4oint. The basic Tax 4oint may be Varied or Amended in t#o situations 0amely5 i. A Tax .nvoice is issued or a payment is received before the 3asic Tax 4oint. .n these circumstances the date of issue or date of payment is the time #hen the supply is treated as ta'ing place. ii. A Tax invoice is issued #ithin 1C days after the basic Tax 4oint. .n these circumstances the Kate of issue of the Tax .nvoice is the time #hen the -upply is treated as ta'ing place. An .nvoice is issued #hen it is sent or given to a customer. Thus% preparing an .nvoice does not by itself create a Tax point until something positive is done #ith it% such as posting it to the customer.

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11.A DEDUCTION OF INPUT TAX .nput Tax is the Tax on the supply to a Taxable person% of goods or services and on the importation of any goods used or to be used for the purposes of any business carried on or to be carried on by that Taxable person. .n other #ords% .nput Tax is the Tax incurred on supplies such as 4urchases and business expenses. .nput Tax is recoverable from the 6ommissioner >eneral provided that certain conditions are met. C)*+#0#)*$ ")( )'0%#*#*4 I*pu0 T%& .(!+#0 The strict #ording of the legislation% and the case la# from it% indicate that a number of conditions must be met before VAT is available for 6redit as .nput Tax. This is intended to ensure that only .nput Tax% #hich relates to Taxable 3usiness activities% is claimable as #ell as to protect the &*A from inappropriate claims% #hich may lead to Tax revenue ?oss. ?u$#*!$$ U$! The expenditure must be for business purposes% i.e.% not for private use. .f purchases are partly for business and partly for private use% only the business proportion can be claimed. ,or example% if a business pays for Kiesel for a 6ar used by a director on a G5575 private use basis% only 75 of the .nput Tax on the Kiesel may be claimed. O*! y!%( L#/#0 .nput Tax should be claimed #ithin one year from the Kate of the Tax .nvoice or for imported goods on the appropriate VAT import document. And it must be noted that .nput Tax cannot be claimed on a *eturn for a period before the Kate on the Tax .nvoice. D).u/!*0%(y E-#+!*.! A Tax .nvoice or ,orm 6) GH sho#ing the amount of VAT paid at .mportation must be held before any claim is made. 4hotocopy documents are not acceptable. The general practice for imports is that form 6) GH must be accompanied by the relevant A$y.u+% EE processed papers at the point of entry into &ambia.

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I*pu0 T%& )* I/p)(0$ 7hen goods are imported into &ambia% VAT together #ith any import duties is payable at importation. VAT is chargeable on all imports except &ero rated or exempt goods. 7here goods are removed from an approved bonded #arehouse% form 6) GH is used. >oods in bond do not attract VAT% but VAT is payable #hen goods are removed from bond. VAT on importation is chargeable and payable as if it #ere a 6ustoms Kuty. I*pu0 T%& /u$0 (!l%0! 0) T%&%'l! Suppl#!$ 4urchases or business expenses on #hich VAT .nput credit is claimed must al#ays relate to Taxable and not -uppliers. 3usinesses that deal only in exempt supplies are not eligible to register for VAT and therefore get no opportunity to reclaim any .nput Tax. I*pu0 T%& E&.lu+!+ "()/ .(!+#0 .nput Tax on the follo#ing goods and -ervices is excluded from credit% that is% to say that VAT cannot be reclaimed5 T!l!p8)*! ?#ll$, .nput Tax credit is not allo#ed on telephone bills except on5 .nterconnection fees and services provided by another telephone service provider. Telephone services provided by a hotel% lodge and similar establishment to its clients if such an establishment accounts for <utput Tax on the supply of the Telephone -ervices to its clients. M)0)( C%($ .nput Tax credit is not allo#ed on +otor 6ars2 ho#ever% 6ar Kealers #ho buy 6ars for -elling or leasing may claim VAT .nput Tax in the normal #ay. +aintenance and repairs to +otor 6ars used solely for business purposes can be claimed. 7here a +otor 6ar is used partly for personal purposes% e.g. to transport business executives% VAT incurred on vehicle maintenance and repairs must be apportioned and only that part #hich directly relates to business can be claimed. D!"#*#0#)* )" M)0)( C%( +otor 6ars are defined as +otor Vehicles that have side #indo#s or a seat to the rear of the driverDs seat.

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E&%/pl!, MARY NFOLE +ozi#ood 4lc is to provide +ary 0'ole A a long time serving director #ith a ne# 5HHH cc 6ompany 6ar that #ill cost FGG5 million. The 6ar #ill be used for both business and private mileage on a 7H5JH basis. +ozi#ood 4lc has also underta'en to pay for all the annual running costs of the +otor 6ar as follo#s5 FGDDD Kiesel 1G%JJ7 -ervicing and *epairs 5%G97 .nsurance and *oad Tax 7%5HH +ary 0'ole #ill not at any time be re/uired to reimburse +ozi#ood 4lc for the cost of private fuel. The above figures are inclusive of VAT #here applicable.

ANS;ER MARY NFOLE M)0)( C%( The Vat incurred on the purchase of the +otor 6ar #ill be computed as follo#s5 17.5 B 117.5 O 7BC7 x GG5%HHH%HHH O FJJ% 51H%MJ9.JH. This VAT cannot be reclaimed because the /uestion has not specified that +ozi#ood 4lc is a 6ar Kealer. =o#ever% +ozi#ood 4lc can still claim capital allo#ances based on the VAT inclusive amount of FGG5 million. D#!$!l .nput Tax suffered on the purchase of Kiesel is claimable. +ozi#ood 4lc #ill therefore be allo#ed to claim the .nput VAT suffered but only to the extent that the Kiesel is used for business mileage. The total .nput Tax may be computed as follo#s5 7BC7 x 1G%JJ7%HHH O F1% 9J7%CGM. 3ut not all of it can be claimed because of the JH private use. Therefore only 7H x F1% 9J7%CGM O F1% G9M%1$9.GH can be claimed. S!(-#.#*4 %*+ R!p%#($ +aintenance and *epairs to +otor 6ars used solely for business purposes can be claimed. 3ut in cases #here a +otor 6ar is partly used for both private and business purposes as in this case VAT incurred on +otor vehicle repairs must be apportioned and only that part #hich directly relates to the business can be claimed. The total VAT suffered on -ervicing and *epairs may be computed as

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follo#s5 7BC7 x F5% G97%HHH O F797% CGM but only 7H O F551% 1$9.GH may be claimed by +ozi#ood 4lc. I*$u(%*.! %*+ R)%+ T%& These are not sub"ect to Value Added Tax.

x F797% CGM

Note, 5hen co"puting the ad9usted Taxable &rofits, 3o'i+ood &lc +ill use the net of $AT figure. ?u$#*!$$ E*0!(0%#*/!*0 3usiness entertainment is defined as entertainment% including hospitality of any 'ind% provided in connection #ith a business. This includes the supply of meals% drin's% entertainment at clubs and the provision of recreational facilities. .nput Tax may not be reclaimed on business entertainment. =o#ever% .nput Tax can be claimed on business hotel accommodation as from 1st Luly 1$$$ but not the Tax incurred on the supply of any food% beverages% transportation or hospitality of any 'ind. I*pu0 T%& I*.u((!+ ")( 08! '!*!"#0 )" D#(!.0)($H E/pl)y!!$ !0.. VAT incurred on any food% beverages% transportation or hospitality of any 'ind% or goods provided for Kirectors% +anagers% 4artners% 4roprietors% )mployees% 6ustomers or potential 6ustomers etc. cannot be claimed e.g. the VAT on furniture. E&p)(0 )" G))+$ The second schedule section 15(1! of the VAT Act provides that )xport of goods from &ambia by or on behalf of a Taxable supplier #here evidence of such exportation is produced /ualifies to be &ero1rated. The documentary evidence re/uired to support exportation includes5 6ommercial .nvoice 6ertified copies of documents presented to &ambian customs at exportation% bearing a certificate of shipment provided by the &*A. 4roof of payment by foreign customer for the goods. P%(0#%l E&!/p0#)* .n principle% input tax incurred on purchases used to ma'e taxable supplies is deductible% but input tax incurred on purchases that are used to ma'e exempt supplies is not. The -tandard method is a simple #ay of calculating ho# much input tax incurred on purchases used to ma'e both taxable and exempt supplies (residual input tax!% can be attributed to taxable supplies and deducted. .t apportions residual input tax in proportion to the values of taxable and exempt supplies made in the period in #hich it is incurred. This section #ill attempt to loo' at ho# -uppliers ma'ing both exempt and taxable supplies can claim their VAT incurred on taxable supplies as determined by the VAT ?a#. 7e #ill then proceed to demonstrate this by #ay of a #or'ed

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example. .t is perhaps obvious that a person may only recover .nput Tax #here it relates to Taxable supplies. A proportion of the .nput VAT may therefore not be recoverable #here a person ma'es both Taxable and )xempt -upplies. VAT registered suppliers ma'ing both taxable and exempt supplies are referred to as partially exempt suppliers. To deal #ith this situation% there are several partial exemption methods that #e #ill discuss in this section. To enable partially exempt suppliers reclaim .nput Tax on their 4urchases and )xpenses that correspond to the proportion of their -ales (outputs! that are taxable% four methods are available #hich they can use to claim the right proportion of .nput tax ,or consistence purposes% partially exempt suppliers are re/uired to choose a method of their choice for one accounting year after #hich they may decide to change to a different method (accounting year ends on JHth Lune for this purpose!. At the end of each accounting year a supplier using any partial exemption method is also re/uired to determine the attribution in respect of supplies effected during the accounting year and on the next return (Luly *eturn! ad"ust any difference in input tax previously attributed to taxable supplies during that accounting year. P%(0#%l E&!/p0#)* M!08)+$ M!08)+ 1 S0!p 1 1 6alculate the value of the taxable supplies made in the accounting period. S0!p 21 6alculate the value of all supplies made in the accounting period S0!p 3 1 6alculate the amount of .nput tax payable on 4urchases in that accounting period. S0!p = 1 Kivide the Amount obtained in -tep 1 by the amount obtained in -tep G% i.e. T%&%'l! $uppl#!$ #* p!(#)+ @ %ll $uppl#!$ #* p!(#)+ .nput tax that can be claimed in the accounting period is the product obtained by multiplying the amount obtained in step J by the amount obtained in step C. Taxable Supplies in &eriod : All supplies in period ;< $AT on purchases=

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E&%/pl!,

SARA CBANSA MAFA?U -araDs input tax and supplies made in the /uarter to J1 Kecember GHH5 are analyzed as follo#s5 FGDDD .nput tax #holly re1taxable supplies GJ%G5H .nput Tax #holly re1exempt supplies 1C%HHH 0on A attributable input tax G9%HHH Value ()xcluding VAT! of taxable supplies G5H%HHH Value of exempt supplies 1HH%HHH 6alculate the deductible input tax assuming that -ara uses method 1 of attributing input tax.

ANS;ER SARA CBANSA MAFA?U S0!p 1 1 6alculate the value of the taxable supplies made in the accounting period O FG5H% HHH%HHH S0!p 2 1 6alculate the value of all supplies made in the accounting period O FG5H% HHH%HHH P F1HH% HHH%HHH O FJ5H% HHH%HHH. S0!p 3 1 6alculate the amount of .nput tax payable on 4urchases in that accounting periodO FGJ% G5H%HHH. -tep C 1 Kivide the Amount obtained in -tep 1 by the amount obtained in -tep G% i.e. G5H%HHH%HHH B J5H%HHH%HHH O H.71C .nput tax that can be claimed in the accounting period is the product obtained by multiplying the amount obtained in step J by the amount obtained in step C. O H.71C N GJ%G5H%HHH O F1M% MHH%5HH

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M!08)+ TC) S0!p 1 2 Kivide input tax for the accounting period into 6ategories5 1 .nput tax directly attributed to taxable supplies5 This is #holly available for 6redit. .nput tax directly attributable to exempt supplies5 This Tax is #holly disallo#ed for 6redit. .nput tax that is paid for the purposes of the business but is not directly attributable to either taxable or exempt supplies. This is famously called 0on attributable .nput Tax. .t is usually incurred on overheads such as )lectricity and .nternet costs etc. The amount available for 6redit is found by using the fraction in -tep C belo#. S0!p 2 1 6alculate the value of taxable supplies made in the accounting period. S0!p 31 6alculate the value of all supplies made in that period. S0!p = 1 Kivide the amount obtained in -tep G by the amount obtained in -tep J% i.e. T%&%'l! $uppl#!$ #* p!(#)+ @ %ll $uppl#!$ #* p!(#)+ ,or -implicity% 0on1attributable Tax is deemed to be attributable to taxable supplies and may be claimed as a deduction #ith the amount of tax in 6ategory 1 above. E&%/pl!, .n the )xample of -ara 6hansa +a'abu above% calculate the value of deductible input tax assuming that -ara uses method G of attributing input tax. A*$C!( S0!p 1 2 Kivide input tax for the accounting period into 6ategories5 .nput tax directly attributed to taxable supplies5 This is #holly available for 6redit O FGJ% G5H%HHH .nput tax directly attributable to exempt supplies5 This Tax is #holly disallo#ed for 6redit O F1C% HHH%HHH .nput tax that is paid for the purposes of the business but is not directly attributable to either taxable or exempt supplies. This is famously called 0on attributable .nput Tax. .t is usually incurred on overheads such as )lectricity and .nternet costs etc. O FG9% HHH%HHH. The amount available for 6redit is found by using the fraction in -tep C belo#. S0!p 2, 6alculate the value of taxable supplies made in the accounting periodO FG5H% HHH%HHH.

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 S0!p 3, 6alculate the value of all supplies made in that period O FG5H% HHH%HHH P F1HH% HHH%HHH O FJ5H% HHH%HHH. S0!p =, Kivide the amount obtained in -tep G by the amount obtained in -tep J% i.e. G5H%HHH%HHH B J5H%HHH%HHH I H.71C Therefore the amount available for credit can be found as follo#s5 (H.71C N G9%HHH%HHH! P FGJ% G5H%HHH O FCJ% GCG%HHH.

M!08)+ T8(!! S0!p 15 6alculate the value of taxable supplies made in all accounting periods in the accounting year. S0!p 25 6alculate the value of all supplies made in that period. S0!p 35 6alculate the amount of tax payable on supplies made to the supplier. S0!p =, Kivide the amount obtained in -tep 1 by the amount obtained in -tep G. T%&%'l! $uppl#!$ /%+! #* p!(#)+$ #* %..)u*0#*4 y!%( All $uppl#!$ /%+! #* %..)u*0#*4 y!%(. .nput tax that can be claimed as a deduction or credit in the prescribed accounting periods is the product obtained by multiplying the amount obtained in -tep C% less the amount already reclaimed in earlier accounting periods in that accounting year. F)u(08 M!08)+ S0!p 1 1 Kivide input tax for the prescribed accounting year into categories51 .nput tax that is directly attributable to taxable supplies .nput tax that is directly attributable to exempt supplies .nput tax that is paid for the purpose of the business that is not directly attributable either to taxable or exempt supplies. S0!p 2, 6alculate the value of taxable supplies made in the prescribed accounting year. S0!p 35 6alculate the value of all supplies in that year. S0!p = 1Kivide the amount obtained in -tep G by the amount obtained in -tep J% i.e. T%&%'l! $uppl#!$ #* p!(#)+ @ All $uppl#!$ #* p!(#)+ A proportion of input tax in 6ategory J above% e/ual to the proportion mentioned in -tep C% is deemed attributable to taxable supplies and may together #ith the amount in 6ategory 1 be claimed as a deductible or credit for the prescribed accounting year% to the extent that it exceeds any amounts already deductible or credited in earlier prescribed accounting periods in that accounting year.

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E&%/pl!,

MANDE ;AMUNDILA P%(0 A +ande 7amundila has a mar'et stall in 0dolaDs 0orth rise% and sells mostly fruits and vegetables and a small amount of other foodstuffs and groceries. -he started trading on 1 Kecember GHH5 and she is positive that her turnover #ill ta'e the follo#ing pattern5 <ne month ended J1.1G.H5 Quarter ended J1.HJ.HM Quarter ended JH.HM.HM Quarter ended JH.H$.HM Assu"e that the a"ounts accrue e#enly. 8ou are re/uired to advise +ande if she should register for VAT% and if so% #hen the &*A should be notified. P%(0 ? Assume that +andeDs input tax and supplies made in one /uarter #ere as follo#s5 34000 Value of exempt supplies (for the /uarter! GH%HHH VAT )xclusive taxable supplies (for the /uarter! 15H%HHH 0on1attributable input tax J5%HHH .nput tax on exempt supplies J%5HH .nput tax on taxable supplies GG%JCH Value of exempt supplies (for the other /uarters! C5%HHH VAT exclusive taxable supplies (for other /uarters! J9H%HHH R!Ju#(!+ 6alculate the deductible input tax assuming that +ande uses the ,ourth method of attributing input tax. 34000 11%HHH 15J%HHH 1$M%HHH G1H%HHH

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ANS;ER, MANDE ;AMUNDILA P%(0 A VAT R!4#$0(%0#)* @nder the &ambian VAT la#s a supplier must apply to register if the value of taxable supplies in the course of business exceeds or is li'ely to exceed FGHH million in any 1G months. ,or +andeDs business it #as becoming rather obvious by the end of the Lune GHHM /uarter that the F1HH million threshold #as going to be exceeded. .f in that /uarter the value of the taxable supplies #as F1$M million it #as more than li'ely that in the next three months the FGHH million mar' #as going to be reached and perhaps even exceeded. -trictly spea'ing the re/uirement to register falls in the /uarter ending JH -eptember GHHM #hen the value of taxable supplies exceeds the FGHH million threshold. +ande started trading on 1 Kecember GHH5. Therefore this is not a continuing business but rather a ne# business. The date #hen a business becomes registerable for VAT for a ne# business% if the turnover threshold is li'ely to exceed FGHH million% is the date of commencement of trading i.e. 1 Kecember GHH5. P%(0 ? D!+u.0#'l! I*pu0 T%& S0!p 1 1 Kivide input tax for the prescribed accounting year into categories5 1 .nput tax that is directly attributable to taxable supplies O FGG% JCH .nput tax that is directly attributable to exempt supplies O FJ% 5HH .nput tax that is paid for the purpose of the business that is not directly attributable either to taxable or exempt supplies O FJ5% HHH S0!p 2, 6alculate the value of taxable supplies made in the prescribed accounting 8ear O F15H% HHH P FJ9H% HHH O F5JH% HHH S0!p 35 6alculate the value of all supplies in that year. O F5JH% HHH P GH%HHH P C5%HHH O F5$5% HHH. S0!p =5 Kivide the amount obtained in -tep G by the amount obtained in -tep J% i.e. I 5JH%HHH B 5$5%HHH O H.9$ Therefore the deductible input tax available for credit can be computed as5 (H.9$ N J5%HHH O FJ1% 15H! P FGG% JCH O F5J% C$H

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I/p)(0!+ G))+$ .mported goods are liable to VAT. This is to ensure that manufacturers in &ambia are not placed at a disadvantage as compared to foreign suppliers. ?i'e 6ustoms Kuty% VAT is chargeable on certain Vatable goods. VAT on imported items is computed on the total cost of the item in /uestion% that is% the 6., P Kuty. 7hen goods are imported into &ambia% VAT% together #ith any import duties is payable at importation to &*A(s 6ustoms Kivision. VAT is chargeable on all imports except zero1rated or exempt goods. There are also some exceptions for goods imported under *egulations M% 7% $% 11% 1J% 1C% 15 and 1M of the 6ustoms and )xcise *ebates% *efunds and *emissions >eneral *egulations. 7here goods are removed from an approved bonded #arehouse form 6) GH is used. >oods in bond do not attract VAT% but VAT is payable #hen goods are removed from bond.

11.K VAT IMPLICATIONS OF LEASING TRANSACTIONS A leasing agreement is essentially a hiring agreement in #hich o#nership of an asset may never pass to the lessee. <neDs first reaction might therefore be to regard payments under the lease as expenses to be charged against revenue as they arise. =o#ever% if the term of the lease covers substantially the #hole of the useful life of an asset% it may be argued that the substance of the transaction is that the lessee has a non1 current asset% the right to use the asset% and a corresponding liability to pay the charges due during the contract. This is the vie# ta'en by .A- 17. Accordingly% .A- 17 defines a lease as an agreement #hereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time TBE PARTIES TO A LEASE There are usually three parties to a typical lease namely2 the ?essor% the ?essee and the -eller. The relationship bet#een them can best be sho#n by the triangle belo#5

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LESSOR

P%y/!*0

L!%$! R!*0%l

SELLER

EJu#p/!*0

LESSEE

.n this arrangement the ?essor acts as an intermediary bet#een the -eller and the ?essee. The ?essor buys the e/uipment and pays for it from the -eller. Then he enters into an arrangement for the ?essee to hire the same e/uipment at a negotiated *ental ,ee. 7hen the ?essor buys the Asset from the -eller the Title in that Asset passes to him but #hether or not title in the Asset passes as a result of a ?ease contract bet#een him and the ?essee depends on the type of lease he has entered into. Although all lease payments are referred to as rentals they in fact consist of t#o component parts2 the capital component and finance charges. C%p#0%l C)/p)*!*0 This is the part of the lease rental that relates to the repayment of the cost of the asset. F#*%*.! C8%(4!$ This is the ?essorDs re#ard for providing the ?essee #ith the use of the asset over the term of the lease and this part of the lease rental comprises of all other charges made by the ?essor% such as credit charges% interest% fees and other financial related charges. TPYES OF LEASES .A- 17 recognises t#o types of ?ease A finance and operating leases. This is covered in sufficient detail in your ,inancial *eporting 4apers.

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F#*%*.! L!%$! This is a lease that transfers substantially all the ris's and re#ards incident to o#nership of an asset. Title may or may not eventually be transferred. =ence% it might be said that the ?essor purchases an asset #ith the sole intention of leasing the asset% #ith finance charges% to an end user (?essee!% for agreed regular payments% over an agreed period of time. Op!(%0#*4 L!%$! An operating lease is a lease other than a finance lease. .t runs for significantly less than the useful life of the asset. An operating ?ease is therefore% a derivative of the ,inance ?ease designed to remove the lease liability from the lesseeDs balance sheet. The ?essor places a *esidual Value on the asset and rents the net value of the assets to the ?essee over an agreed period. The residual Value is never payable by the lessee and it is therefore deemed that the lessor ta'es substantially all of the ris' and re#ard associated #ith o#nership of the asset. 3ecause of this% the asset is not captilised on the 3alance -heet of the lessee for accounting purposes. This is 'no#n as <ff 3alance -heet ,inancingI S%l! %*+ L!%$!'%.2 A((%*4!/!*0 A -ale and ?easebac' is a normal business transaction that consists of t#o separate components2 the -ale of the asset and the subse/uent ?ease transaction. These t#o components are usually incorporated into a single agreement. The process is that the o#ner of an asset sells the asset to the ?essor #ho leases the asset bac' to the original o#ner under a ,inance ?ease or an <perating ?ease Agreement. This is often used as a method of obtaining finance against unencumbered assets% to increase #or'ing capital% #hile providing the ?essor #ith an asset as security. INSTALMENT SALE AGREEMENT This is #here the financier (the seller! purchases an asset #ith the sole intention of selling the asset% #ith finance charges% to an end user (the 3uyer!% for agreed regular installments% over an agreed period of time. <#nership of the goods automatically passes to the buyer upon fulfilling all payments in terms of the contractual agreement. VAT TREATMENT The VAT treatment on all the supplies mentioned above is exactly the same. F#*%*.! %*+ Op!(%0#*4 L!%$!$ VAT Treatment is as follo#s5 #7 L!$$)(

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The lessor #ill purchase an asset and claim the input VAT as per the VAT invoice. The lessor leases the asset to the ?essee and levies VAT on each lease rental #hen due or received% including rentals received under secondary leases. The exemption of VAT on interest andBor other exempt services% previously allo#ed% is no longer applicable. .f the asset is sold at any time during or after termination of the lease% the lessor #ill levy VAT on the selling price. ##7 7here the lessee #ould normally have /ualified for VAT input credit if he had purchased the asset% he is allo#ed to reclaim the input tax levied on lease rentals. Therefore% input tax incurred on the lease of a motor car% or any asset not meant for business use% is non1deductible. S%l! %*+ L!%$!'%.2 The t#o components of a -ale and ?easebac' transaction #ill be treated as follo#s5 #7 T8! S%l! This is a normal sale transaction and VAT #ill be levied% #here applicable% at the -tandard VAT *ate% on the value of the asset sold. ##7 T8! L!%$! The lease is as previously described and the VAT treatment is identical to that of any other lease. I*$0%ll/!*0 S%l! A4(!!/!*0 #7 T8! S!ll!( The seller #ill purchase an asset and claim the input VAT as per the VAT .nvoice. The seller then on1sells the asset under the finance agreement and levies VAT on the invoice amount. The subse/uent payments made #ithin time of agreement #ill not attract VAT. .n the event that the buyer does not fulfill all the payments #ithin the time of agreement% additional charges #ill be levied #hich #ill attract output VAT. ##7 T8! ?uy!( The 3uyer #ill be able to claim an input VAT invoice if he is entitled to input tax credit. TAX POINT ,or VAT purposes% the time #hen leasing services are supplied #ill be the earliest of the follo#ing times5

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7hen the payment of lease rental is received from the lessee. 7hen the lessor issues a tax invoice. 7hen the lease payment falls due% or 7hen the leasing services are rendered.

SUPPLIERS NOT REGISTERED FOR VAT 7here the ?essor ac/uires the asset from a seller #ho is not obliged to levy VAT2 for example% parties that are not registered for VAT% then the lessor #ill not be entitled to an input VAT but #ill still be re/uired to levy output VAT on all rentals as they fall due1#ith the exception being #here the lessee is a donor or donor agency #ho is in possession of a valid ?ocal 4urchase order. TERMINATION OF LEASE ?Y DEFAULT .n the event of default the lease can be terminated at the option of the ?essor% in #hich case the lessee returns the asset that #as the sub"ect of the lease to the lessor. -uch transfer of asset and any financial loss associated #ith such transfers #ill not constitute a supply for VAT purposes. DISPOSALS OF ASSETS A disposal of assets recovered from a defaulting lessee is a taxable supply and the lessor has to account for VAT on the disposal. The taxable value of such disposals is the sale proceeds. .f the asset being disposed of is a motor car% normal VAT rules on resale of motor cars #ill apply. L!%$! R!*0%l A((!%($ R!.!#-!+ .f the lessor receives any lease rental arrears after termination of the lease% this #ill attract VAT and the lessor #ill account for such VAT. O08!( E&p!*$!$ I*.u((!+ VAT incurred on expenses by the lessor in recovering or reselling the asset% such as legal expenses and expenses to restore the asset to a saleable condition etc.% is reclaimable as input tax. BIRE PURCBASES The VAT treatment under =ire 4urchase Agreements is the same as that of a lease. 11.: REPURCBASE AGRREMENTS *epurchase agreements (*4s or *epos! are commonly used as ,inantial .nstruments in +oney +ar'ets. The more accurate and descriptive term is -ale and *epurchase Agreement% since #hat transpires is sale of securities no# for cash by party A (the cash borro#er! to party (the cash lender!% #ith the

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promise made by A to of repurchasing those securities later (#ith A paying the re/uisite implicit interest to at the time of repurchase 1 the implicit interest rate is 'no#n as the repo rate!. ,rom a financial theory perspective% there is nothing that prevents any security from being employed in a repo2 therefore % treasury or >overnment bills% and stoc's B shares% may all be used as securities involved in a repo. A repo is similar to a secured loan% #ith the lender of money receiving securities as collateral to protect him against default by the borro#er. The legal title to securities passes from the seller to the investor. The one providing the cash is referred to as an RinvestorR2 the provider of the collateral is the RsellerR. 6oupons that are paid out on the securities during the life of the loan are transferred to the original o#ner of the security% by means of altering the cash paid at the end of the agreement (#ith interest #here appropriate!. .t should be mentioned that there is a concomitant credit ris' #ith engaging in a repo. <f course% a repo is essentially collateralized borro#ing2 ho#ever% it is theoretically (and practicallyI! possible that the borro#er of cash may fail to repurchase the securities sold at the promised date of repurchase (for instance% the borro#er of cash may have defaulted by the repurchase time!. 0aturally% the credit ris' bore by a repo is directly associated #ith the maturity of the repo5 the longer the maturity% the greater the credit ris' coming #ith the repo. *epurchase agreements are ho#ever not "ust confined to +oney +ar'ets. <ne form of sale and repurchase often occurs #here a business needs to hold stoc' for a long period before using it. An example of such a business #ould be the #ine ma'ing business% #here the #ine often has to mature for a number of years before being ready for drin'ing. .n such circumstances the #ine ma'er #ill sometimes Ssell( the #ine to a finance company and agree to buy it bac' at a fixed point in the future% for a much higher price. .n such situations the Sseller( has no long1term intention to relin/uish the ris's and re#ards of o#ning the asset in /uestion% rather to use the asset as collateral to obtain finance% the difference bet#een the Sselling price( and the Sbuying price( being the finance cost. The essential feature of a sale and repurchase agreement is that the company #hich purports to have sold the asset in /uestion has not relin/uished all the ris's and re#ards associated #ith that asset in a manner #hich one #ould expect in the case of a normal sale. This is a straightfor#ard financing arrangement but additional provisions may be included #hich ma'e it less easy to determine the substance of the transaction. E&%/pl!$, The nature of the asset A it is perhaps unli'ely that a ban' #ould #ant to retain o#nership of a stoc' of #his'y but the position might be different% and the appropriate accounting treatment #ould then be different% in the case of property.

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 The nature of the repurchase provision A is there an unconditional commitment by both parties or does either or both possess options concerning repurchase arrangementsE The initial sale price and the repurchase price A do these loo' li'e artificial prices designed to operationalise a financing arrangement or are they the actual mar'et prices at one or both datesE .f the figures used at each date are mar'et prices% the arrangement begin to loo' more li'e a normal sale in #hich ris's and re#ards are transferred% particularly if either or both parties en"oy appropriate options% e.g. the TpurchaserD has the option to retain the asset rather than resell it to the initial vendor. The location of the asset and the right of the seller to use the asset #hilst it is o#ned by the buyer. 7here the asset remains on the vendorDs premises or the vendor retains a right of access to the asset% the transaction #ould appear not to possess the characteristics of a normal sale. E&%/pl! A #his'y blending company contracts to sell part of its stoc' of #his'y to a ban' for F1H million on 1 Lanuary GHH7. The agreement ma'es provision for the #his'y company to buy bac' the #his'y t#o years later for F1G.1 million. The #his'y remains located at the #his'y blending companyDs premises. The mar'et rate of interest for an advance to a #his'y blending company is 'no#n to be 1H . R!Ju#(!+ )xplain the substance of this transaction and ho# it should be accounted for in the boo's and accounts of the #his'y company.

S)lu0#)*

An examination of the purpose of this transaction reveals it to be a financing arrangement rather than a normal sale. The #his'y company has transferred no ris's and re#ards of o#nership to the ban' and has merely borro#ed money on the security of an appreciating asset. The stoc' should remain in the balance sheet of the #his'y blending company% at the date of the initial advance (1 Lanuary GHH7! at F1H million% #ith the cash received from the ban' sho#n as a liability.

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.n the accounts for GHH7% there should appear in the profit and loss account a finance charge of F1 million% representing 1H of the amount of the effective advance. The amount of the TloanD #ill be sho#n in the balance sheet for J1 Kecember GHH7 at F11 million A F1H million initial advance and F1 million interest accrued and unpaid. ,or GHH9% the finance charge should be F1.1 million2 the original advance #as F1H million and the interest for year 1 of F1 million has not yet been paid and so the total advance for the duration of year G is F11 million (therefore% F11 million x 1H O F1.1 million interest!. The recorded value of the advance is increased to F1G.1 million and #ill be deleted from the balance sheet #hen repayment is made on 1 Lanuary GHH$. =ad the transaction instead been accounted for as a normal sale% stoc' #ould have been reduced by F1H million and cash #ould have been increased by F1H million in the #his'y blending companyDs balance sheet at 1 Lanuary GHH7. .n such a case the financing arrangement #ould remain off balance sheet and the assets of the company #ould also be understated.

11.5 ADMINISTRATION OF VAT R!.)(+$ %*+ A..)u*0$ *ecords and accounts must be 'ept of all goods and services received and supplied in the course of a business. 0o particular form is specified but they must be sufficient to allo# the VAT *eturn to be completed and to allo# the &*A to chec' the *eturn. *ecords must be 'ept up to date and retained in the 6ompany for -ic 8ears. Thus *ecords 'ept might include the follo#ing5 6opies of all Tax .nvoices .ssued in a particular Tax 4eriod. *ecords of all <utputs such as the -ales Kay 3oo' )vidence supporting all 6laims for .nput Tax credit. This might .nclude .mports into &ambia. *ecords of all .nputs such as a 4urchases Kay 3oo' A system generated VAT Account T%& R!0u(*$ )very Taxable supplier is re/uired to lodge #ith the &*A% a Tax *eturn in respect of each prescribed accounting period. The *eturn should contain such information as the form re/uires in relation to the supply by him of goods or services% or the importation of goods. The *eturn is re/uired to be lodged #ith the &*A #ithin G1 Kays after the end of the prescribed accounting period to #hich it relates or #ithin such other time as the 6ommissioner >eneral may in a particular case determine by notice. A prescribed accounting period is the +onth next succeeding the +onth in #hich the Trader #as registered for VAT and then each succeeding calendar month% unless the 6ommissioner >eneral% by notice in #riting% determines another accounting period for a particular -upplier.

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A$$!$$/!*0 )" T%& 7here% in the <pinion of the 6ommissioner >eneral% a Taxable -upplier has failed to pay any of the Tax payable by him by reason of5 =is failure to 'eep proper boo's of account% records of documents as re/uired under the VAT Act% or the incorrectness or inade/uacy of any such boo's% records or documents2 or =is failure to ma'e% or delay in ma'ing% any return re/uired under the VAT Act or the incorrectness or inade/uacy of any such *eturns2 The 6ommissioner >eneral may assess the Tax Kue and any .nterest payable thereon. The Tax payable is to be paid not later than JH days from the date of the Assessment 0otice.

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P%y/!*0 )" T%& )( C(!+#0 A taxable -upplier #hose Tax liabilities in respect of a particular prescribed accounting period are not exhausted by allo#able deduction is re/uired #ithin the time allo#ed for lodgement of his Tax *eturn for that period% to *emit the Tax Amount due to the &*A. This means that the Tax *eturn must be accompanied by a payment che/ue. T%& R!"u*+ 7here% in respect of a particular accounting period% beginning on or after 1 April 1$$9% a registered -upplierDs allo#able credits exceed #hat #ould have been his Tax liabilities% if any% for the period% the &*A is re/uired #ithin JH Kays after the *eturn #as submitted% to remit to the -upplier the amount to #hich he stands in credit by reason of the excess. TAX DEDUCTIONS AND CREDIT The .nput Tax that may be deducted by or credited to a registered -upplier is5 The #hole of that Tax A if all the supplies effected by a -upplier in the course of his business are indeed taxable2 or A proportion of that Tax #hich is attributable to taxable supplies A if some but not all of the supplies effected by a -upplier in the course of his business are taxable. .nput Tax is not to be deducted% credited or claimed unless the registered supplier% at the time of lodgement of the Tax *eturn in #hich the deduction or credit is claimed% is in possession of a Tax .nvoice% or other evidence satisfactory to the &*A% relating to the goods or services in respect of #hich the Tax is claimed% or in the case of .mported goods% such documentary evidence of the payment of Tax as the 6ommissioner >eneral may% by administrative rule% prescribe. .nput Tax may not be deducted or credited after a period of <ne 8ear from the date of the relevant Tax .nvoice or other evidence as sho#n above% except in such circumstances as may be allo#ed by administrative rules made the 6ommissioner >eneral. PENALTIES AND INTEREST L%0! Su'/#$$#)* )" T%& R!0u(* A Taxable -upplier #ho fails to lodge a *eturn #ithin G1 Kays after the end of the prescribed accounting period to #hich it relates is re/uired to pay additional tax consisting of5 <ne Thousand 4enalty @nits2 or <ne1half of <ne 4ercentum of the Tax payable in respect of the prescribed accounting period covered by the *eturn2 7hichever amount is the greater% for each day the *eturn is late. The value of a 4enalty @nit is F19H. This means that for one Thousand penalty @nits the monetary e/uivalent is F19H% HHH.

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L%0! P%y/!*0 )" T%& A Taxable -upplier #ho has correctly lodged a Tax *eturn but has not paid the Tax due on the *eturn #ithin the time allo#ed% is re/uired to pay additional Tax of one and half of one percentum of the Tax payable in respect of the prescribed accounting period covered by the *eturn for each day follo#ing the day #hen the *eturn #as lodged to the date that payment of the Tax is made. This additional Tax is payable G1 Kays after the date on #hich it is incurred. L%0! R!4#$0(%0#)* A -upplier #ho being re/uired to apply or *egister for VAT fails to do so #ithin <ne month after becoming liable to apply is re/uired to pay a late registration penalty fee of 1H%HHH fee @nits for each standard Tax period the -upplier remains unregistered after /ualifying for the registration threshold. I*0!(!$0 )* O-!( +u! T%& 7here any Tax due and payable under the VAT Act is not paid #ithin the time allo#ed% interest at the existing 3an' of &ambia *ate 4lus G is payable.

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EXAMINATION TYPE LUESTIONS ;ITB ANS;ERS

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LUESTION I CBISOM?OLE FAPULU 6hisombole Fapulu runs a medium sized company #hich has "ust completed its three year exemption period under the small )nterprise Kevelopment Act. The company is no# re/uired to pay both its income taxes and vat liabilities in the current year. The company has "ust had a number of problems especially #ith their VAT records as this is the first year they have been re/uired to adhere to certain minimum record 'eeping standards. The company is extensively involved in the sale of fuel and other vehicle accessories. These are referred to as core sales and sometimes sells other no# give items #hich are also standard rated for VAT purposes. Kuring the year% the company undertoo' and even successfully managed to implement a more user friendly accounting soft #art called :scalar; thus phasing and retiring their previously used T-un system2 the ne# pro"ect implementation date #as 1.1H.GHHM. 3ut the ne# accounting soft #are has brought about its o#n teething problems in terms of the VAT compliance re/uirements. 6hisombole has managed to run the follo#ing >eneral ledger account as at J1 +archGHH75

M)*08 April +ay Lune Luly Aug -ep <ct 0ov Kec Lan ,eb +ar

GL 6VAT7 G% J5M%777%HJ5 J% 9JH%5CM%$CC C%1$M%7JC% GC9 C% MCH%79$%GJ1 J% 9J9%1JC%J1$ 5% M51%CC5%515 2=H A1=H=2:H292 1% M1$%HM7%1J$ G% 7MG%J7J%7J9 J% $95%J79%CJ9 J% 5M7%7$7%CJH 11H 93=HK1KH:=A J% JJM%71M%MJ1 111 OOOOOOOOOOOOO 39H :5AH:KDHKK5 IIIIIIIIIIIII

O08!( Ou0pu0 D%0%

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The VAT returns submitted to the &*A sho# the follo#ing activities out the year.

N)*-.)(! I0!/$ Ap(#l M%y Mu*! Muly Au4u$0 S!p0 O.0 N)D!. M%* F!' M%( MARCB 2DDK OUTPUT -tandard *ated -ales *eturns &ero *ated )xempt -ales All the amounts are VAT inclusive #ere applicable. 3MF G% JJ7%CHH M% 7H9%CHH 7C% CC1%GHC 7$% 751%C$5 $5% JJJ%H5J C7% HM1%19M 55% HM5%177 $5% 17G%J51 1% 115%$J1 19% 5$J%1M7 17%999%HHH 1

C)(! I0!/$. 3MF G% J5M%777%HJ5 J% 9JH%5CM%$CC C% 1$C%9$G%7JC C% 79J%JGG%H1G J% J7%51G%91G 5% C55%1HH%J11 1% M1H%75H%$G9 J% HH7%717%MC7 J% MCG%9GG%71C J% 77M%9CC%$MM J% 999% 999%999 1

3MF MJ%9H1%$MG%7$H.HH 0.? 1J%GMH%CJ$%CMH.5$ JHJ%HG7%G$5.99

RELUIRED, a! 6ompute the VAT for the month of +arch GHH7. b! *econcile the VAT in the companyDs >eneral ?edger to the &*A VAT returns. c! -ho# ho# any ad"ustment arising from VAT *econciliation #ill be treated in the +arch VAT computation. d! )stimate any potential penalties arising throughout the year.

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ANS;ER CBISOM?OLE FAPULU 6%7 Ou0pu0 VAT -tandard rated -ales *eturns &ero *ated )xempt -ales G()$$ MJ%9H1%$MG%7$H H 1J%GMH%CJ$%CM1 JHJ%HG7%G$M 11111111111111111111 ::H3KAH=29HA=: IIIIIIIIIII VAT N!0 $%5HGC1$%$$H 5C%G$$%5CG%9HH H H H 1J%GMH%CJ$%CM1 H JHJ%HG7%G$M 111111111111111111 11111111111111111111 9HAD2H=19H99D K:H5K3HDD9HAA: IIIIIIIIIII IIIIIIIIIIII

P%(0#%l E&!/p0#)* R!l#!", )xempt -ales G()$$ S%l!$, -tandard *ated &ero *ated )xempt -ales 3MF JHJ%HG7%G$M 111111111111111111111 MJ%9H1%$MG%7$H 1J%GMH%CJ$%CMH JHJ%HG7%G$M 1111111111111111111111 ::H3KAH=29HA=: IIIIIIIIIIIII M%117%119.17

Total .nput VAT R!l#!" O

)xempt -ales N Total .nputs 111111111111111111111111111111111111111 >ross -ales JHJ%HG7%G$M N M%117%119.17 111111111111111111111111111111111111111 77%JM5%CG$%5C7

O F23H 9KD Total .nput VAT O FM% 117% 119.17 A FGJ% $MH O FKH D93H1A5.

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6'7 R!.)*.#l#%0#)* )" VAT Ou0pu0 #* VAT R!0u(* 0) VAT GL ;)(2#*4$ MONTB TOTAL VAT Su'/#00!+ 0) 3RA 6%7 E 6'7 G%CH$%11C%CJ5 J%9C7%G55%JCJ C%JM$%JJJ%$J$ C%9MJ%H7J%5H7 J%$JG%9C5%9M5 5%5HG%1M1%C$7 2=H923H:5=HA5: 1%MM5%91M%1H5 J%1HG%99$%$$9 J%MCJ%$J9%MCC J%7$5%CJ9%1JC 1G%GH9%H9G%991 J%$HM%77M%999 $%C$M%JGM%9JG 5H%5JC%$71%199 VAT .)( 6%7 *)* VAT .)( 6'7 VAT #* GL 6.7 O-!(@6U*+!(7 D!.l%(!+ 6'7 - 6.7 5G%JJ7%CHH G%J5M%777%HJ5 G%J5M%777%HJ5 1M%7H9%CHH J%9JH%5CM%$CC J%9JH%5CM%$CC 17C%CC1%GH1 C%1$C%9$G%7JC C%1$M%7JC%GC9 7$%751%C$5 C%79J%JGG%H1G C%MCH%79$%GJ1 $5%JJJ%H5J J%9J7%51G%91G J%9J9%1JC%J1$ C7%HM1%19M 5%C55%1HH%J11 5%M51%CC5%515 =KAHK32H:39 2=H=A5H1A1H5=5 2=HA1=HA1=H=2: 55%HM5%177 1%M1H%75H%$G9 1%M1$%HM7%1J$ $5%HM5%177 J%HH7%717%MC7 G%7MG%J7J%7J9 1%115%$J1 J%MCG%9GG%71C J%$95%J79%CJ9 19%5$J%1M7 J%77M%9CC%$MM J%5M7%7$7%CJH 1M$%$CM%MGM 1G%HJ9%1JM%G55 11%$JC%M1M%7C5 17%999%HHH J%999%999%999 J%JJM%71M%MJ1 H $%C$M%JGM%9JG $%HHH%HHH%HHH M5J%CM7%JM5 C$%991%5HJ%9GJ C9%795%7MH%MM9 H H 11%9C1%51J 1CG%5JG%791 1MG1%5H7 11$M%JC5%GH5 -AKH2:AH=== 19%J1M%G1H GC5%JCJ%$H$ 1JCG%555%7G5 GH$%HC7%5J7 1HJ%51$%511 55G%17G%G57 C$M%JGM%9JG 1%H$5%7CJ%15M

April +ay Lune Luly Aug -ept <ct 0ov Kec Lan ,eb +ar

N)0!$ .n the months of Lune% August% -eptember% <ctober% Kecember the business under declared VAT and this #ill certainly lead to VAT penalties and interest up to the end of the year. .n the rest of the months except for April and +ay% the business has over declared VAT. Although this does not give rise to any penalties% the business lost opportunities for investing over paid VAT in various interest bearing investments. VAT P%y%'l!@6R!"u*+%'l!7 3MF <utput VAT .nput VAT VAT 4ayable $%5HG%C1$%$$H (M%H$J%159! 11111111111111111111 9H=9KH32KH532 OOOOOOOOOOOO

The business has indeed sho#n a critical vulnerability in the management of VAT matters. To address and avoid potential penalties% the reconciliation of VAT submitted per VAT returns to #hat is actually sitting in the >eneral ?edger is crucial and needs to be done on a monthly basis so that any over declarations are reversed at the earliest possible time.

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6.7

the end of the year it has been revealed that an amount of F1%H$5%7CJ%15M has been over declared to the &*A. The VAT computation for the month of +arch GHHM sho#s that the business must pay F$% C$M%JGM%9JG. Thus the over declaration needs to set off against the VAT payable. LUESTION II PRECIOUS MUFUM?UTA 4recious has o#ned ?uhanga 3eat -ugar 4lc #hich produces approximately CHH%HHH tons of -ugar 6ane from its o#n agricultural operations and about CH%HHH tons of sugar on an annual basis. The beat sugar is sold principally to domestic and preferential mar'ets as #ell as to the #orld mar'et. Approximately 5H of the sugar produced is sold on the domestic mar'et for both industrial and home consumption and about 1H is exported to the )uropean @nion under preferential trade agreements. The company also produces a range of sugar based special products and other non sugar products. The follo#ing is a summary of activities for the month of Lanuary GHH75 SALES 3eat -ugar +olasses -pecials -yrup Transport -undry -ales (note 1! ,oreign -ervices (note G! 3MF GG%H9H%GCG%MHJ.J5 97%1GC%M5H.$9 MM% GMM%7$5.5C 15%595%G75.11 GC%G$H%9$9.7M J5%9C7%15M.J7 15J%1H7%M11.G5 1111111111111111111111111 22H=K2H=K=H911.3K IIIIIIIIIIIIII 19%$JJ%71$%M57.$9 1HG%MHC%CGG.MJ 1111111111111111111111111 19HD3KH32=H1DD.K1 OOOOOOOOOOOOOO 1$M%117%5MC.H9

OTBER SALES )xport to 6<+)-A )xport to )@

7AT)* -A?)- ()xempt!

N)0! 1 Su*+(y S%l!$ The sundry sales are also standard rated for VAT purposes. N)0! 2 F)(!#4* S!(-#.!$

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SUPPLIER -elina 6hanfya 6hanfya 6hanfya 6hanfya 6hanfya 6hanfya

CURRENCY &A* &A* &A* &A* &A* &A* &A*

AMT $%$51 JM%$CH 1C%H7H 1C%H7H CC%5GM 1C%H7H G9%H79

RATE 9HM 9H$ 7$M 9HM 9HM 9HM 9HM

3MF 9%HGH%5HM G$%99C%CMH 11%1$$%7GH 11%JCH%CGH J5%997%$5M 11%JCH%CGH GG%MJH%9M9

GROSS $%CGC%H$C.55 J5%11C%GCH.5H 1J%15$%M71.HH 1J%JGC%$$J.5H CG%1M9%JC9.JH 1J%JGC%$$J.5H GM%5$1%GM$.$H

3oth +#eni and 6hanfya are domiciled and resident in the republic of -outh Africa and provide services to ?uhanga 3)AT -ugar 4lc on a monthly basis. All payments are made in *ands and the t#o suppliers have not yet appointed a Tax Agent in &ambia for the management of *everse VAT on foreign services. ,orms for the appointment of Keloitte and Touche as &ambian Tax agents have already been circulated. N)0! 3 F)(!#4* S!(-#.!$ SUPPLIER 0goi 6hilando CURRENCY &A* &A* AMOUNT G%M$5 7H%J7M.55 RATE 9HM 9HM AMOUNT G%17G%17H.HH 5M%7GJ%C$$.JH

The F59%9$5%M$$.JH is VAT )xclusive 3oth 0goi and 6hilando have already appointed Keloitte and Touche as their &ambian Tax Agents for the management of *everse Tax. N)0! = Komestic inputs for the month of Lanuary GHH7 amount to F1H% 519%1C1%$J1.MM (VAT exclusive!. N)0! A - I/p)(0$ The company imported a number of agricultural items used in the factory including process chemicals amounting to F1%MHM%JGM%15H.71 (a gross value! all of #hich is sub"ect to both custom duties and import VAT. N)0! K The company made no cane purchases from its out gro#er schemes as it had enough from its cane fields to meet the monthDs production target.

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N)0! : P%(0#%l E&!/p0#)* The company has selected to use )xempt -ales N Total .nputs 1111111111111111111111111111111111111 Total >ross -ales ,or its partial exemption #or'ings. RELUIRED, a! 6ompute the VAT payableBrefundable for the month of Lanuary GHH7 giving sufficient explanations #here appropriate. b! 7hat is the due date for the payment of the VAT for ?uhanga 3eat -ugar 4lcE c! Advise ?uhanga 3eat -ugar on any tax planning points you thin' necessary. The advice should be restricted to their business scope and activities and must be VAT related. d! 7hat penalties may be levied for late submission of the VAT *eturn and for late payment of the VAT liabilityE

ANS;ER PRECIOUS MUFUM?UTA 6%7 OUTPUT VAT GROSS S0+ R%0!+, -ugar GG%H9H%GCG%MHJ.J5 +olasses 97%1GC%M5H.$9 -pecials MM%GMM%7$5.5C -yrup 15%595%G75.11 Transport GC%G$H%9$9.7M -undry -ales J5%9C7%15M.J7 .rr. VAT 15J%1H7%M11.G5 11111111111111111111111 22H=K2H=K=H991.3K OOOOOOOOOOOOOO .rr O denotes .rrecoverable VAT VAT J%G99%5CM%77H.71 1G%$7M%H11.95 $%9M$%5GG.7C G%JG1%G11.1$ J%M17%7$?.JJ 5%JJ9%$J9.19 GG%9HJ%GM1.G5 11111111111111111111 3H3=AH=:3HAD9.3A OOOOOOOOOOOOO NET 19%7$1%M$5%9JG.MC 7C%1C9%MJ$.1J 5M%J$7%G7G.9H 1J%GMC%HMJ.$G GH%M7J%1H5.JJ JH%5H9%G19.1$ 1JH%JHC%J5H.HH 11111111111111111111111 19H11KH991H=52.D1 OOOOOOOOOOOOOO

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3!() R%0!+ )xport to 6<+)-A )xport to )@ 19%$JJ%71$%M75.$9 1HG%MHC%CCG.MJ 11111111111111111111111 19HD3KH32=H1DD.K1 111111111111111111111111 H H 111111111111111 D 111111111111111 19%$JJ%71$%M75.$9 1HG%MHC%CCG.MJ 11111111111111111111111111 19HD3KH32=H1DD.K1 111111111111111111111111

E&p)(0 S%l!$ 7ater -ales >*A0K T<TA?1$M%117%5MC.H9 H 1111111111111111111111 1111111111111111 =1HK9=H9DKHKAK.DA D OOOOOOOOOOOOOOOO OOOOOOOOO 1$M%117%5MC.H9 11111111111111111111111111 35H3=9H=33H1=K.:D OOOOOOOOOOOOOOO

NOTE ON VAT The fraction to use on VAT inclusive amounts or the gross amounts is 7BC7. Thus the VAT on sugar sales is computed as follo#s5 7BC7 x GG%H9H%GCG%MHJ.J5 O FJ% G99%5CM%77H.71. Alternatively #e can use 17.5 applied directly on the 0et Amount5 H.175x19% 7$1%M$5%9JG.MC O FJ% G99%5CM%77H.71. The VAT on foreign services provided by -elina and 6hanfya is irrecoverable because these t#o ,oreign -ervice suppliers have not yet appointed a Tax Agent in &ambia.

VAT ON FOREIGN SERVICES 6LUALIFYING SERVICES7 -upplier 6urrency Amount 0goi &A* 6hilando &A* *ate Amount VAT >ross

GM$5 9HM G17G17H J9H1G$.75 G55GG$$.75 7HJ7M.55 9HM 5M7GJC$$.9H $$GMM1G.J9 M5M5H111.M9 1111111111111111111111111111111111111111111111111111111111 599$5MM$.JH 1HJHM7CG.1J M$GHGC11.CJ OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO

The 17.5 is directly applied on the net amounts paid to 0goi and 6hilando% as the /uestion states that these are VAT exclusive amounts.

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INPUT VAT CLAIMED FOR MARCB 2DD: GROSS Komestic 1G%J59%91M%7$M.7H .mports 1%MHM%JGM%15H.71 *everse VAT M$%GHG%C11.CJ 6ane H 4artial )xemption 111111111111111111111111 1C%HJC%JC5%JJ1.9C OOOOOOOOOOOOOO VAT NET 1%9CH%MC7%9J9.HC 1H%519%1C1%$J1.MM GJ$%GCH%HM5.HH 1%JM7%H9M%H95.71 1H%JHM%7CG.1J 59%9$5%MM$.JH H H ($%9J1%MJM.77! 1111111111111111111111111 111111111111111111111111 G%H9H%J$H%HH9.CH 11%$CC%1GJ%M9M.M7 OOOOOOOOOOOOOO OOOOOOOOOOOOOO

U The /uestion in note M states that domestic inputs of F1H% 519%1C1%$J1.MM is given net. Applying 17.5 directly on this net amount gives us the VAT value #hich #hen added to the net amount gives us the gross amount. P%(0#%l E&!/p0#)* R!l#!" )xempt -ales (#ater sales! G()$$ S%l!$ -tandard *ated )xports -ales )xempt -ales Total >ross -ales F 1$M%117%5MC.H9 GG%CMG%CMC%$$1.JM 1$%HJM%JGC%1HH.M1 1$M%117%5MC.H9 111111111111111111111111111111 =1HK9=H9DKHKAK.DA OOOOOOOOOOOOOOOOO

T)0%l I*pu0 U This is the sum of domestic VAT% import and VAT and *everse VAT. *elief O )xempt -ales x Total .nputs 1111111111111111111111111111111111111 >ross -ales O 1$M%117%5MC.H9 N G%H$H%GG1%MC5.17 11111111111111111111111111111111111111111111111111 C1%M$C%$HM%M5M.H5

O F9H 531HK3K.::

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Su//%(y )" VAT P%y%'l! M%(.8 2DD: VAT 6laimed on sales (output! VAT 6laimed on Komestic inputs VAT 6laimed on imports F J%JC5%C7J%5H$.J5 (1%9C1%1C$%$CG.CH! (GJ$%GCH%HM5.HH! 111111111111111111111111 1H2KAHD53HADD.DD OOOOOOOOOOOOOO

6'7 VAT Du! D%0! ?uhanga beat -ugar #ill be re/uired to pay the +arch GHHM VAT liability on G1 +ay GHH7. 6.7 VAT A+-#.! The most note#orthy point is that ?uhanga 3eat -ugar 4lc has on its ,oreign -uppliersD list t#o suppliers #ho have not appointed a &ambian Tax Agent for the management of *everse Tax. The company has had F15J% 1H7%M11.G5 paid to foreign suppliers being disallo#ed from the VAT input schedule. The associated loss is that the company has lost a VAT amount of F1H% JHM%7CG.1J #hich could have been claimed as input VAT thus reducing the overall VAT liability. This #aste of money can be avoided by simply urging both -elina and 6hanfya to appoint Keloitte and Touche as their &ambian Tax Agents for the management of their *everse VAT on foreign services. 6+7 VAT P!*%l0#!$ L%0! L)+4/!*0 )" R!0u(*$ 6P%(0 III S1: 6#7 VAT A.07 .f ?uhanga 3eat -ugar 4lc fails to lodge a VAT return #ithin the time allo#ed (G1 days! they shall pay additional tax consisting of 1%HHH penalty units i.e. F19H%HHH <ne half of 1 of the tax payable in respect of the prescribed accounting period covered by the returns2 7hichever amount is the greater% for each day the return is late. E&%/ N)0! VAT penalties are levied per day. L%0! P%y/!*0 )" T%& P%(0 III S1: 627 VAT A.0 .f ?uhanga has lodged a return but has not paid the tax due on the return #ithin the time allo#ed% they shall pay additional tax of one half of 1 of the tax payable in respect of the prescribed accounting period covered by the return for each day follo#ing the day #hen the return #as lodged to the date that payment of the tax is made. UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU

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