Gambia Revenue Authority (GRA) VAT GUIDE 2014

Transcription

1 Gambia Revenue Authority (GRA) VAT GUIDE 2014 Page 1 of 67

2 TABLE OF CONTENTS CHAPTERS CONTENTS PAGE CHAPTER 1 INTRODUCTION TO VAT Introduction What is VAT Why VAT Advantages of VAT What is VAT Charged on Who pays VAT VAT Rates Terminologies used in this guide 8 CHAPTER 2 HOW VAT WORKS Introduction How is VAT collected Incidence of VAT Charging Customers VAT VAT Collection Basic example 10 CHAPTER 3 REGISTRATION Introduction Who can register for VAT Who can t register for VAT What is Business VAT Threshold Registration procedures 13 CHAPTER 4 COMPULSORY AND VOLUNTARY REGISTRATION Introduction Compulsory registration Forced Registration Promoters And Auctioneers Late registration penalty Voluntary Registration Effective date of registration Responsibilities of Voluntary 17 registration CHAPTER 5 OBLIGATIONS Introduction Rights of a VAT registered trader Obligations of a VAT registered trader Pricing VAT Inclusive price VAT Invoice Completion Of VAT Taxable Period Due date of filling Record Keeping Records which must be kept 20 Page 2 of 67

3 Allowing GRA Officer Change of detail 21 CHAPTER 6 TAXABLE AND EXEMPT SUPPLY Introduction Taxable And Exempt Supply Standard Rated Supplies Zero Rated Supplies Exempt Supply Difference Between Zero Rated And 24 Exempt Supplies Business Selling Both Taxable And 24 Exempt Supplies CHAPTER 7 IMPORTATION Introduction Import of Goods Input VAT Place of Supply Time of Supply Value of Supply Importation of services 26 CHAPTER 8 INVOICING Introduction VAT Invoice Detail In Tax Invoice Simplified Or Abridged Tax Invoice Change To Invoices Lost Or Missing Invoice Invalid VAT Invoices 30 CHAPTER 9 FILING OBLIGATIONS Introduction VAT Assessments Completion Of VAT Return Due Date For VAT Return Extension to submit Non Submission Inaccurate VAT return 34 CHAPTER 10 VAT PAYABLE Introduction Output VAT Input VAT VAT Fraction VAT Liability Refund Special Refund Procedures 38 CHAPTER 11 INPUT VAT Introduction Claiming Input Pre-Registration Input VAT 39 Page 3 of 67

4 Instances Partially Exempt Business Steps In Recoverable Input VAT Calculation Of Recoverable 42 CHAPTER 12 POST SALES ADJUSTMENTS Introduction Credit Notes Debit Notes Details To Be Reflected On 44 Debit\Credit CHAPTER 13 PAYMENT OBLIGATIONS Introduction Remitting the VAT VAT Return How And Where To PAY Penalty For Non Payment Interest For Late Payment Payment Arrangements Installment Approval Conditions 48 CHAPTER 14 ENFORCEMENT AND DEBT MANAGEMENT Introduction Non Compliance Collection From Third parties Third Party Payment Examples Of Third Parties Seizure Of Assets And Business 50 Closure CHAPTER 15 AUDITS Introduction Audit Approach Taxpayer Responsibility Audit Process Locations and Materials Time Involved Discussing Issues Responding to Adjustment Proposal Notice of Assessment and 52 Reassessment CHAPTER 16 OFFENCES AND PENALTIES Introduction Summary of Offences 53 CHAPTER 17 SPECIAL REQUIREMENTS Introduction Hospitality Industry Goods for own use Creditor sale debtor s asset Sales of business as a going concern 56 Page 4 of 67

5 Business Assets Sale of Shares Non Resident Businesses VAT Representative Responsible Person Public Financed Projects Second Hand Goods 58 CHAPTER 18 OBJECTIONS AND APPEAL PROCESS Introduction Assessment Objection to an assessment Extension of Time Objection decision Tax Tribunal Court of Appeal Tax Liability 60 CHAPTER 19 DEREGISTRATION Introduction Deregistration Instances and Process of 62 deregistration Cancellation by GRA Promoters and Auctioneers Consequences of deregistration 63 FORMS Application for VAT Registration 64 Certification of Registration 65 Monthly VAT Return 66 Page 5 of 67

6 CHAPTER 1 INTRODUCTION Introduction This guide provides basic knowledge and guidance to the general public and in particular to the business that must register and collect Value Added Tax (VAT). It describes the procedures governing VAT registration, filling, payments and refunds. It also provides basic understanding of taxpayers right and obligation with regards to VAT. VAT was introduced in The Gambia effective 1 st January 2013, following the enactment of the Income and Value Added Tax Act This guide sets out very briefly the laws and procedures of VAT in this Act. This work is not intended to replace the laws in the Act and it does not exhaustively cover all the facts contained in the Act What is Value Added Tax Value Added Tax is an indirect tax that is charged on most goods and services that VAT registered business provide in The Gambia. It is also charged on goods and services that are imported from outside The Gambia. VAT is charged when a VAT registered business provides taxable supplies to customers. These customers include registered and non registered businesses and the general public. When VAT registered businesses have bought good or services and paid VAT, they are generally able to claim from GRA the VAT they have paid. This is because VAT is not an additional cost to registered businesses,. However, if a business is not VAT registered then it cannot claim the VAT that is paid when it purchases goods and services Why VAT VAT is a modern indirect form of tax based on consumption of goods and services. It has been introduced to fulfil the Gambia s commitment to the tax reforms embarked by ECOWAS member states. In its effort to harmonise tax in all member countries, ECOWAS protocol has been issued to replace Sales Tax with VAT. VAT is a more broad base tax than Sales Tax and more competitive for both domestic and international businesses Advantages of VAT VAT has the following advantages: - VAT has a wider base by involving all business sectors and supply chain of the economy, and hence a greater sharing mechanism. Page 6 of 67

7 - The input tax credit mechanism gives registered businesses back the VAT paid on local purchases and imports used for making taxable supplies, and as a result avoids the 'tax on tax' characteristic of Sales Tax. - VAT offers a possibility for businesses to claim input tax credit on taxable business inputs, and therefore many qualifying businesses prefer to register for VAT. - As a result of increased tax compliance brought about by the self assessment nature of VAT, there is an increased benefit to those who comply with VAT laws, as oppose to non-complying registrants. This is reinforced by strong penalties and effective control policies. - VAT is a secure source of Government Revenue that enables the government to provide vital social services What is VAT Charged On VAT registered businesses must charge VAT on any goods and services that are provided in the Gambia and taxable for VAT. VAT is charged on the full selling price, including the intended margin, even if goods are accepted in part exchange or through barter instead or paying money. The VAT-inclusive price must be used as the selling price Who pays the VAT Everyone has to pay the VAT on the importation of goods and services and on purchases of taxable supplies of goods and services from a registered trader. This includes purchases by registered and non registered businesses, and the general public. It also includes Government departments, local Government, foreign missions, diplomats and international organizations purchasing from registered businesses or traders Rates of VAT There are two rates of VAT, depending on the goods or services the business provides. These are: - Standard rate, charged at 15 per cent - Zero- rate, charged at 0 per cent There are some goods and services that are not subject to VAT and therefore VAT is not charged on the supply of these goods and services. They include goods that are: - Specifically exempted from VAT - Outside The Gambia VAT system altogether Page 7 of 67

8 1.8.0 Terminologies used in this guide Terminology Person Taxable Person/Registrant Supply Taxable supply Standard Rated Supply Zero Rated supply Exempt supply Input VAT Output VAT Place of supply Time of supply Tax period Creditor Debtor Meaning A Person includes Individuals, Partnerships, companies and other entities involved in business VAT registered taxpayer or any business entity that is required to be registered for VAT (individuals or sole traders or partnerships, companies etc). Selling of goods and services (selling or otherwise providing goods or services including free provision and leasing or hiring of or services) All goods and services sold or supplied by a registrant which are taxable at standard or zero rate. This is the default rate of VAT, charged at 15%. All supplies are standard rated except where specifically identified otherwise as zero- rated or exempt. This is supply of goods or service where VAT is charged at zero percent (i.e. 0%) This is a supply on which on VAT should be charged. The supply of such goods is outside the scope of VAT. The VAT paid by registrants for the purchase of goods and services including imports The VAT charged by registrants for the supply of goods and services. The country in which a supply of goods or services must be accounted for VAT The date a supply is seen to have occurred. The reporting period for which a VAT return must be submitted; usually one calendar month. A person to whom money is due from another person A person who is in debt or under a financial obligation to another person Page 8 of 67

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10 CHAPTER 2 HOW VAT WORKS Introduction VAT is a tax on consumer spending where registered traders charge VAT on business transactions. It is not a tax on profits and is not borne by the registered businesses. The final burden falls on the consumer of the goods and services. VAT registered businesses charge VAT on the goods and services they supply. This is called output VAT. Likewise when VAT is paid by registered businesses on purchases made from other registered suppliers, they can claim from GRA. The VAT that is paid on the purchase of these goods and services used in the business is called input VAT. The difference between the output VAT charged and the input VAT that can be reclaimed is the VAT payable or claimable How is VAT collected VAT is collected by Customs at the time of import, and directly from VAT registered traders at the time of their supply of goods and services within the country. Generally, each trader in the supply chain, from importers and manufacturers through to retailers, charges VAT on sales. The registered traders are collecting agents for the GRA, and benefit through the VAT system, as they are entitled to deduct from this amount the VAT paid on their purchases. Therefore, the VAT paid on purchases by registered businesses is not considered as a cost to them Incidence of VAT The registered traders act as collecting agents on behalf of the GRA by collecting VAT at each stage of distribution and then subsequently submitting it to GRA by way of a monthly return. The effect of offsetting VAT on purchases against VAT on sales is to give the credit for the input VAT. The VAT becomes by no means a cost to the registered business but the final consumer instead. Therefore VAT is borne by the final consumer of the goods or services, and to businesses that are not registered for VAT Charging customers VAT A business will be liable to pay VAT on all supplies it makes from the date of registration, or the date it is required to register, rather than when registration is complete. As soon as VAT registration is required (see Chapter 3 on Registration for details) an application should be made to GRA to initiate and start the registration process. Registration forms are available from GRA offices, and can be downloaded from the GRA website at Once a trader is registered for VAT, it will be required to charge VAT on the supply of taxable goods and services. It will have to comply with the pricing requirements of the VAT Act and reflect it in the prices accordingly. More details on pricing can be found in later chapters. Page 10 of 67

11 2.5.0 VAT Collection Registrants are collecting agents for GRA. The VAT so collected is not a trading income or profit. It is collected on behalf of GRA, and as such businesses are accountable to GRA for it. This is done by registered businesses submitting a VAT return each month to account for the VAT so collected from customers on behalf of GRA. If the output tax (on sales) is greater than the input tax (on purchases) the difference must be paid to GRA. If input tax exceeds output tax then the result is a credit balance and GRA will make a refund of VAT to the business, subject to certain condition This can therefore be represented by: Total Output Tax Total Input Tax = VAT Liability or Credit. Where total input tax exceeds total output tax a credit is due to the taxpayer. This credit is first carried forward to the next tax period and offset against liabilities. When a taxpayer remains in a credit position for three consecutive months, then the taxpayer will be entitled to claim a refund Example showing how VAT is collected and credited: MN Trading Ltd. is a VAT registered business. It supplies building materials including bathrooms fixtures. On the 20 th of September 2013, one of its customers, Fine Fittings Ltd., buys bathroom fixtures from MN Trading Ltd. at a price of D23,000, and installs them in Mr. Taal s new home. As MN Trading Ltd. is VAT registered, the D23,000 sale is made up of D20,000 for the fixtures and D3,000 VAT collected on behalf of the GRA, i.e. Fine Fittings Ltd. has paid the VAT of D3,000 to GRA through MN Trading Ltd., who will report this amount when filing their VAT return for September Fine Fittings Ltd. is also VAT registered and installed the bathroom in Mr. Taal s home on the 27 th September Fine Fittings Ltd. charged D34,500 for the bathroom. This includes the charge for their labour as well as for the bathroom fittings. As Fine Fittings Ltd. is VAT registered the price charged is inclusive of D4,500 VAT. When Fine Fittings Ltd. completes their September 2013 VAT return, their output tax will include the D4,500 of VAT charged to Mr. Taal. Fine Fittings Ltd. will be able to claim as input tax the D3,000 in VAT paid to MN Trading Ltd. for the purchase of bathroom fixtures. Therefore it will only pay to GRA D1,500 of the VAT collected; the other D3,000 was paid to MN Trading Ltd., who will in turn pay GRA that portion of the VAT collected. Page 11 of 67

12 This example illustrates that although VAT is collected in every stage throughout the supply chain by VAT registered businesses, it is a tax on consumption and finally it is the end consumer that is paying the VAT. The input VAT paid on purchases is credited to the trader. Overall, neither Fine Fittings Ltd. nor MN Trading Ltd. bears the cost of the VAT amounts charged. While these two businesses have collected the VAT on behalf of GRA, it is Mr. Taal who pays the D4,500. It is important to remember that VAT is a tax on end users, and is collected by businesses on behalf of GRA. The VAT amounts collected by Registrants are in trust for the GRA, and the penalties for not properly collecting, reporting and remitting the VAT can be severe. Page 12 of 67

13 CHAPTER 3 REGISTRATION Introduction Before a business can charge or collect VAT, it must first register with GRA. A trader, following the completion of the registration process, becomes known as a taxable person under the VAT Act. However, a trader is also a taxable person when required to be registered in conducting a business operation, even if not actually registered Who can register for VAT? A business can only register for VAT when it is a resident in the Gambia and in business, with taxable turnover above the VAT threshold. A non-resident carrying on business through a permanent establishment in The Gambia is also required to register. A registrant for VAT may be an individual or a sole trader, partnership, company, club, association, charity and any other organisation or group of people acting together under a particular name Who can t register for VAT? One cannot register for VAT if not in business, or if only selling goods or services that are exempt from VAT. Non-resident businesses without a permanent establishment in The Gambia cannot generally register for VAT. Business has a specific definition under the VAT Act, as detailed below What is business? Business is defined as an economic activity involving getting paid for providing goods or services. The payment for the goods or services may be in money or other payments in kind. The activity will be business if there is reasonable expectation of making a profit, not necessarily if profit is actually made or not. This means the business must be for the purpose of gaining a profit. However, the incurrence of losses does not mean someone is not in a business activity or undertaking. One is considered in business when they earn an income by carrying on a trade, vocation or profession, by being self-employed, or through another entity such as partnership or a limited company. To be in business, these activities must have a degree of frequency and scale and be continued over a period of time. Even if the activities have some or all the characteristics of a business, they may not be considered a business for VAT purposes if they are essentially a recreation or hobby. Where an individual makes occasional taxable supplies, and the value of the supplies is minimal, then registration for VAT may not be required even though the individual is involved in a business activity. The one-off or infrequent sale of personal belongings would fall into this category. However, buying goods for resale on a regular basis is definitely considered to be an ongoing business activity. Page 13 of 67

14 Activities carried on by a Government entity are generally not business activities for the purpose of VAT, except if such activities can equally be carried on by individuals or companies on a commercial basis Many charities, philanthropic and voluntary and non-profiting making organisations and bodies have no business activities, and hence are not required to register for VAT. This includes those providing free services or information, religious or political activities. Under the VAT Act, a business is taxable only if a person makes taxable supplies and is registered or required to be registered. However every individual and business importing taxable goods is liable to pay VAT to Customs. In this case it is the importation of the goods that is taxable and not the individual or business itself VAT Threshold Only businesses with turnover above the VAT registration threshold are required to register for VAT. The threshold is designed to relieve small businesses from the burdens of complying with the VAT administrative requirements. The minimum turnover that has to be attained by a business during a certain period of time is called VAT registration threshold. This threshold has been set as one million dalasis (D1, ) for compulsory registration and at a half million dalasis (D500, 000) for voluntary registration. The determination of turnover is by registrant, not each separate activity. Therefore, all of the Registrant s business activities are considered in determining if the total turnover has reached the threshold. Supplies made by associates will be considered and are accounted as part of the turnover. An associate is an entity which is significantly owned and influenced by another business. Non taxable supplies and the supply of capital items are not considered in determining the threshold. Generally, in determining the VAT threshold, the following are: Considered - Annual incurred and projected turnover on goods and services - Sale of good exported to destinations outside the Gambia - Sale from all branches and divisions of business falling under that person Not considered - Sale of capital assets - Sale of whole or part of a business - Exempt supplies - Sale from a business operating outside The Gambia Procedure for VAT registration The VAT application for registration must be submitted at the nearest GRA branch to the place where a taxpayer s business is situated or carried on. Where there are several activities operating under one VAT registration number, registration will be at the GRA office nearest where the taxpayer s main branch and or business is located. Page 14 of 67

15 VAT is administered solely by the GRA. There is no option for registration at the offices of local authorities or other government departments. GRA, the taxpayer him/herself or a registered agent acting on behalf of the taxpayer may initiate the VAT registration process. All the necessary information as listed on the application form must be provided, otherwise there may be a delay in finalising the VAT registration. Below are the procedures that must be followed in registering for VAT: 1. Submit an application for VAT form along with the following relevant information to the nearest GRA office Existing Taxpayers Individual i. VAT Application form ii. Previous and/or projected 12 month Turnover Companies/ Partnerships i. VAT Application form Trusts, Associations & Clubs ii. Previous and/or projected 12 month Turnover i. VAT Application form ii. Previous and/or projected 12 month Turnover Government Agencies i. VAT Application form ii. Previous and/or projected 12 month Turnover New Taxpayers i. VAT Application form ii. Turnover projection for the first 12 months i. VAT Application form ii. Turnover projection for the first 12 months i. VAT Application form ii. Turnover projection for the first 12 months, for the commercial activity engaged in i. VAT Application form ii. Turnover projection for the first 12 months, for the commercial activity engaged in 2. The taxpayer must also provide the following a. Valid TIN. If the business is new, VAT application must be done separately with the TIN application b. Taxpayer s correct business address and postal address c. Taxpayer s correct business telephone number(s), address, fax, etc. d. Value of taxable supplies (turnover) for the last 12 months if business was existing, and/or projected turnover for the next 12 months e. Projected value of taxable supplies (turnover) for the next 12 months if the business is new Page 15 of 67

16 3. The GRA will consider the application and give approval or rejection within 21 days of the receipt of the application. The authorities from the GRA may then elect to inspect the premises of the business 4. Once the review of the application and inspection (if it was recommended) is completed, the application will be processed and a VAT registration certificate will be issued. Examples of VAT Registration and Certification forms are included on pages 65 and 66. Page 16 of 67

17 CHAPTER 4 COMPULSORY AND VOLUNTARY REGISTRATION Introduction A trader can be registered for VAT compulsorily, voluntarily and by way of GRA mandate Compulsory Registration There are two conditions under which registration is compulsory. This is based on the historic turnover, or on the projection of future turnover. If turnover in the last twelve months totalled at least one million dalasis (D1,000,000), then the trader is compulsorily required to register for VAT. Therefore unregistered traders must be constantly monitoring their turnovers to indentify when the registration must commence. When a trader projects that the turnover will be at least one million dalasis (D1,000,000) for the next twelve months, the trader is required to immediately register for VAT. A trader who has or will make this one million turnover must notify GRA for registration within 21 days of becoming required to register. The trader s application for registration will then be duly processed within 21 days of application GRA Mandate registration GRA will register a person when there are reasonable grounds to believe that the person is required to be registered for VAT but has failed to do so. When GRA has sufficient information indicating the required registration of this person, and the taxpayer is still unwilling to initiate the registration process, then GRA has the mandate to initiate and register the trader. Third party information followed by investigations and/or audit results can be reasonable grounds to believe that a trader is required to register for VAT. Such a trader will be registered within seven days of such a decision and the taxpayer will be notified of the registration and the effective date of the registration. Such a person will have the same obligation as any trader that is registered in the normal way Promoters and Auctioneers Promoters of public entertainment and auctioneers must register for VAT, regardless of the level of the turnover Late registration Penalty Where a trader fails to register when the taxable turnover is at least D1,000,000, the trader will be liable for a late registration penalty. The late registration penalty is double the amount of VAT payable during the period for which the person failed to register on time. This period starts from the earlier of Page 17 of 67

18 the day the person was required to apply for registration or is registered as determined by the Commisioner-General. The VAT registration penalty applied to the taxpayer cannot be collected from the customers. This therefore becomes the taxpayer s expense, as the tax burden cannot be pushed to the final consumer this time around Voluntary Registration A business whose taxable turnover is at least D500, in the previous 12 months can apply for VAT registration, even though the annual turnover is below the compulsory registration threshold of D1,000,000. This voluntary registration must occur within six months of the end of any such twelve month period. Each application is subject to GRA approval, and will be refused when it is determined the applicant has not: (i) kept proper records; or, (ii) complied with its obligations under other GRA revenue laws Effective date of Registration The effective date of registration is the date by which a trader is registered, or supposed to be registered with GRA for the purpose of VAT. Following the processing of a successful application for registration, a trader is given a registration certificate to acknowledge the registration. Registration will take effect at the beginning of the first tax period after the person is required to apply for registration, or at a later date as the Commissioner-General may determine. No VAT-inclusive invoices can be issuewd for the period before the registration date Registrant Responsibilities A person who voluntarily registers and a mandatory registrant have the same responsibilities. Every registrant must keep the required VAT records, issue proper VAT invoices, complete and submit monthly VAT returns, and pay their VAT as and when due. Page 18 of 67

19 CHAPTER 5 OBLIGATIONS Introduction The VAT Act specifies the rights and obligations for all registrants Rights of a VAT Registered Trader Under the VAT Act, a registrant has numerous rights, including: - Claims for allowable input tax - Refund when input tax exceeds output tax - Credit for VAT paid on trading stock acquired prior to the date of registration. - Refund of tax paid in error. - Request for reconsideration of an assessment - Appeal to the tribunal - Every GRA officer contacting the registrant provide official identification - Be treated fairly and with equity. - Be provided assistance in understanding the legal obligations. Additional information is provided in later chapters of this guide The obligation of a VAT registered trader As a registered trader, there are certain obligations and responsibilities upon which the registrant must comply. Failure to carry out these duties and responsibilities could result in additional taxes, penalties and possibly prosecution. Under the VAT legislation, these responsibilities include: - Apply for registration when required. - Display the VAT Registration Certificate prominently in a public area of the business. - Charge VAT on all taxable supplies and quote VAT inclusive prices - Issue a VAT invoice for every supply made - Submit monthly VAT returns to GRA on or before the 15 th of each following month - Pay VAT amounts due within 15 days following each tax period - Maintain proper accounts and records - Advise the GRA of change to the business operations, e.g. change of address or telephone number, addition of partner, cessation of business premises - Provide accounting records and business information, when required, to officers of the GRA Additional information regarding these obligations is provided in later chapters of this guide Pricing All registered traders must display, advertise and quote VAT inclusive prices for all goods and services, i.e. the price must be the selling price including VAT. Retailers, including supermarkets and traders who sell directly to the public, do not need to show the VAT portion included in the price on each label or advertised price Page 19 of 67

20 for each item. However, they do need to identify their pricing in such a way that the customer can understand which products are exempt and which have VAT included in the price. In addition, the sales receipts must identify all the items on which VAT is charged. If a registrant recipient is in agreement, a supplier may provide a quotation for a taxable supply of goods or services on the basis of the tax-exclusive value of the supply. In these circumstances, the quote must clearly state that tax will be payable on the supply and state either the tax-inclusive value of the supply or the applicable rate of tax and the amount of tax that will be payable VAT Inclusive Price When the selling price of a good or service has been determined without VAT, the VAT is added to the selling price by multiplying the intended selling price by 15% to the VAT inclusive price. This is the price that must be shown on all price tags, tickets, price marks, or other pricing information, and for the purposes of advertising. Illustration Adding VAT to Selling Price Selling Price before VAT is added D Rate of VAT 15% Multiplying by 15% D x 15% = D150 VAT D VAT-Inclusive Price D1, VAT Invoice VAT invoice or tax invoice is a document which is provided under the VAT Act in order to: 1. Provide consumers the details regarding VAT charged on their purchases, and 2. Enable a registered trader to deduct input tax. A VAT registered customer must obtain a valid VAT invoice from the suppliers in order to claim back the VAT they have paid on their purchases. The tax invoice must be supplied to the customer not later than the time when the goods or services are supplied. Without a proper tax invoice a registrant cannot deduct input tax on purchases for their business, and the registered clients cannot claim back the VAT that is charged to them. The details that must be shown on a VAT invoice are described in Chapter 8. Page 20 of 67

21 5.7.0 Completion of VAT Returns As mentioned earlier, each registrant must account for the VAT collected on behalf of GRA and recover the costs of VAT paid out by completion of their VAT returns. The returns must be submitted for each taxable period on or before the due date, even if there is no required payment or there are no sales made in the tax period Taxable period A taxable period is the period of time for which VAT returns is filed. Taxable periods are normally for each calendar month. This means every calendar month is a taxable period, for which a VAT return must be submitted to GRA Due date for filing Returns and their respective payments must be submitted on or before the 15 th day of the month following the end of each tax period. For example, the return and payment for the tax period end 31 st May must be submitted no later than 15 th June. Mandatory penalties are applicable for all late filed returns and payments. If the due date of filing and payment (the 15 th ) is on a day when the GRA offices are closed, i.e. a Saturday, Sunday or any public holiday, then the return and payment must be submitted no later than the last working day before that date. For example, assuming that the 15 th falls on a Sunday, the return and payment must reach GRA by the previous Friday (or the Thursday if Friday is a public holiday) Record Keeping When registered for VAT, all businesses must keep proper and complete records of all sales and purchases. Including an account of the portion of VAT collected on sales and the VAT paid out on all expenditures. GRA officers will periodically, visit businesses to examine the records and accounts, and to verify the VAT is correctly accounted for Records which must be kept A Registrant must: 1. Record the nature, quantity and value of both supplies made and supplies received e.g. purchase and sales day books; 2. Record the daily sales such as till rolls, cash books and other accounts; 3. Retain bank statements and documentation of all bank transactions; 4. Retain documentation for all business transactions, including orders and delivery notes; 5. Ensure sales records distinguish between taxable and exempt supplies; 6. Record payments for both supplies made and supplies received e.g. a cash book; 7. Include a summary and reconciliation to the reported VAT return amounts - the output tax, input tax and the net VAT payable or credit; 8. Retain all documentation in support of imported goods; 9. Retain all documentation in support of exported goods (zero-rated). Page 21 of 67

22 Allowing GRA Officers GRA has the right to require information and undertake audits on any VAT registered business, to ensure the taxpayer has complied with their VAT obligations. Audits will normally be conducted at the registrant s business premises Change of Details Taxpayers must notify the GRA in writing within 21 days in the following circumstances: - When there is a change in the legal status of an entity; - If the business ceases trading permanently; - If a taxpayer is registered and fails to make taxable supplies; - When there is a change in the trading name, address or nature of the business. If the business is sold as a going concern, notification is required within 14 days. Page 22 of 67

23 CHAPTER 6 TAXABLE AND EXEMPT SUPPLY Introduction A supply can be taxable or exempt Taxable and Exempt Supply For VAT purposes, a taxable supply is defined as a sale of taxable goods or a provision of taxable services. A taxable supply is a supply of goods or services made by a taxable person in the course of business in The Gambia which is other than an exempt supply. An importation of taxable goods is also a taxable supply. Taxable here means that VAT is applied to the transactions. The basic premise is that all goods and services are taxable unless they are specifically exempted goods or services, or goods and services sold in the course of a business by private individuals or by unregistered businesses who are identified as not being required to register and collect the VAT, in accordance with the VAT Act. A taxable supply can be either Standard Rated or Zero Rated. Standard Rated supplies are made at 15% whilst Zero Rated Supplies are made at 0%. The term exempt supply refers to supplies of goods and services that are specifically exempt from VAT. This can be illustrated as: Total Supply Taxable Supply Exempt Supply Standard Rated Zero Rated 0% No VAT The difference needs to be noted regarding total supply and taxable supply. A taxable trader can be making both taxable supplies and exempt supplies. In such a case total supply made by such a trader is the sum total of all the taxable supplies and exempt supplies. Exempt supply are those goods and services supplied which are exempt from VAT and therefore outside the scope of the VAT. Page 23 of 67

24 REMEMBER: a TAXABLE PERSON is a trader who is registered, or is required or ought to be registered for VAT Standard Rated Supplies A supplier of standard rated goods or services must charge VAT on supplies made at 15%. All goods and services are considered as standard rated unless specifically classified as zero-rated or exempt Zero rated supplies A supplier of zero-rated goods or services collects no output tax, as the applied rate of tax is 0%. The 0% rate is used as a mechanism so that tax is not applied to consumptions which are destined to take place outside of The Gambia. A typical example of zero-rated supplies is when goods are sold and exported to customers located overseas. While the VAT registrant will not collect VAT on the sale of the exported goods, they will be able to claim a credit for any VAT paid on the purchases of goods or services needed to acquire, produce and/or make these goods available for sale. Examples of Zero-Rated Supplies include the following, when provided by a Gambian VAT registrant: Goods and services supplied for consumption outside of The Gambia Supply of land outside of The Gambia Supply and insurance of international transport Repair of goods under warranty Because the VAT rate is 0%, the VAT exclusive and VAT inclusive price are the same. For example, when the VAT exclusive price of an exported good is D10,000, and the trader has applied VAT at 0%, then the VAT inclusive price will be the same D10, Exempt supplies A number of supplies of goods and services are exempt from VAT and the supply of these goods and services is called exempt supply. An exempt supply is a sale of a good or service which is not taxable and no VAT is charged on such supply. The supply is said to be outside the scope of VAT. A trader involved exclusively in this type of supply will not be subject to VAT. For exempt supplies, there is no VAT charged at the time of sale, nor when they are imported. Exempt supplies include: Basic foods, for example rice, flour, sugar, meat, fish, fresh vegetables, salt, cooking oil, bread, and infant food Education services Medical, dental, optical and veterinary services Prescription drugs Financial services, excluding those rendered for a fee or commission Life and health insurance Page 24 of 67

25 Rental of residential property Unprocessed agricultural and aquaculture products Agricultural and aquaculture supplies and equipment Most transportation services, e.g. taxis, ferries and private buses Electricity and water supplied to most households Exempt supplies fall outside the scope of VAT and a supplier of exempt supplies can neither charge VAT on sales nor claim tax paid on business inputs. For this reason, suppliers of only exempt goods and services cannot register for VAT Difference between Zero-rated and Exempt Supplies At first glance on a VAT invoice one may not see the difference between zero-rated and exempt supplies as no VAT is actually charged on either of them. However there is a substantial difference: zero-rated supplies are taxable supplies within the scope of VAT, and thus subject to VAT even though at zero percent; whereas exempt supplies are outside the scope of the VAT and hence VAT does not apply to such supplies at all. As such, while a VAT registered business is entitled to claim a credit on input VAT incurred in the acquiring and making of zero-rated supplies, they are not entitled to claim a credit for the input VAT incurred on the exempt supplies. Businesses that exclusively make exempt supplies will not be registered for VAT. This means that such a business must not charge VAT on its supplies and cannot claim any input tax credits on its purchases. A business that meets the threshold requirements on total turnover of zero-rated supplies must be registered for VAT, as the zero-rated supplies are taxable supplies. The registrant is then entitled to claim input tax credits on all VAT incurred on purchases. Where the sale of zero rated supplies represents a substantial portion of the business turnover, the registrant will commonly have input tax credits which exceed the output tax, and hence may often be eligible for a refund of VAT paid out Businesses selling both Taxable and Exempt Supplies A business making both taxable and exempt supplies can be described as a partially exempt business. In such cases only input tax credits in respect of the taxable part of the business can be claimed and only output tax in respect of the taxable supplies should be declared. Such taxpayers will need to apportion the Input tax so incurred proportionally between the taxable and non-taxable parts of the business. This is discussed in more details in Chapter 11. Page 25 of 67

26 CHAPTER 7 IMPORTATION Introduction All importers must pay VAT on their imports regardless of whether they are registered for VAT or not, and whether the importation is for commercial use, personal consumption, or other purposes. The only exceptions are where goods or importers are specifically exempted under the VAT laws Import of goods All importers must pay VAT at the time of importation of goods or service. VAT is charged on all importations of taxable goods imported by private persons or by businesses whether or not they are registered for VAT. The VAT on importation of goods is administered by Customs and is payable together with any applicable Customs duties and other charges. There is no VAT charged on the importation of zero rated or exempt supplies Input VAT For VAT registered traders, the VAT paid on imported goods becomes input VAT. As mentioned earlier, taxable importers will be able to claim the VAT paid as an input credit on their VAT returns. Unregistered businesses will not be able to claim the input VAT, but will be able to account for it as a business expense Place of supply When goods are imported, the place of supply for the imported goods is where the goods arrived. Imported goods are in principle taxed in The Gambia upon arrival in the country, i.e. at the port of entry Time of Import The time of supply of imported goods and services is the date the goods enter The Gambia or should have entered The Gambia, as determined under the Customs laws. This will normally be the date the goods are cleared and released by Customs Value of supply The value of supply for imported goods under the VAT Act is the value of the goods ascertained for the purpose of Customs laws, that is, the purchase and shipping cost, plus the amount of Customs duty, excise tax and any other charge other than VAT payable on the goods. Below is an illustration of the value of supply for imported goods. Amount Value of Import 75,000 Import duty 15,000 Excise 79,200 Tax base for VAT determination 169,200 15% 25,380 Prof Fees 1,162 Eco 1% 750 Total Paid to Customs 121,492 Page 26 of 67

27 7.7.0 Importation of services VAT is charged on all taxable services imported into the country. However the taxation of imported services may prove to be difficult as it is sometimes difficult to identify the trade in services across borders. For this reason, a reverse service charge process is used where import for service is made in The Gambia. This mechanism is used to place the obligation to charge and remit VAT on the Gambian recipients of the imported services. The reverse charge mechanism dictates that where a local person buys taxable services from a foreigner for use in The Gambia, he/she is obliged to calculate and pay VAT to the GRA. The obligation to charge, calculate and pay VAT is therefore reversed from the non-resident supplier of such services to the local receiver of the service. This obligation is not applicable for VAT registered traders who have the right to claim full input VAT on the service. This is because the taxpayer would pay such VAT and then claim it back, the net effect of which is zero. The reverse charge system is meant to ensure that Gambian consumers of foreign services pay tax in the same way as they would for local services, in order to ensure the local suppliers are not disadvantaged, i.e. that their supply of services is not more expensive due to the VAT they are required to charge. Reverse Charge Example: Company A contracts an audit firm resident in Senegal to do its annual audit work in The Gambia. The Senegal firm is a non resident business with no offices or permanent employees in The Gambia. Its personnel are temporarily placed in The Gambia to undertake Company A s work. The domestic purchaser of the service, Company A, will withhold 15% VAT from payments to the Senegal audit firm, and remit the VAT to GRA. Page 27 of 67

28 CHAPTER 8 INVOICING Introduction The most important document in a VAT system is the tax invoice. A VAT invoice is provided to inform the customer whenever VAT has been charged for the purchase of good or service VAT invoice A VAT registrant must issue an invoice for every sale, to every customer. A VAT registered customer must have a valid VAT invoice from the supplier in order to claim back the VAT they have paid on their purchases. A tax invoice must be issued to the customer not later than the time of supply. Without a proper tax invoice a registrant cannot claim back the input VAT they have paid Details on a Tax Invoice A valid tax invoice must show the following information: 1) The name and business location of the supplier 2) The VAT registration number or tax identity number (TIN) of the supplier 3) The serial number of the invoice which is unique and follows on from the number of the previous invoice, date of issue and date of supply (i.e. tax point). 4) The quantity or volume of the goods or services supplied. 5) A description of the goods or services supplied 6) An indication of which items are taxable, when the sales receipt also contains the sale of exempt goods 7) The total consideration of the supply and amount of the VAT charged. The following are examples of acceptable VAT invoices and receipts. Page 28 of 67

29 Acceptable VAT invoices: NAME OF BUSINESS LOCATION VAT Reg #: xxxxx Customer : Smiling Coast Services VAT Invoice # xxxxx Date: dd/mm/year Address : Down by the Sea Rd. Special Village, The Gambia Quantity Description _ 4 Round wood tables,100cm. 16 Metal chairs -black Cost/unit _ Total Cost _ Total Cost GMD VAT at 15% included in Total Cost : GMD 3386 Sleepy Rest Hotel Manjie Side Road VAT Reg #: xxxxx Customer : Mr. and Mrs. Njie Address : A road somewhere Big City, The Gambia Room: Date: xxx 20/Feb/2013 Date Description Total 18 Feb. 19 Feb. 20 Feb. 20 Feb. Room Charge Room Charge Transfer to Airport Payment by Visa Total Charges Balance Due The above charges include VAT at 15% totaling 704d continued Page 29 of 67

30 NAME AND LOCATION OF BUSINESS TIN or VAT certification # VAT Invoice # : xxxxxx Date of Supply: dd/mm/yr Qty Description Total 2 Aqua bottled water 300cl 40 Tx 1 Fresh fish 2.2kg@ Salted peanuts 200g 25 Tx Subtotal : 186 Amount Due : 186 Cash Tendered : 200 Change : 14 VAT 15% : Simplified or abridged tax invoice A taxable trader in retail business, who is selling to the general public, can provide a simplified or abridged tax invoice which is less detailed than the normal tax invoice. However, where he is making a sale to a registered trader who identifies himself as such and request for a normal tax invoice, then this must be issued. A simplified or abridged tax invoice cannot be used to obtain a claim for input tax credit or refund. A simplified or abridged tax invoice needs to show the following details: (a) the name and VAT registration or taxpayer identification number of the supplier; (b) the date on which the simplified receipt is issued; (c) a bar code or other method to identify the goods or services supplied; and (d) the consideration for the supply and the amount of VAT charged, or the VAT-inclusive price identified as such. Page 30 of 67

31 Sample simplified VAT receipt NAME OF BUSINESS VAT Reg #: xxxxx Date: dd/mm/year 2 water 40 Tx 1 meat dept snack 25 Tx Amount Due: 186 Cash Tendered: 200 Change: 14 VAT 15%: Changes to Invoices If a change is required at the time of sale, the original invoice can be voided and a replacement issued, providing all original invoices are returned or clearly documented as being voided Lost or Missing Invoices If a tax invoice in respect of a particular supply is lost, the VAT registrant cannot claim input tax credit on this invoice. The registrant will be required to acquire a replacement invoice from the supplier. It is an offence to issue more than one tax invoice for the same taxable supply. When a replacement tax invoice is issued it should be clearly marked as a copy. The above described procedures must also be followed on credit and debit notes Invalid VAT invoices The following are not VAT invoices: i) quotations and pro-forma invoices ii) invoices that do not provide the required VAT details iii) statements of account iv) delivery notes v) orders vi) letters, s or other correspondence For these type of documents, the input tax credit for VAT cannot be claimed, as the documents do not provide proof of legitimate VAT payment. Page 31 of 67

32 CHAPTER 9 FILING OBLIGATIONS Introduction A taxpayer has an obligation to file and submit his or her VAT returns in accordance with the requirements of the VAT Act VAT Assessments When a registrant has submitted a VAT return, other than a revised return, an assessment is considered to have been made by the Commissioner-General. The GRA does not issue a separate notice of assessment form, rather the submitted VAT return is considered to be the notice of the assessment. A sample VAT return is included on page Completion of VAT Returns Once taxpayers are duly registered for VAT, they are obliged to account and file their VAT returns on a monthly basis. Returns must be submitted on a prescribed form. The fillable VAT returns are available in all tax offices, as well as on the GRA website. Completed forms are submitted at the GRA tax offices, or at a designated bank if the corresponding VAT payment is being made at the bank. To be accepted as filed, all required fields of the VAT return must be properly completed. The following details must be entered for every submitted VAT Return: INFORMATION SECTION TIN Taxpayer Name Trading as Physical Business Address Mailing Address P.O. Box Telephone Return for the month of: Nil return TIN of the registrant (Tax agent should not put their own TIN if they are filing for their clients) The full and same name as was approved at the time of registration (abbreviations are not to be used) Business name of the taxpayer Full address of the primary location where the business is conducted from Optional field to be entered when the address to which documents are to be delivered is different from the Business Address Optional filed to be entered when the preference is to use this for the receipt of correspondence Telephone number of the business or office (individuals should enter their personal telephone numbers) The reporting period month and year ae to be entered, not the month when the return is submitted This box is checked if there are no supply of goods or services and no taxable purchases in the month Page 32 of 67

33 SALES AND PURCHASES / INPUT TAX SECTION Supply of Goods and/or Services Value column Taxable Sales (Standard rate) Exempt Sales Domestic Taxable purchases Imports Adjustments Every box must be competed. If there are no sales in a category, then a 0 declaration should be entered The Value to be entered in this box is the VAT-inclusive price less the portion that is attributed to VAT Even though there is no VAT attributable to exempt sales, it is important that the total sales amount for the period be reported whenever exempt sales are made Only the claimable amounts paid to Gambia businesses (as per Chapter 9), which are substantiated by receipts, are to be entered here. VAT incurred outside The Gambia for foreign purchases is not creditable The allowable amount to be claimed here is the VAT paid to Gambia Customs This line can be used when adjustments to amounts reported in prior periods are required, such as the reversal of prior months sales due to bad debt write-offs TAX DUE AND CREDIT SECTION Complete all lines Credit balance from previous month Refund claims lodged in the month It is important that a numerical entry be placed on each line. If there is no computed or carried forward amount, enter a 0 rather than leaving the line blank A credit amount is entered only when there was a credit carry forward indicated on the final line of the previous month s return A claimable amount is entered on this line only when the previous line showed a credit due, and the registrant has applied for a refund of all or part of the credit amount Note - Not all details regarding completion of the VAT returns have been mentioned above. It is equally important that every required line be fully and accurately completed Due date for VAT Return All returns must be submitted together with payment of the VAT on or before the 15th day of the following month after the end of the tax period. For example, if the tax period ends on 31 May, the return and payment must be submitted no later than 15 th June. If the due date for payment is on a Saturday, Sunday or any public holiday, the return and payment must be received by GRA by no later than the last working day before that date. For example, assuming that the due date falls on a Sunday, the Page 33 of 67

34 return and payment must be received no later than the previous Friday (or the previous business day if the Friday is also a public holiday) Extension to submit Where a taxpayer is unable to submit VAT return or any other document by the deadline, as requested by the GRA, in order to avoid late filing penalties the taxpayer can apply for an extension of time to submit. This application must be in writing, be made before the due date, and must detail the reasonable cause for not submitting on time. Requesting for an extension to submit a VAT return does not mean the related VAT should not be paid on time. For an extension to be given or permitted, the taxpayer must pay at least ninety percent of the estimated VAT liability that is due under the return. The extension cannot be granted for a period of more than thirty days from the original due date of submission, except where there are exceptional circumstances which will justify a longer duration. An extension permit is only for the purpose of establishing when a VAT return must be filed by. It does not cancel the applicability of interest charges for late and non payment. The taxpayer will be liable for interest from the original due date of payment, regardless of the extension given for late submission Non submission Failure to submit a VAT return on time is an offense and will result in the application of mandatory penalties being imposed for the offense. VAT returns must be filed every month, whether a payment is required or not. A penalty for non submission is liable even where the return is a nil return or the taxpayer is in a credit or refund position. Additionally, where no VAT return is submitted, the GRA is entitled to carry out a determination and assessment of the liability by other means, including by using Best of Judgment process to establish the liability. This type of assessment is valid until a return is submitted by the taxpayer with a different liability. A taxpayer who fails to pay the determined VAT amount by the due date is liable to a penalty of 5% of the tax, for each month the return is not submitted, to a maximum of 25%. The 5% is applicable for any part of a month, i.e. the payment is considered as to not be submitted for the whole month. Page 34 of 67

35 Example of Penalty Application: AA Trading Ltd is a registered trader for VAT and was late to make payment for the tax period ending the 30 th June The final tax amount payable on the submitted VAT tax return was D25,600. This full amount was paid on the 17 th August How will penalty apply to AA Trading Ltd for this late payment? Solution to the example As the required payment was not submitted by the due date of the 15 th July 2013, AA Ltd will be liable to a penalty for non payment from 16 th July to 17 th August. The penalty will be calculated as: Late period: One month (16July to 15 Aug.) + two days (16-17 Aug.) = 2 months Penalty Rate: 5% per month Total Penalty rate: 2 months x 5%= 10% Tax Payable per submitted return: D25,600 The resultant penalty for no submission will be 10% x D25,600 = D2, Inaccurate VAT Return Under the VAT rules it is an offense to submit inaccurate or misleading returns. A VAT return is inaccurate where correction of an error leads to tax payable to GRA being understated or refund is over claimed. If the taxpayer knowingly or carelessly make such inaccuracy in the tax returns the taxpayer is liable to a penalty of one hundred percent of the potential tax loss to GRA. This penalty is reduced to twenty five percent of the potential tax loss to GRA in all other cases. Page 35 of 67

36 CHAPTER 10 VAT PAYABLE AND REFUNDS Introduction For each VAT registrant, the VAT is payable in a VAT taxable period when: i) The VAT charged on the taxable supplies made during the taxable period (output VAT) exceeds ii) The VAT paid on the business purchases and expenses for which the input tax credit (input VAT) can be claimed. The difference between these two amounts, including any adjustments, is called the VAT liability or VAT payable Output VAT Output VAT (or output tax ) is the VAT charged by taxpayers on the taxable supplies they make (i.e. VAT collected on sales). Every registered person should collect VAT on supplies made by them in the Gambia in the course of a taxable activity from the recipient of such supplies, irrespective of the status of the recipient. The output tax is payable to the GRA by the registered person and hence the taxable person is merely a collecting agent for the GRA Input VAT When a VAT registered business purchases goods and services, the VAT incurred on the purchase of these taxable goods and services is called input VAT (or input tax ). These input taxes are recoverable from GRA by means of offset against the payment of output tax, i.e. as an input tax credit VAT Fraction As mentioned under the pricing rules above, all VAT registered taxpayers selling goods and services that are taxable for VAT must advertise the VAT inclusive prices. If one is registered for VAT and wants to claim VAT back on their purchases, they may find that some suppliers sold goods and services inclusive of VAT, but the receipt only indicates the amount was subject to VAT. i.e. the actual amount of VAT included is not indicated. In such a case, in order to claim back the VAT on these purchases, they will need to calculate the VAT portion of the total VAT inclusive price. The VAT fractional calculation is a useful tool that helps to work out the VAT in such a situation. The fraction 15/115 is known as the VAT fraction or tax fraction. It is applied to the price to work out the VAT element of a transaction. By using this VAT fraction the VAT registered business will be able to find the amount of VAT that has been incorporated in a VAT inclusive price. Page 36 of 67

37 Example of VAT Fractional Determination: Selling Price including VAT D1, Applicable VAT rate 15% VAT fractional formula Selling price x VAT rate / (100 + VAT rate) Multiplying by 15%/115% D1,150.00x15/( = D VAT portion of total price D VAT Liability At the end of each tax period, the VAT payable to the GRA by the taxable trader must be computed. As mentioned above, the output tax is the VAT collected from the customers on each taxable supply, including the zero rated supplies. In accounting for the VAT payable to the GRA, taxable persons deduct all the input VAT already paid on their purchases, as illustrated below. This is represented as: Total Output Tax less the Total Input Tax = VAT Liability or Credit Page 37 of 67

38 Illustrative Example for Determination of VAT Liability: Musa is trading and registered for VAT. The following information relates to the VAT period ending on the 31 st March 2014: 1 Sales consisted of D550, 000 of standard rated sales and D150, 000 of zero rated sales. 2 Purchases for resale were all standard rated and totaled D310, A photocopier costing D64, 000 was purchased. 4 Cash power totaling 80,000 was purchased. All of the above amounts are VAT-inclusive. The amount of VAT payable by Musa for the period ending the 31 st March 2014 is determined as follows: Transaction VAT Rate Output VAT Input VAT Total Sales: Standard Rated D550,000 x 15/115= 71,739 Zero Rated D150,000 x 0/100 = 0 71,739 Total Output Tax (A) 71,739 Resale Purchases Photocopier Cash power Standard Rated Standard Rated Standard Rated D310,000 x 15/115= 40,435 D64,000 x 15/115=8,348 D80,000 x 15/115=10, ,435 8,348 10,435 Total Input Tax (B) 59,218 VAT Payable to GRA (A-B) 12,521 Explanation: Musa has offset the total input VAT against the total output VAT resulting in a balance of D12,521. This is the amount by which the total output VAT exceeds the total input VAT. Musa is required to pay this amount to GRA. In summary, where: - Total output tax exceeds total input tax, VAT is payable to GRA. - Total output tax is less than total input tax, there is no VAT payable. Page 38 of 67

39 Refunds Where total input tax exceeds total output tax, a credit balance results. The credit is carried forward to the next tax period and is applied to offset future liabilities. Where a registrant s credit balance continues for three consecutive months, the taxpayer is then entitled to request a refund of the net credit balance. A claim for a refund must be indicated by the taxpayer on the VAT return, and a special refund form must be submitted. In accordance with the VAT laws, the refund will be processed within 60 days from the date the claim is received by GRA. The legislation stipulates that, in the event of failure to pay the refund within this statutory period, GRA is required to pay interest at prescribed rates on the delay in payments. Note any refund due will first be used to offset payable amounts outstanding on other types of tax owing to GRA. Most business activities do not give rise to refunds since output VAT collected generally exceeds input VAT paid. The most common source of credit claims for refunds will be businesses engaged in zero rated sales, such as exporters Special Refund procedures There are special refund procedures for diplomats, international bodies and nongovernmental organizations. Eligible international bodies include approved organizations and governments providing technical or humanitarian assistance in The Gambia. Diplomats include the foreign missions and their representatives who are approved by the government of The Gambia, and are recognized under the Vienna convention on diplomatic relations. Qualifying non-governmental organizations (NGOs) are those that have an agreement with the government of The Gambia that stipulates expenditures by the organization, for the purposes described in the agreement, will not be used to pay taxes or levies to the government of The Gambia. The above mentioned persons do not need to be registered for VAT to qualify for the refunds. The amount of the refund is based on the VAT paid for the import and domestic supply of goods and services. Refund applications will be processed once the GRA has been advised of their approval by the Ministry of Foreign Affairs (diplomats and international bodies), and for NGO s once they have provided evidence of their qualification for exemption. Page 39 of 67

40 CHAPTER 11 INPUT VAT Introduction The law allows someone who is registered for VAT to reduce the amount of output tax they pay to GRA by the amount of VAT they have been charged by their suppliers in making their taxable supplies. The VAT incurred on purchases is called input VAT or input tax. The purchases could be in the form of operating expenses incurred by the business, purchases of stock, capital goods and services. It also includes the VAT paid at Customs in respect of goods imported for use in a taxable activity Claiming Input VAT Any VAT claimed as input tax must meet all of the following criteria: 1. The amount claimed must be VAT properly charged by another taxable person or relate to a taxable importation or acquisition; 2. The supplies on which the VAT was charged must be made to the person who is claiming the input tax; 3. The supplies must have been received for the purpose of the business; 4. The supplies or imports must normally be received in the accounting period in which the claim is to be made 5. The person claiming input tax must hold documentary evidence of the supplies in support of the claim 6. The supplies received must not be subject to input tax restriction blocking order as detailed below. The underlying principle is that for input VAT to be claimed, it must have been paid on taxable supplies and charged by a registered taxpayer. The input tax credit is allowed at the time the goods or services are supplied to, or imported by the registered person. A tax invoice showing the amount of VAT on local purchases and Customs documentation showing VAT paid at importation must be held before any claim can be made. Input tax may not be deducted where goods or services are acquired for private purposes, for the business of another entity, or other non-taxable purposes. Purchases or business expenses on which input tax credit is claimable must relate to taxable and not exempt supplies or goods for private use. Where purchases are partly for business and partly for private use, only the business proportion can be claimed. For example, if a VAT registered business pays for a computer for used by a Director or employee, and the private usage is 25% of the total usage, only 75% of the input VAT on the computer can be claimed Pre-Registration input VAT Only registered traders can claim for the input VAT incurred on purchases. Input taxes incurred by a trader on its purchases before actually registering for VAT is known as pre-registration input VAT. Page 40 of 67

41 To be recoverable, the pre-registration input VAT must be incurred to support taxable business activities, and must be in regards to stock on hand at the date of registration that will be used to generate taxable sales in the newly registered business. These goods must have been bought within the preceding six months, and there must be good documentary evidence of the supplies in support of the claim Instances when input VAT is disallowed The VAT rules specify certain types of expenditure for which the input tax credit will not be allowed: 1. Goods and services acquired for the purpose of providing entertainment, unless entertainment is the registrant s primary business activity 2. The purchase or lease of passenger vehicles, unless the registrant s business involves the supplying of passenger vehicles 3. Acquisition of membership or right of entry for any person in a club, association, or society of a sporting, social, or recreational nature 4. Import or acquisition of fuel Partially exempt business Input tax that relates to taxable supplies, those that are both standard and zero rated, is recoverable. This is referred to as 'taxable input tax'. Similarly, input tax relating to exempt supplies is called 'exempt input tax'. The latter cannot normally be recovered, as it has not been incurred to generate taxable supplies. When input tax is incurred on purchases that relate to both taxable and exempt supplies, only the taxable input tax - that related to purchases used to make taxable supplies, is recoverable. As the registrant can only recover part of the input VAT, it is said to be partially exempt. Page 41 of 67

42 Illustration of Input Tax Determination for Partially Exempt Businesses: VAT incurre d Business use by taxable person Non-business use Blocked input tax (refer to 9.4.0) Exempt input tax Non Attributable input tax (apportionment) VAT NOT Recoverable Depends on the fraction (T/A) -If fraction is less than 0.1, not recoverable -If more than 0.9, recoverable -if between 0.1 and 0.9, the proportion thereof Input tax Taxable input tax VAT Recoverable Steps in recovering input tax There are three main steps to calculating how much input tax a partially exempt business can recover. These are: Step Description 1 Direct attribution of input tax 2 Apportionment of non attributable input tax 3 Annual adjustments Steps one and two must be carried out for each VAT return period with step three undertaken at the end of each fiscal year. Step1 - Direct attribution of input tax Direct attribution of input tax is the identification of VAT incurred on purchases that is used, or intended for use exclusively in making taxable supplies or exclusively in making exempt supplies. Attribution is undertaken at the time the purchases are incurred. Following the purchase of goods and services, the trader will classify all the input VAT as to whether it is spent on making taxable supplies or for making exempt supplies. Page 42 of 67

43 The input tax on purchases used exclusively in making taxable supplies can be fully claimed as an input tax credit. None of the input tax on purchases that are used exclusively in making exempt supplies can be claimed, that is, such input tax amounts are non-recoverable. Step 2 Apportionment of non attributable input tax The input VAT used to provide both taxable supplies and exempt supply - that which cannot be directly matched to taxable and exempt supplies, will be apportioned accordingly to the share of taxable and exempt supply it helps to generate. This amount allowed to be claimed as input tax is determined using the following formula: Total Taxable Supplies (T) Total Supplies (A) X VAT incurred on non attributable purchases (I) In applying the above formula, 1. If the fraction T/A is more than 0.90, the whole of the non attributable input VAT is allowed and recoverable. 2. If the fraction T/A is less than 0.10, the whole of the non attributable input VAT is disallowed and non recoverable. 3. If the fraction T/A is more than 0.10 and less than 0.90 the portion of the non attributable input VAT is allowed and recoverable. Step 3 Annual Adjustments The above steps are taken during the determination of input tax credit for each reporting period. The amount of the input tax credit so allowed under this formula is provisional, and a revised annual adjustment is required at the end of each year, to ensure that the correct amount of credit has been claimed for the year as a whole. Any under or over declaration is then accounted for to the GRA, or reclaimed when required, on the first VAT return of the following year Calculation of the recoverable input tax using partial exemption: In summary, to calculate the input tax the following steps are followed, keeping in mind that the calculation takes place after non-business and 'blocked' VAT amounts have been excluded. Step Action 1 Identify the input tax directly attributable to taxable supplies. This is recoverable and therefore credit is given to this on the VAT return. 2 Identify the input tax directly attributable to exempt supplies. This is not recoverable and hence is not claimable. 3 Identify the non attributable amounts that can be claimed using the formula above. Page 43 of 67

44 Example of the Partial Input Tax Calculation: Mr. Sallah's input tax and supplies made in the period to 31 December 2013 are as follows: Input tax wholly attributable to taxable supplies D230,250 Input tax wholly attributable to exempt supplies D140,000 Non attributable input tax (attributable to both taxable and exempt) D280,000 Value (excluding VAT) of taxable supplies Value of exempt supplies D2,500,000 D1,000,000 Disallow ed Allowed and credita ble Step 1 Input tax wholly attributable to taxable supplies 230,250 Step 2 Input tax wholly attributable to exempt supplies 140,000 0 Step 3 Non attributable input tax (attributable to both taxable and exempt): Total Taxable Supplies (T) Total Supplies (A) T = 2,500,000 A = 2,500,000 +1,000,000 = 3,500,000 2,500,000 / 3,500,000 = x 280,000= 245,000 The proportion attributed to exempt supplies is the remaining 35,000 (280, ,000), which is not creditable 35, ,000 Total 175, ,250 Page 44 of 67

45 CHAPTER 12 POST SALES ADJUSTMENTS Introduction The VAT Act makes provision for debit and credit notes that are issued in respect of post sales adjustments. Post sales adjustments are allowed if a transaction is cancelled, goods supplied are partially returned, or amount due on the invoice can no longer be recovered. It is not allowed and therefore illegal to issue more than one tax invoice per taxable supply. If a change is required at the time of sale, the original invoice can be voided and a replacement issued, providing all original invoices are returned or clearly documented as being voided. The consideration of such supplies at a subsequent point in time can only be altered by means of a debit or credit note; it is not correct to merely issue another tax invoice. Debit and credit notes therefore provide a mechanism to support the necessary VAT adjustments required or allowed where an event has the effect of altering the original consideration agreed upon for a past taxable supply, after the tax invoice has already been issued, and in particular after a registrant has accounted for the supply on a VAT return Credit notes A credit note is normally issued by the supplier to correct a genuine mistake, to give credit to customers when the tax invoice for the supply has already been issued and the previously agreed consideration is subsequently reduced, or when goods are returned by the customer. A credit note is issued to the customer under the following situations: 1) goods invoiced as standard-rated which should have been exempt or zero rated 2) the nature of that supply has been fundamentally varied or altered; 3) the previously agreed consideration is being altered by agreement with the recipient (including a discount); 4) sub-standard goods are accepted by the customer at a reduced price; or, 5) goods are returned or services are not accepted Debit note A debit note will normally be issued by the supplier when the tax invoice for the supply has already been issued and the previously agreed consideration is subsequently increased. A debit note is issued when additional VAT needs to be charged because the price has increased and the VAT charged on the invoice is less than the VAT that is supposed to be charged. The debit note is essentially a supplement to the invoice Details to be reflected on debit/credit notes The required details are similar to the details for a tax invoice. The note must refer to the original tax invoice which is going to be affected by the adjustment, i.e. by reference to the tax invoice s number and date. The following details must be reflected on the debit or credit note: Page 45 of 67

46 1) the words Credit Note or Debit Note in a prominent place; 2) must be numbered in sequence 3) supplier s name, business address and TIN or VAT registration number; 4) customer name; 5) date of issuing the credit or debit note; 6) sufficient information to identify the taxable supply to which the debit or credit note relates; 7) taxable value of the supply shown on the tax invoice, the corrected taxable value, the difference between the two amounts, and the VAT relating to the difference The adjustment of the debit and credit notes are to be included on the VAT return for the period in which they are issued. Where a debit and credit note is issued in the same reporting period as the original invoice, the adjustment will be reflected in the reported sales or purchases. Debit notes issued and credit notes received are considered as output VAT. Likewise credit notes issued and debit notes received are considered as input tax. If the credit or debit note occurs in a later period, it will be reflected as an adjustment on the return. Page 46 of 67

47 CHAPTER 13 PAYMENT OBLIGATIONS Introduction As mentioned earlier, VAT registered businesses acts as a collector on behalf of the GRA. Therefore the VAT so collected is a liability and the business has an obligation to pay the liability to GRA Remitting the VAT A registered taxpayer acts as a VAT collector on behalf of the GRA. The VAT so collected is not their income or turnover but temporarily in their possession and hence custodians to the VAT until the due date of payment. The due date of payment is the same date due for submission of filing the VAT return which is within 15 days following end of the VAT period. For example, if your tax period ends on 31 May, you have until 15 th June to make a payment of the VAT due. The due date of payment by importers on taxable imports is on the date of the import VAT Return The VAT to remit is determined and reported from the VAT return, as mentioned above. Before finalising the VAT return, registered traders have the right to offset the input VAT against the output, and then the difference must be submitted and paid to GRA no later than the due or legal submission date How and where to Pay Payments can be made by cash or cheque at the nearest tax office or at GRA s designated partnering banks. Cheque payments must be made and payable to the Gambia Revenue Authority. Cheques are not payable to individuals and therefore must not be drawn in any other name. Failure to pay the VAT due on time is subject to penalties under the VAT Act. The date of receipt of payments by the cashiers is the date the taxpayer is seen to have made his payment. The following rules apply in receipt of each payment option: Cash: payment is treated as received on the date the cash is received from the taxpayer; Bank payments: payment is treated as received on the date the bank credits the money in GRA s account; Cheques: payment is stamped as received on the date it arrives at the GRA Office. If a cheque is dishonoured by a bank, then payment is treated as received when the replacement payment is received. A taxpayer having paid his tax liability must get a printed receipt from the cashier or bank. This is the proof of payment. The taxpayer should ensure that it is stamped with the date of receipt. Page 47 of 67

48 Penalty for non payment Similar to non submission of returns, a failure to pay the VAT by the due date is an offense and results to penalties. A taxpayer who fails to pay the VAT liability by the due date is liable to a penalty of 5% of the tax that is unpaid for each month the payment is not made to the GRA, up to a maximum of 25%. Where the payment is not made for part of a month this is counted as being for the whole month. This penalty is in addition to the VAT that is not yet paid. No late payment penalty will be applied in the case of a nil or credit return, where no VAT is charged or to be paid. This is not to say that such returns need not be submitted on time. Remember, failure to submit returns has its own separate penalties Interest for late payment Where a taxpayer is late in paying or remitting his VAT liability to the GRA, interest will be charged for the late payment. Interest at the prescribe rate will be charged per month from the date the tax is due until the day the outstanding amount has been paid. The prescribe rate of interest is the Central Bank of the Gambia rediscount rate at the beginning of the month plus five percent points. The interest paid is irrecoverable and must be borne by the taxpayer. The interest is not a deductible expense for other type of taxes Payment arrangements It is important for the taxpayers to know and understand that tax liabilities are debts to the state. As such taxpayers should give greater priority to their tax debts than any other payment obligations they may have. Regardless of the taxpayer s financial situation, they must submit the VAT return on time. The VAT collected by registrants from their clients and customers is trust money due to the government, that penalties and interest will be applied on, regardless of the payment difficulties. The interest will be calculated from the due date to the date of final payment. Nonetheless, the GRA understands that taxpayers may occasionally experience difficulties that prevent the taxpayer from paying their tax debts on time. In certain circumstance GRA may consider a request from a taxpayer for extension of payment of the tax due, or by allowing the taxpayer to pay by instalment. In these circumstances interest charges will still apply, from the date the tax was originally due Installment In order to be eligible for instalment arrangements, the taxpayer must fill the required GRA payment plan form, and this must be supported by a realistic repayment schedule. The taxpayer must have a reasonable record of compliance with GRA, and demonstrate that full and immediate payment is not possible.. If the GRA is satisfied that the taxpayer has met or will meet the approval conditions, then an approval for the request will be given, and communicated to the taxpayer with the new instalment amounts and due dates. Page 48 of 67

49 Approval Conditions A taxpayer must apply for the extension by filling in the payment plan form and submitting it to GRA before the due date of payment. Where the registrant is given such an extension, timely payment of installments must be ensured. Failure to meet the timely payments will lead to the cancellation of the installment arrangement, and full payment will be due immediately. In addition, a full and immediate payment will be enforced where GRA believes that the registrant will leave the country without full settlement of the debt. Page 49 of 67

50 CHAPTER 14 ENFORCEMENT AND DEBT MANAGEMENT Introduction It is the duty of GRA to ascertain that returns are filed and payments received within the stipulated time as specified under the VAT Act. In order to achieve this goal, GRA has reporting system that monitors and identifies non compliant taxpayers Non Compliance Where a taxpayer fails to comply with the filing or payment obligation, GRA will send a reminder or demand notice for the non filing or non payment. If following the notification the taxpayer still does not submit a return, GRA will then make an administrative assessment and send the taxpayer notice of the assessed amounts and tax due. When payment is made, the taxpayer account is updated accordingly. However, if no payment is made demand notices are sent to the taxpayer. The demand notice requires immediate payment of the tax liability. If the taxpayer still fails to pay following this demand notice, then GRA will start recovery actions to collect the tax arrears. The recovery actions may include: 1) Collections of tax from third parties holding money on behalf of a taxpayer 2) Temporary business closure and sale of assets 3) Liquidation 4) Departure prohibition 5) Legal action Collection from Third Parties Taxpayers who are in default of paying their taxes must understand that the GRA will do everything within its mandate to recover such debts. This includes requesting payments from third parties that are holding money on behalf of or making payments to the defaulting taxpayer. An example is where a bank is holding money in an account on behalf of its customer. In such a case the GRA is empowered to recover the liability by instructing the bank, in writing, to withdraw a specified amount from the account and transfer the funds to GRA. Notification of this served demand will be sent to the taxpayer, and the bank will be under legal obligation to comply. While banks have a duty of confidentiality to their clients, it must be recognized that GRA has legal right to such banking information for all the taxpayers Third Party Payments Money received from third parties will be credited to the tax account of the taxpayer (or tax debtor), and the taxpayer will thereby be notified accordingly. When sufficient funds are received to satisfy the debt, the recipient of the demand and the taxpayer will be advised that the third party s requirement for payment to GRA has ceased. Page 50 of 67

51 All payments will be acknowledged by issuance of receipts by GRA, which will then serve as proof of payment by the third party on behalf of the taxpayer. Any third party who fails to pay, following a request from the GRA, will be liable to the GRA for the tax amount specified in the notice Examples of Third Parties The following are examples of circumstances when third parties may be requested to make payment directly to the GRA, in regard to another taxpayer s debt: 1. owes or will subsequently owe money to the taxpayer 2. holds or will subsequently hold money for the taxpayer 3. holds or will subsequently hold money for someone else, that is intended for payment to the taxpayer 4. has authority from another person who instructed that money be paid to the taxpayer Seizure of Assets and business closure The business or personal assets of a business owner may be seized and sold at a public auction, in circumstances where a taxpayer failed to pay the tax due. GRA officials may remove all the assets and stock-in-trade from the business and store it in a different location until the sale at an auction. Alternatively they may change the locks at the place of business, thereby denying the taxpayer and other parties access to the asset or place of business. The seized assets of the business will not be released, and will be auctioned within ten days, unless the taxpayer pays the tax liability within this period. Before undertaking such a seizure, a Revenue Collector will be assigned to execute this task and will be issued with a Certificate of Collection, which will warrant him/her to recover the debt. A copy of this certificate will be sent to the taxpayer. The certificate will state the name of the taxpayer, the assets or property to be seized, and the amount of the tax liability and interest to which it relates. Page 51 of 67

52 CHAPTER 15 AUDITS Introduction Under The Gambia s established self assessment system, taxpayers are to take responsibility for the determination of their tax liabilities, required filings and payments. GRA has responsibility to provide quality service and information to taxpayers and to promote voluntary compliance. Taxpayers have the reasonable expectation that GRA will administer and enforce the law consistency and that the law will be applied firmly to those who evade payment of their lawful share. GRA selectively audits VAT returns and claims for rebates. The objective is to ensure the fairness and integrity of the self-assessment tax system. GRA does this by making sure that tax returns and claims are prepared properly, and that taxpayers receive all the amounts to which they are entitled Audit approach GRA strives to establish a relationship based on cooperation, openness, and transparency, all of which are key factors in ensuring an efficient audit. Revenue audits can be a burden to people and may cause some disruption to their business. It is therefore essential that audits are conducted in an efficient, courteous and professional manner. Audit cases are selected on a risk analysis basis by a person other than the Auditor in order to ensure objectivity. In addition, cases may be selected at random to ensure every Taxpayer has an equal chance of being audited. The auditor will begin by providing some general information, such as the scope of the audit, what years will be covered, how much time the audit may take, and what business and accounting information the auditor will need to do the work. The auditor will respond to all taxpayer questions, and respect the confidential nature of information obtained during the audit. Auditors are obliged to treat personal and business information provided by Taxpayers in the strictest confidence and not to disclose it to third parties, except in the very limited circumstances provided by law. The auditor may conduct an audit relating to any of the statutes or regulations administered by GRA. While the audit may initially be planned for specific income or expense items, a specific period or a specific type of tax, it may be determined during the audit that the scope needs to be broadened to cover all at-risk issues Taxpayer responsibilities Every person who is carrying on business or is required to pay or collect taxes or other amounts is required to keep books and records in The Gambia for a period of six (6) years after the end of the period which they relate. The books and records must enable the determination of any taxes payable, or taxes or other amounts that should have been deducted, withheld or collected. Page 52 of 67

53 If a computer is used to maintain the accounting records, the books and records must be kept in an electronically readable format, even if they are also kept on paper. Using the services of an accountant or tax professional does not relieve the taxpayer of these responsibilities. In preparation for and during the audit, taxpayers must make available to the auditor their books and records (both paper and electronic), any supporting documents, and explanations to the questions the auditor will have Audit process Auditors carry out audits of returns, statements or claims submitted in order to check their accuracy. In doing so, auditors examine books, records and other documentation of the business activity carried on, and ask relevant questions in relation to it Location and materials The auditor will generally do the audit at the business premises. However, in some situations, the auditor will borrow the books and records and provide a detailed receipt for the borrowed documents. It may also be necessary at times to make copies of the electronic records Time involved The duration of an audit depends on the state of the accounting records and related documents, as well as the size and complexity of the business. Taxpayer cooperation will help keep this time to a minimum Discussing issues Auditors are required to verify that the correct amount of tax is declared and quantified. In doing this, it may be necessary to test the information provided and the assertions made by, or on behalf of Taxpayers. It is common during an audit for the auditor to identify issues that require discussion while the examination continues. Timely assistance and clarification from the taxpayer helps to keep the audit on schedule and avoid unnecessary delays and extra work. At any time, the taxpayer is welcome to raise concerns with the auditor Responding to an adjustment proposal The auditor will discuss any proposed adjustments and explain the rationale for them. The auditor will give taxpayers a reasonable amount of time (usually 30 days) to respond to the proposal. Before finalizing the audit, the auditor will carefully consider the taxpayer s explanations and respond to questions about the findings. If issues remain unresolved, the taxpayer can contact the auditor's supervisor to discuss them further Notice of Reassessment If an adjustment to the return is required, the auditor will arrange to have the notice of reassessment delivered to the taxpayer. Page 53 of 67

54 CHAPTER 16 OFFENCES AND PENALTIES Introduction Unreasonable behaviour, resulting in non compliance or under payment of VAT liabilities or over claiming from the GRA, are considered as offenses and hence subject to punishments. Under the VAT Act a punishment could be a fine, penalty, interest or penal: A fine is a payment of a lump sum generally applied when no tax liability is directly involved or when offense does not directly result in under reporting of a tax liability. Penalties may be a fixed amount or calculated as a percentage of the related tax due. They are used to encourage taxpayer to increase their compliance levels in the future. Interest is applied on late payment of taxes and to reflect the time value of money. It is intended to be applied above the commercial bank rate of borrowing in order to encourage compliance, i.e. timely payment. Penals may comprise of additional fines or imprisonment. There is no discretion allowed in regards to the charging of interest and many of the applicable penalties. Accordingly, interest is applied where additional liability arises under any tax head. Penalties, where appropriate, are imposed on a consistent basis Summary of Offences The various types of offences that can be committed by taxpayers under the Income and VAT Act of 2012 and the penalties involved are summarised below: Offence Registration: 1. Failure to register on time if turnover exceeds the registration threshold 2. Failure to notify for registration 3. Failure to apply for cancellation of registration Failure to submit a VAT Return Nonpayment of VAT Failure to maintain proper books Penalties Failure to apply for VAT registration will require payment of double the amount of VAT that would otherwise be payable. If failure is deliberate and reckless: - Fine of up to D25,000 and/or one year imprisonment If other case, a fine of up to D10,000 Automatic fixed penalty of D5000 5% per month, increasing up to 25% of the unpaid tax If failure is deliberate and reckless: - Fine of up to D50,000 and/or one year imprisonment - 100% of the VAT that is due over this period Page 54 of 67

55 False, misleading statements or material omissions to a Revenue Officer Failure to lodge other documents If other case, a fine of up to D30,000 If deliberate and reckless: - 100% of the potential loss of revenue to GRA over this period In all other cases, 25% The greater of - Fine of up to D15,000 - Daily penalty of 1% of the tax due Failure to assist Revenue Officers Fine of up to D10,000 Failure to provide GRA with required information Obstructing GRA Officers Non issuance of VAT invoice, credit and debit notes Fine of up to D10,000 Fine of up to D20,000 and/or one year imprisonment Fine of up to D50,000 and/or one year imprisonment Irregular issuance of VAT Invoice, credit and debit notes Persons holding money on behalf of taxpayers Improper use of TIN (e.g. using false TIN) If failure is deliberate and reckless: - Fine of up to D20,000 and/or one year imprisonment If other case, a fine of up to D10,000 Fine of D20,000 Failures by a Liquidator Fine of up to D20,000 Aiding or abetting Fine of D20,000 and/or one year imprisonment Fine of up to D20,000 and/or one year imprisonment Page 55 of 67

56 CHAPTER 17 SPECIAL REQUIREMENTS Introduction This chapter is intended to provide clarifications regarding unique VAT issues and industry requirements. There are special reporting requirements for certain types of businesses. Further detail is provided in the published VAT Regulations regarding: - Banking - Telecommunications - Gambling - Insurance - Medical services - Educational services Hospitality Industry Hotels provide various types of services from which they receive payment. All the different services together make up the business activity of a hotel. This includes room sales, food and beverage sales, conference and catering services, laundry, hall hires, etc. The VAT treatment for these services is hereby summarized below: Standard Rate 15%) Zero Rate (VAT@0%) Exempt 1) Day trips provided by VAT registrant within Gambia 2) Accommodation and meals supplied by VAT registrants in The Gambia 3) Services provided in Gambia that are invoiced to foreign tour operators 4) Passenger transport in the tourist industry 5) Fees/commissions on booking out-of-country packages 6) Goods bought in The Gambia and exported by tourists 1) International flights in and out of Gambia 2) Insurance on international transport 3) Ground transport to an overseas destination (e.g. travel to Senegal) Page 56 of 67 1) Domestic tourism when sold by a foreign travel agent/tour operator 2) Taxis 3) Ferry service 4) Day trips by small, unregistered businesses Goods for own use Similar to the treatment of other taxes, when a VAT registered business consumes goods or services from its business for private or personal use, this must be considered as a sale whether payment is received or not. The business is seen to have made a taxable supply. The time of supply in this situation is the day the goods or services are used or made available for private use. The proceeds to be reported is the market value of such goods and services.

57 Creditor sales of a debtor s assets There are times when a VAT registered trader may owe money to another person who may or may not be registered for VAT. The creditor in such a situation may sell the assets of the debtor to recover his debt. Where a creditor sells the asset of a VAT registered debtor to satisfy or recover his debt, the creditor is considered to have made a taxable supply on behalf of the debtor and hence will be liable for VAT even if he is not a registered trader. The creditor will be liable to any output VAT on the sale of such an asset to GRA, in priority to the settlement of his debt. Any surplus income after the settlement of the output VAT will be available to the creditor and to the debtor, as regards to their civil agreement Sale of a Business as a Going Concern Normally the sale of the assets of a VAT registered business will be subject to VAT at the appropriate rate. A sale of a business as a going concern, for VAT purposes, is the sale of a business including the assets that are used in the business. This sale of a business is treated as 'neither a supply of goods nor a supply of services' and therefore VAT is not chargeable provided certain conditions are met. The main conditions are: - the assets must be sold as part of the transfer of a business as a going concern' (TOGC) - the assets are to be used by the purchaser with the intention of carrying on the same kind of 'business' as the seller (but not necessarily identical) - where the seller is a VAT registrant, the purchaser must be a VAT registrant already, or be immediately registered as one as the result of the transfer - where only part of the 'business' is sold, it must be capable of operating separately Business assets For there to be a transfer capable of being treated as a TOGC, it must include the transfer of business assets. Business assets can include stock in trade, machinery, goodwill, premises and fixtures. For a sale of business to be considered as a going concern, it is important that the assets, whatever they are and however many are to be transferred, result in the purchaser being in a position to operate a business, rather than simply transferring assets. The assets and the part of a business being transferred must result in the buyer being capable of operating as a business on its own. Below are examples of common transfers that will qualify as a sale of a going concern, provided they are used in the continuing operation of a business: the assets are bought by another person, and the existing business ceases to trade the existing owner dies or retires, and the business assets be taken over by another person a branch or division of an existing business is sold to another person, and Page 57 of 67

58 - the assets are transferred to a new legal entity, for example, a partnership or a limited company that takes it over from a sole proprietor Where the seller of the business is registered for VAT, the purchaser must be registered, or at the date of the transfer will be required to register for VAT. As this is considered to be a continuation of the business as a going concern, the seller and purchaser are jointly liable for any VAT liabilities Sale of Shares Similar to the sale of assets, when a business is sold by the transfer of assets to a new owner, the shares are not considered to be taxable supply Non Resident Businesses Businesses that do not have a physical presence in The Gambia are not normally required to register for VAT. However, non resident businesses operating in the Gambia through a permanent establishment will be considered to be resident in The Gambia. Business activities of such establishments will be within the jurisdiction of The Gambian for VAT purposes. In addition, the VAT Act requires certain other non resident businesses to register. Examples include companies involved in the supply of land, telecommunication, television and insurance services. When a non resident business is registered under the VAT Act and makes a taxable supply to a customer that is registered for VAT, such supply will be seen as any ordinary supply and will not be considered as an importation. If a non-resident business supplies water, gas, or electricity through a distribution network to a person in The Gambia, the supply is considered to be made in The Gambia, and therefore liable to VAT VAT Representative A non resident business registered for VAT must appoint a VAT representative in The Gambia, who will act on the business s behalf in terms of the tax responsibilities. All such representations and nominations must be registered with GRA. Even though the VAT registration will be in the name of the non resident business, the representative will be jointly liable for all tax liabilities of the non resident business in The Gambia Responsible Person Under the VAT Act, any individual who is under a duty to act for the business in complying with the VAT obligations is considered to be a responsible person. This includes officers, directors, employees, partners, a sole proprietor or trustees in a trust. Such persons may be personally held liable for the tax liabilities or debts of the business they are performing the duty to. The factors that will be considered, in determining whether a person is under a duty to act on behalf of a business, include whether the person signs the tax returns or maintains the books or records for the business, or if he/she is responsible for the Page 58 of 67

59 day to day management of the business. GRA may, after considering the relevant factors, deem a different person as responsible in accordance with the VAT Act Public Financed Projects The Ministry of Finance and Economic Affairs has issued certificates of exemption to certain public financed projects, which varies the VAT treatment of supplies made to such projects. The exemption certificate is a vehicle for communication to suppliers. Upon presentation of a valid certificate of exemption, the suppliers will categorize the sale as being zero-rated for the specific goods and services outlined in the exemption certificate. Any other supply that is not covered by the exemption certificate will be treated as standard rate supply. Registrants making supply to these public finance projects must retain copies of the necessary documentations of the purchaser, i.e. the certificate, to support the basis of the zero-rated charges Second-Hand Goods Second hand goods as defined in the VAT Act are goods that have been previously owned and used. In order not to disadvantage the second-hand goods market or to distort market prices, the VAT Act allows taxable traders under certain circumstances to claim an input tax credit on second-hand goods (which are not zero rated or exempt) when they have been acquired from a non registered trader. As the supplier of these second hand goods is not a registered trader, there would not have been any input VAT incurred in this supply. A claim for input tax credit where no VAT is actually paid to a supplier is known as a notional or deemed input tax credit. The conditions under which a claim for notional input tax may be made on secondhand goods are as follows: 1) The goods must be second-hand goods as defined in the VAT Act; 2) The supply may not be a taxable supply, i.e. it will normally be purchased from a non registered trader, and must not be zero rated or exempt supply; 3) The input tax credit is allowed in the tax period when the registrant sells the goods (the on-sale); 4) The purchaser must have paid for the supply or at least made part payment (as input tax is only allowed insofar as payment has been made); and, 5) The registrant must keep the records related to the purchase and sale, so as to substantiate the claimable conditions have been met. Page 59 of 67

60 CHAPTER 18 OBJECTIONS AND APPEAL PROCESS Introduction The VAT Act has introduced dispute resolution process to assist the resolution of tax disputes with the GRA in an efficient and cost effective way. Where a taxpayer is not satisfied with a tax assessment or decision, the taxpayer may formally submit an objection to the GRA. Where a taxpayer is not satisfied with the judgement arising from the objection, additional remedies are available: i) Tax tribunal ii) Court of appeal Assessment As described in Chapter 9, the VAT returns are submitted using the self assessment method of accounting. This means the taxpayer assesses themself and reports to the GRA the amount of tax that is due. Where a taxpayer fails to submit the VAT self assessment tax return, the GRA will conduct an administrative assessment to establish the liability. In addition, the GRA will amend the initial assessment by reassessment notice when subsequent adjustments are required. If the taxpayer is not satisfied with an assessment, he or she is entitled to submit a formal objection within 30 days from the date of the assessment Objection to an assessment If an assessment is received and the taxpayer does not agree that it is correct, the taxpayer may lodge an objection to the assessment. The objection must be: 1) Submitted using the prescribed form; 2) Specific in detail as to the grounds upon which the objection is made; 3) Signed by the person objecting or appointed representative; and, 4) Delivered to GRA within 30 days after the date of the assessment Extension of time Objections to an assessment must be made within thirty days of the day of assessment. Where a taxpayer has reasonable grounds, they may apply to the Commissioner in writing for an extension to lodge such objections. Request for extension must be made before the expiry of the 30 days normally allowed for an objection. The Commissioner may grant such requests and notify the taxpayer in writing to this effect. The extension cannot exceed an additional 30 days from the original due date for the submission of the objection Objection decision The GRA will review this objection made by the taxpayer, and may allow it in whole or in part, or disallow the objection. Page 60 of 67

61 The GRA s decision following this administrative review is called an objection decision. This decision will, where practical, be immediately communicated to the taxpayer Tax Tribunal Following the objection decision dissatisfied taxpayers can apply to the Tax Tribunal within thirty days. The tax tribunal submission must be: 1) Completed using the prescribed form; 2) Specific in detail in regards to the grounds upon which the review is made, and the appeal must be made either on a point of law or fact; 3) Signed by the person appealing or appointed representative; 4) Delivered to Tax Tribunal within 30 days after the objection decision; and, 5) Accompanied with the application fee. When additional time for the submission is required, a taxpayer may apply to the Tax Tribunal in writing for an extension. All requests for extension must be copied and sent to the Commissioner General within five days of the submission to the Tax Tribunal. The Tribunal will then deliberate over the case and make a decision to confirm or reject the objection decision made by the GRA. All parties will be informed accordingly of the Tribunal s decision and will be supported by the findings that were made. All Tribunal decisions, and all evidence received by the Tribunal, are public records open for public scrutiny. However, steps will be taken to ensure the information provided does not disclose trade secrets or cause threats to the business goodwill Court of Appeal Either the GRA or the taxpayer may appeal the decision of the Tax Tribunal to the Court of Appeal. This is the final and the last stage of the dispute resolution system, and the decision of the Court of Appeal is therefore final. Appeals requested by either party to the Court of Appeal must be copied and brought to the attention of the other party. Unlike the Tax Tribunal where appeals can be on the grounds of either law or fact, appeals to the Court of Appeal can only be made on a point of law. The Court of Appeal can refer the case back to the Tax Tribunal, or may hear and consider the appeal and make an order as it sees appropriate Tax Liabilities during Objections and Appeals While the objection or appeal is still pending or ongoing, the VAT registered business must continue to meet its VAT obligations. A taxpayer who is in dispute with the GRA over a tax assessment will be required to immediately pay the tax that is not in dispute. The portion of the tax that is still under dispute will not be payable until such objection or appeal is concluded. Page 61 of 67

62 If the dispute is decided in favour of GRA, the taxpayer is then required to pay the amount, including interest on the disputed amount from the date of assessment until the date of payment. Page 62 of 67

63 CHAPTER 19 VAT DEREGISTRATION Introduction A registered trader can cancel a VAT registration, thereby becoming unregistered by way of a cancellation, which is otherwise known as deregistration. The GRA can also initiate a cancellation when there are reasonable grounds for doing so Deregistration VAT deregistration is the process where a trader applies to cease their registration. The reasons for applying for deregistration could include turnover falling below the registration threshold, business closure or cessation, when a trader no longer makes a taxable supply Instances and process of deregistration For continuing businesses, cancellation will only be granted where the trader s taxable supplies for the last 12 months have been less than D500,000. Application for a cancellation of registration cannot be made until after 24months of being a registered trader to help prevent abuse of claiming input VAT. This prevents traders from registering voluntarily for the sole purpose of buying a particular capital asset where they will pay high VAT on the purchase. They could otherwise benefit by claiming for the input tax credit and then subsequently deregister for VAT. When a taxpayer ceases to make taxable supplies, they must apply for deregistration within 30 days of the ceasing to trade. All applications must be in writing and addressed to the Commissioner General, and should include the full details of the circumstances giving rise to the request. Upon receipt of an application to deregister, GRA will inspect the taxpayer s premises and conduct a verification exercise. Once satisfied of the basis for application, the cancellation will be approved. The cancellation will then take effect from the last day of the tax period in which the application is made, or any other date as may be determined by GRA. The CG will not cancel a taxpayer s registration when the CG has reasonable grounds to believe that, in the following twelve months, the person will recommence making taxable supplies of goods or services, or his turnover will go above the threshold Cancellation by GRA GRA may also initiate a VAT cancellation of a registrant, without the submission of an application from a registered trader. Deregistration initiated by GRA will be based on information received from any source, including but not limited to informers, audit, intelligence, and the media. When this type of information is received, GRA will contact the registrant and advise of the voluntary deregistration process. If the need for cancellation is confirmed but taxpayer does not then take the necessary steps, GRA will proceed with the required actions and notification. Page 63 of 67

64 The grounds upon which GRA may initiate the cancellation of registrant includes where such person: has not kept proper business records has not filed regular and reliable VAT returns has not complied with obligations under other Revenue laws, including Customs laws obtained registration by providing false or misleading information Promoters and Auctioneers Once registered, a promoter of public entertainment or auctioneer cannot apply for VAT deregistration except for the following reasons: Cessation/closure of business Death of the promoter or auctioneer (in case of an individual) Cessation of making taxable supplies Consequence of deregistration Once the VAT registration of a trader has been cancelled: i) The trader s VAT registration will be cancelled ii) The issued VAT registration certificate will be returned to GRA. iii) A final VAT return must be submitted and outstanding VAT paid. iv) The trader will no longer charge VAT, claim input VAT, submit VAT return and pay to GRA. This means once a registrant is de-registered, he shall not be required to comply with returns and payment provisions of the VAT law. v) The trader will cease to issue VAT invoices. vi) The trader will be deemed to have made a disposal of the taxable supplies at market value to the business, thereby requiring payment thereon of the VAT to the GRA. The only exception to point (vi) above is where the taxpayer has deregistered as a result of a transfer of business as a going concern. In such a case the taxable activity is transferred to another registered person, who continues to undertake the taxable activity, with no resulting deemed disposal. Page 64 of 67

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