By Sharma London
Unfortunately, it is difficult to explain this question without the use of an example, which, unavoidably, has to include some calculations. Being a student of mathematics, I am well aware how numbers can easily be confusing, but let’s hope we do not lose our readers in this.
Recently, I saw a completed Customs Entry Form, which contained the breakdown of charges for an imported item, which carried VAT. It prompted me to ask the question: are consumers paying at least 32% VAT on imported items that attract VAT?
I am by no means a tax or accounting expert, but from what we’ve learnt, VAT means VALUE-ADDED Tax. In other words, at the point where flour becomes bread, value is added — to the flour. Where wood becomes furniture, and where steel becomes a gate, value is added.
I visited the Customs website to perform some calculations myself, for the example that I wish to use.
Assume that you are a business operator who is importing a refrigerator for resale, at a cost of US$1,500 with freight/shipment to SVG at US$150. These are random numbers, for use as an example ONLY.
I’ve highlighted the numbers that I want you to focus on, as we develop the point in asking the question.
Let’s look at our highlights:
- You have the CIF (Cost, Insurance, and Freight) amount of US$ 1,666.50 (1,500 + 16.50 + 150). That’s the total cost to land the refrigerator at Customs.
- US$373.30. This is 16% VAT paid at Customs. You may wish to pay attention to how the VAT Base is determined. In other words, what is the 16% based on? This is based on the “Duties before VAT” plus the CIF; so 16% of (1,666.50 + 666.60) is US$373.30.
- The total duty to clear this item from the Customs is US$1,039.90. This is how much you pay at Customs. Again, notice that it includes a 16% VAT.
Essentially, in our example after duty is paid, it costs US$2,700.40 (1,666.50 + 1,039.90) or EC$7,336.97~ to land our refrigerator at the dock or our showroom before it goes on sale.
To put this item on sale in our showroom, we need to add a markup and we also need to add 16% VAT (again?)
In our example, there’s a VAT amount of EC$1,014.26 paid at Customs by the importer; and there is another VAT amount of EC$1,350 paid at the store, to an item that has not changed value between Customs and the showroom.
Consumers ultimately pay the price, whether directly or indirectly; so let’s repeat the question: are consumers paying at least 32% VAT on imported items that attract VAT? 16% at Customs, indirectly, and another 16% at the store, both compounded? Is that the case or not? That is the only question that I wish to ask.
If this turns out to be true, it may also be noteworthy to point out that the total amount paid in VAT (EC$ 1,014.26 + 1,350.00) is about 52% of the CIF.
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Vat should only be added on the back end at the point of sale.
Instead good are charge a front load tax. Vat which makes it thre time more expensive for the end buyer
This also reduce consumption and revenue becuase less good are bought and sold because its not affordable.
As you said you are not an Accounting student and in accounts that is not how it works.
The importer of the refrigerator shouldn’t include the VAT paid at the customs in the cost of the item to the consumer. The VAT paid by the importer goes to their VAT on purchases account which is a receivable account on their balance sheet. When the importer add their mark-up to the cost of the item (this cost should exclude the VAT paid for the product) and then charges VAT on the product to the consumer, this VAT portion then is reflected as a payable to the tax authorities. For each mth the importer performs his VAT reconciliations where he compares the VAT paid on purchases to the VAT received on sales. If the VAT paid on the importer purchases exceeds the VAT received on the items he sold, this represents a receivable from the tax authorities on the importer’s book and the opposite holds true. Therefore, if an importer is including the VAT paid on imports as part of the cost before he adds his mark up and before he applies VAT, this is incorrect and this has nothing to do with the tax authorities. The only reason an importer should be passing on that VAT portion to a customer is if that importer is not registered for VAT and has no VAT #. If the importer is not registered for VAT purposes and has no VAT registration number it should not be adding VAT on the item and should not be giving you an itemized VAT receipt.
So from your example above the USD373.30 should not be included in the importer’s cost of the item for a VAT registered importer.
If the importer is not VAT registered then yes the USD373.30 will be included in his cost, however he SHOULDN’T be adding VAT again. In this case he just adds his mark-up
So to answer your question NO. Vincentians are not paying 32%VAT
Using you e.g above
Importer A (VAT registered)
Cost -1,666.5 (CIF)
Duty – 666.6
Total cost 2,333.1 (note vat not included)
Mark-up @15% 349.97
VAT @16% – 429.29 (16% total cost plus mark-up)
Vat inclusive sale price -3,112.36.
Recorded in importer’s book for the sale of the item
Dr. Cash – 3112.36 (asset in balance sheet)
Cr. Sales – 2,683 (income item in profit and loss)
Cr. Output VAT – 429.29 (payable item in balance sheet)
Recorded in importer’s book for purchase of item
Dr. Inventory – 1,666.5 (cif) (balance sheet)
Dr inventory – 666.60 (duty) (balance sheet)
Dr input VAT – 373.3(bal sheet)
Cr. Cash – 2,706.4 (bal sheet)
(Alternatively the importer can put the inventory amt to COS if the item will be sold immediately.)
The consumer pays 429.29 in VAT.
The importer recorded input VAT of 373.30 and output VAT of 429.29. The importer therefore has a liability to the tax authorities of 55.99 Since they collected more VAT than was paid.
Importer B (Not reg. for VAT)
Cost – 1,666.50 (cif)
Duty – 666.60
VAT – 373.30
Total cost – 2,706.40
Mark-up @ 15% – 405.96
Cost to consumer – 3112.36
The cost to the consumer remains the same at 3112.36.
Here the importer paid the authorities 373.3 when the item came in. The importer is then able to pass that charge onto the consumer since it is a consumer tax (the ultimate user pays the tax).
The importer adds his mark-up to his cost.
Whereas importer A can give you a VAT receipt showing the cost of the item and the VAT paid, importer B who is not VAT registered can’t give you an itemized bill showing VAT since they are not registered for VAT.
Hope this helps.
Amounts used are in USD.
Actually, the VAT paid at Customs on importation is not factored in as part of the cost of the item. That import VAT is offset against the VAT collected from the consumer.
In your example, the actual landed cost of the refrigerator is $6,339.03. So if the seller added a 15% markup, the selling price would be $7,289.88 + 16% VAT ($1,166.38) which is $8,456.26.
The seller would now offset the VAT collected from the consumer, $1,166.38 by the VAT paid at Customs, $1,014.26 and pay Inland Revenue the difference, $152.12 on their monthly VAT return.
So no, consumers are not paying 32% VAT on imported items that attract the tax.
Excellent work !!! This is the kind of investigative journalism our country longing for !!! .. after paying all these duties and VAT , then a customer walks in your business and want to credit your item , you approve the credit sale , after 2-3 months the customer never pays.. who benefits from this overall transaction??? THE GOVERNMENT!!! Total rip off !!
This is one of the most pertinent articles I have ever read about SVG. Thank you Kenton for posting and thank you Sharma London for having the courage to craft this article.
You are so very right, Where is the value added? I have noticed that when a business buys, for example packaging material, which has to come from overseas, VAT is paid at the time of import and again when sold for retail.
Most governments throughout the world have been accelerating thier taxing programs. A few have sought to lower taxes, such as Singapore has been doing since the 1960s, and because of that have become the per capita wealthiest nation on earth with the highest paid leader on earth and some of the greatest social benefits, notwithstanding it being the least Socialist Government.
Puerto Rico has also been lowering taxes but contempt from the US Federal Government, corruption and Natural Disasters has greatly kept them from the fast development they should be experiencing, notwithstanding all the investment that has been flooding into Puerto Rico.
“Money goes where money is treated well”
Obviously money is not treated well in SVG, so we only get miniscule investment and of the WRONG KIND! Most are investors that want an unfair advantage over others, with our system of “targeted” and “temporary” concessions for the “chosen ones”, (that often do not even get the concessions they were promised).
The restructuring of economics in SVG is LONG OVERDUE. The only one who talks about it is Ivan O’Neal.
I wonder why? It could be because most all the major politicians in SVG see that the systems works for them, the government, not the people, (the unemployment rate shows you this). The government does not work for the system. I have always been saying that the government in SVG, regardless of political party, sucks the vast majority of the fruits of labor out of the economy for thier own agendas (which at present is to make the government EVEN BIGGER). The last time I looked, the highest Corporate tax rate in Singapore is 16%, with a 5 year waiver for all startups, (some sectors pay only 3%). SVG has a 32% rate for most all business and no waiver period. With just that fact alone, does that sound like a government that wants to develop thier country? Singapore is already overdeveloped. The things we do in SVG indicates that we do not want to develop. This article mentions only a small part of the so very many policies we have in SVG that insure that we will remain a poor underdeveloped nation. Our Customs Policies: The excessive charges and the heavy beaurocracy and masses of paperwork that takes many days to clear a small single item drains vast wealth,(money, time and manhours) out of the the Private Sector as if the goal is poverty. The vast charges have to be passed-on the the people, a working poor so that the government can continue to get the lion’s share of all transactions.
We badly need a restructuring and I am shocked that NO politicians care enough about the people or the country to propose any changes to the terrible system we now have.
You have a good grasp on the SVG financial system. The government calls it the “just us” system of finance!
When calculating the price to sell an item at after importation, the importer/resaler should not be including the VAT already paid on the port to arrive at the sale price. The VAT paid on the port is utilized at the end of it to get a differential.
Simply, you would take the final landed cost of the item not including the VAT that was already paid, apply your markup, and then add 16% VAT to that total. This will give you a higher VAT figure than what was paid on the port as the VAT is now also on the markup. However, when the customer purchases this item now and pays the resaler the full VAT amount, the resaler is essentially reimbursed the VAT they have already paid on the port; and now also has the extra VAT paid on the markup, which will be paid to the government. Your calculation, while seemingly makes sense, causes the double taxation; when in reality once calculated specifically to avoid doudle taxation the problem is immediately alleviated.
No they are not is the answer. Because when the shop keeper makes his VAT returns he deducts his input tax from his output tax and only pays the balance. So he is only paying VAT on the added value.
You reclaim your input tax by deducting it from your output tax when you complete your VAT Return. If your input tax is greater than your output tax, you reclaim the difference from Inland Revenue VAT dept. I am not sure you will ever get it back in SVG, you may have to wait for your next return and adjust it there.
MS London thank you I pointed that out my self to Mr. E Jackson up finance. But I was bush away a small man don’t really have a say.. Transparencry is not one of governments thing in vincy ..
I am amazed at how some of the people who are experts have the correct answer, the others who want to be experts but are in fact idiots spout a lot of drivel.
Big Cream
Duke
Lennox
Go stand in the corner you are dunces.
Nathan, thanks for the insults. Since you are so very happy about all the high costs we the consumer pays for goods and services compared to most other places outside the greedy Caribbean… Come to me and reimburse me and the other idiots you named that do not like all the high costs. Buy me a HIGH TAXED LIAT ticket to go shopping in the USA while you are at it. I am glad you ate so smart. Please tell us why the prices are so high.
DUKE, this article is not about the high costs and high taxes, which everyone will agree the Vincentians are being overcharged for everything. Its about VAT and if VAT is be being doubled up by paying VAT on VAT, which it is not so.
Then you come and deliver a lot of drivel about a subject you know nothing whatsoever about and failed to investigate or research and write misleading rubbish. Not good enough Sir, not good enough. Then you cannot even recognise that you were wrong and apologise for misleading the readers.
Nathan Green, I am afraid YOU have to apologize for misleading the readers. I have to order bags for my coffee. I pay VAT on those bags. Then the coffee is sold in the supermarkets IN THOSE BAGS. AND AGAIN VAT IS PAID . You are trying to tell the reader this is a mirage and that VAT is not paid twice on the same item …IMPORT VAT AND then DOMESTIC VAT.
Please apologize to the reader for misleading them.
DUKE each time you write you compound your idiocy and tell us you still do not grasp the procedure. Go and sit with your accountant or visit the VAT office.
Guys I am totally confused. Is there a double tax being paid for articles imported into SVG? If the answer is no, then how would a consumer know he/she isn’t paying that added tax? All indications are that the VAT is finally paid by the consumer.
Am happy that miss London raise this topic,,,
Mr accountant, u are explaining wat supposed to be, but here’s the thing, miss London point could be correct,, who’s there to protect the consumers?????
SPARKY, it works the same in SVG as it works in the UK and Europe.. There are VAT inspectors who randomly call on vendors and inspect there tax returns and their books. If you get caught cheating you are in plenty of trouble. And by cheating I mean cheating the customer or cheating with their VAT returns to the Revenue
My is,the tail end vat who does IT go to? The business person or the government?
So if I travelled overseas bought an item, paid to ship it to SVG I only pay 16% import tax + duties then if I sold that Item in SVG I could ask 3X the original price. I wouldn’t want to be the buyer. I’d be better off importing the item myself? But if the treasury keeps this kind of artificial value system in place it will only serve certain people.