CHAPTER THREE

VAT REGISTRATION Learning Objectives

When you have completed this chapter, you should be able to: Say who are the persons who : have to apply for compulsory registration may apply for VOLUN !"# registration

$%plain: &ow a person should apply for registration' the provisions relating to the certificate of registration and the V! "egistration number' the implications of not registering for V! ' the provision relating to business splitting' when a V! registration is cancelled'

3.0

INTRODUCTION (n order to be able to charge V! , a person has to be registered for V! ' V! registration is governed by )art IV of the V! !ct' (t provides when a person has to register for V! and when a person may voluntarily re*uest registration'

3.1 3.1.1

LICATION !OR CO" ULSOR# REGISTRATION

Registration under Section 15(1) ! person has to apply for compulsory registration b$ virt%e &' secti&n 1()1* where:

+i, +ii, 3.1.2

in the course or furtherance of his business, he ma-es ta%able supplies, and his annual turnover of ta%able supplies e%ceeds or is li-ely to e%ceed the limit as specified in the Si%th Schedule' he limit is currently two million rupees' Registration under Section 15(2)(a)(i)

! person engaged in a business or profession specified in )art ( of the

enth Schedule, and

whose turnover of ta%able supplies does not e%ceed or is not li-ely to e%ceed the amount specified in the Si%th Schedule is still liable to apply for compulsory registration, by virtue of Section 15(2)(a) (i) .usinesses and professions specified in )art ( of enth Schedule are as follows/ 0' 3' 5' 1' 4' 6' 7' 9' !ccountant and or auditor !dvertising agent !dviser including investment adviser and ta% !rchitect+draughtsman deleted w'e'f !ttorney and or solicitor .arrister <learing and forwarding agent under the <ustoms !ct' <onsultant including legal consultant, ta% consultant, management consultant and management company other than a holder of a management licence under the >inancial Services !ct 3==7 :' <ustoms house bro-er under the <ustoms !ct 33' ravel agent registered with the (nternational 0'0='=6, 0= ' 00 ' $ngineer $state agent 35' 31' ?eneral Sales !gents of !irlines w'e'f0'0='=5 @Car RentalA Beleted by >! 3==6 +deleted w'e'f 0'0='=6, !ir ransport !ssociation +(! !, +deleted w'e'f 30' our operator +deleted w'e'f 0'0='=6, 07' 09' 0:' 3=' )ro8ect manager )roperty valuer ;uantity surveyor Sworn auctioneer 01' 04' 06' 2otor surveyor Notary Optician

03 '

Land surveyor

34'

Bealers registered with the !ssay Office under the Cewellery !ct + w'e'f 0'0='=6,

05 ' 3.1.3

2arine surveyor

Registration under Section 15(2)(a)(ii) !ny person engaged in a business specified in )art (( of the enth Schedule is re*uired to apply for compulsory registration by virtue of section 15(2)(a)(ii) , irrespective of the turnover of his ta%able supplies' .usiness specified in )art (( of enth Schedule are as follows: 0' .an-ing by a company holding a ban-ing Licence under the .an-ing !ct 3==1 in respect of its ban-ing transactions other than with non/residents and corporations holding a ?lobal .usiness Licence under the >inancial Services !ct 3==7' 3' +a, (nsurance agent under the (nsurance !ct e%cept the business in respect of contracts of life insurance entered into prior to 0= Canuary 3==5' +b, (nsurance bro-er under the (nsurance !ct e%cept the business in respect of contracts of life insurance entered prior to 0 October 3==5' 3 2anagement services by a holder of a management licence under the >inancial Services !ct 3==7 in respect of services supplied other than those supplied to corporations holding a <ategory 0 ?lobal .usiness Licence or a <ategory 3 ?lobal .usiness Licence under that !ct' 1' Services in respect of credit cards issued by companies other than ban-s to merchants accepting such credit cards as payment for the supply of goods or services' N&te+ (1) ! person ma-ing e%clusively Dero/rated supplies is not bound to register for V! [section 15(3)]

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he registration of entities falling under item 0 of )art 00 of the respect of their ta%able supplies'

enth Schedule is in

+5,

Where the Birector/?eneral is satisfied that a person has split his business, so that the ta%able supplies are made by two or more legal entities to avoid registration, the Birector/?eneral may issue a direction regarding the liability for registration of a single ta%able person [section 15(5)]

3.,

LICATION !OR VOLUNTAR# REGISTRATION

!ny person, who in the course or furtherance of his business ma-es ta%able suppliesE and is not re*uired to apply for compulsory registration under Section 04,

may apply for voluntary registration, under section (16). "easons for opting for voluntary registration include / 3.3 a desire to conceal the small siDe of the business operationE the desire to recover input ta% on purchasesE and the reluctance of big companies to purchase from non V! "egistered persons' LICATION

"ODE O! A

A--.icati&n '&r registrati&n is /a0e in s%c1 '&r/ an0 in s%c1 /anner as /a$ be a--r&ve0 b$ t1e Direct&r2Genera.. 2oreover, "egulation 1+0, provides that the applicant has to produce such documents and furnish such information in support of his application as may be re*uired by the Birector/ ?eneral' he following forms have been approved/ >orms V ! 0 !pplication under Section 04+0, or 06'

>orms V! 0! >orms V! 0.

!pplication under Section 04+3,+a,+a,+i, !pplication under Section 04+3,+ a,+ii,1

3.3

REGISTRATION O! A

LICANT

he Birector/?eneral has to register an applicant where he is satisfied that the person is re*uired to be registered @section 04+1,A he Birector/?eneral may register under section 06+3, an applicant who has applied for voluntary registration where he is satisfied that / 0' 3' he currently -eeps and maintains a proper record of his businessE he has -ept and maintained a proper record of his business for a period of at least one year preceding the year in which the application for registration is made, and 5' he has been discharging his obligations under the revenue laws'

Where a person is registered, the Birector/?eneral has to F 3.( allocate to him a V! "egistration Number issue to him a <ertificate of "egistration issue to him a V! Bistinctive 2ar-'

VAT REGISTRATION NU"4ER he Vat "egistration Number is allocated to a person when he is registered for V! ' his

"egistration Number is usually the !N of the person, preceded by the prefi% V! ' &owever, even if a person is not liable to (ncome a% but ma-es ta%able supplies, a !N is generated so that a V! "egistration Number is allocated to him' he V! "egistration Number has to be declared on all bills of entry submitted to <ustoms as well as all invoices and receipts issued by the person' 3.5 CERTI!ICATE O! REGISTRATION

Please see specimen copies of Forms at Appendix IV

When a person is registered for V! , he has to be issued with a <ertificate of "egistration' "egulation 1 provides for the following/ he certificate of "egistration has to be affi%ed in a conspicuous place of business of the Vat registered person' Where the person has more than one place of business, he has to display conspicuously a photocopy of the certificate at the other places of business' ! registered person has to notify 2"! and return the certificate of registration and its copies in the following instances F he changes his name or trading name he changes the address of any of his business premises he opens a new businessE or he changes the nature of his business'

On receipt of the notification, 2"! after considering such information as may be re*uired has to amend the certificate or issue a fresh certificate to the registered person' 3.6 VAT DISTINCTIVE "AR7 he V! Bistinctive 2ar- is provided to the Vat registered person at the time of registration for each of the places of business operated by him' his has to be affi%ed in a conspicuous place in addition to the <ertificate of "egistration so that consumers can readily ascertain whether an entity is vat registered or not' 3.8 DATE O! REGISTRATION AND DATE LIA4LE TO 4E REGISTERED. ! person is registered under section 04+0, from the date his application is approved' his date would be different from that on which he ought to have registered if he is already in business and has made ta%able supplies e%ceeding any of the specified limits' Similarly persons applying for registration under section 04+3,+ a,+i,, after 5= September 3==3 but who were already in business as at that date will be registered with effect from the date of approval but will be liable as from 0 October 3==3 or 0 October 3==5, depending on the business or profession concerned'

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C:ANGE IN ASSOCIATES:I AND "E"4ERS:I he liability under the V! !ct of a societe, club, association or similar organiDation, as a

ta%able person is not affected by any change in its associateship or membership' !ccordingly, even if membership changes, the organiDation is for registration purposes regarded as the same organiDation' 3.10 I" LICATION O! NON2REGISTRATION !OR VAT Until a trader is registered, no V! can be charged or recovered' >or this reason, a person who is about to commence business may see- to apply for advance registration' $very ta%able person shall be liable to pay to the Birector/?eneral, V! !ct' Omission to register for V! liability to pay V! to the 2"!' 2oreover, where a ta%able person fails to register for V! , he is liable to a penalty of "s 4,=== for every month or part of the month in respect of which he is liable to be registered up to the month preceding the month in which he submits his application, sub8ect to a ma%imum limit of "s 4=,===' he person who, being a ta%able person, fails to apply for registration when re*uired to do so also commits an offence +Section 41 of the Vat !ct, and is liable to prosecution by virtue of Section 41 of the V! !ct' 3.11 4USINESS S LITTING raders may avoid V! registration by splitting their businesses in order to ta-e advantage of the V! registration limits' he ta%able supplies are then planned in such a way that they are below the registration threshold' !s it is the person and not the business who is registered, the mere splitting of a business is of no advantage to a trader trying to fall below the registration limits' Bifferent persons have to own the different businesses' ! typical e%ample would be a husband and wife operating a restaurant' he husband could be the tenant running the main hey avoid having business but the wife may operate the snac-s etc' as a separate business' registration limits' on all his ta%able

supplies as from the date he is re*uired to be registered as a registered person under the V! when liable to do so does not affect the ta%able personGs

to account for the snac-Gs turnover if the turnover of the HseparatedG snac- falls below the

Where there is artificial business splitting to avoid liability to V! , the Birector/?eneral may by virtue of the anti F avoidance provision of section 56 !, disregard or vary the arrangement' .y virtue of Section 04+4, of the V! , where the Birector ?eneral is satisfied that the main reason or one of the main reasons for the splitting of the business is to avoid registration, he has the power to issue a direction to the person behind the splitting of the business directing that the persons named therein shall be treated as a single ta%able person and that single person shall be liable to be registered' (t is however to be noted that the onus to establish business splitting for the purpose of avoidance of V! "egistration lies with the 2"!' he mere fact that similar businesses are he factors to be considered and relevant being conducted by related entities is not enough' cases are referred to in paragraph 5'03 >or the purpose of issuing a direction, one must have regard to the specific circumstances of the case' he following factors would be indicative of the financial, economic and organiDational lin-s on which the 2"! may rely to issue a direction' !inancia. .in;s >inancial support by one entity to another' One entity not financially viable without the otherIs <ommon financial interest

Ec&n&/ica. .in;s See-ing to realiDe the same economic ob8ective !ctivities of one benefit the other Supplying same customers

Organisati&na. .in;s <ommon management <ommon employees <ommon premises <ommon e*uipment

Re.evant cases are <

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<hamberlain V< J $ <omrs Osman V< J $ <omrs 2rs 2 $ Williams 2C J ) Sammers West $nd &ealth J >itness <lub

CANCELLATION O! REGISTRATION Where the Birector/?eneral is satisfied that a registered person should cease to be registered under the V! !ct , he may , by notice in writing, re*uire the registered person , within 01 days of the date of the notice, to show cause why he should not cease to be registered and if the Birector/?eneral is satisfied that, having regard to all circumstances of the case, it is e%pedient to do so, he may cancel the registration with effect from such date as the Birector/?eneral may determine and give notice thereof to the person' ! person is usually deregistered at the end of a month or *uarter, depending upon whether he submits monthly return or *uarterly return' Where the registration of a registered person is cancelled, the person must / cease to hold himself to be a registered person submit a return and pay all ta% due including the ta% due on any goods forming part of the assets of the business other than motor cars and other motor vehicles for the transport of not more than : persons including the driver, motorcycles and mopeds, for own use or consumption, and their spare parts and accessories immediately return to the Birector/?eneral his certificate of registration and all its copies'

=%esti&ns '&r c1a-ter 3

=3.1 =3., =3.3 =3.3

When is a person compulsorily re*uired to register for V! K Why is it important for a business to register for V! K What are the conditions a person must satisfy if he wishes to apply for voluntary registrationK "egistration under the V! !ct brings with it both duties and rights for the person concerned'

List some of the duties and the most important rightK =3.( What are the implications of not registering for V! when a person is liable to do soK

= 3.5 !llan has been the owner of a hardware shop for a number of years' &e has not previously registered for V! as his turnover has consistently been below the minimum criteria' &owever he now feels that he should register and see-s the advice of the 2"!' 3==: has been as indicated below:/ 3==: "s Canuary >ebruary 2arch !pril 2ay Cune Culy !ugust September October November Becember !dvise !llan =3.6 $%plain why it may be to a personGs advantage to register voluntarily as a ta%able person when there is no legal re*uirement for him to do so' 93,4== :4,=== 0==,=== :4,=== 14,=== 004,=== 01=,=== 013,4== 04=,=== 044,=== 067,4== 34=,=== 3=0= "s 077,4== 014,=== 33=,=== 0==,=== 07=,=== 35=,=== estimate estimate urnover since Canuary

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Lu-e .lac- is about to commence business as a plumber, and see-s the help of the 2"! regarding problems with Value !dded a%' .lac- has obtained a contract with a local builder to install all the plumbing fittings, sanitary ware, etc' for a new housing development' .lac-Gs only other income will be from small repair 8obs which he will carry out in the evenings' .lac- estimates that his receipts will total "s3'42 in the first year of business with his only ma8or e%pense being the purchase of an estate car which he estimates will be used 6=L for the business and 1=L for private motoring' "e*uired: +a, State what advice you, as 2"! officer, would give .lac- regarding whether or not he has a liability to be registered for V! registration' +b, +c, State with reasons whether .lac- has to charge V! on the wor- he carries out' $%plain how .lac- should deal with the V! on: +i, +ii, +iii, the materials he purchases for the building contract and the repair wor- carried outE the purchase of the motor carE the petrol purchased for the motor car' and e%plain fully the rules which govern

=3.9

$%plain the conditions that a person registered for V! must fulfill to be allowed to cancel his registration'

=3.10 ! property developer intends to construct villas for sale to foreigners who will then entrust the villas to a well/-nown hotel operator for commercial letting to holiday/ma-ers for periods not e%ceeding := days' $ach foreign owner would be entitled to use the villa for personal purposes for not more than 6 wee-s each year' he hotel operator will pay to each foreign owner a rental fee based on his share of pooled income from the letting of the villas' foreign owner is li-ely to e%ceed "s 3 2illion' Should +i, +ii, the property developer be registered for V! K the foreign owner as well be registered for V! K he rental fee to each