Belize General Sales Tax (GST): Presentation on GST Legislation
What do all these concepts mean? A broad-based, multi-stage transaction tax on value added broad-basedcharged on a wide range of goods & services multi-stagecharged at every level of the economic chain transaction tax charged on each transaction value added tax credit for businesses (output tax – input tax) means tax base ≈ salary & wages plus profits A consumption tax consumption passed on to consumers in price of each consumer transaction; consumers cannot claim it back
What is a Supply? = a transaction involving at least two entities:a supplier who makes a supply to a recipient of the supply = the supplier does some act that:(a) causes something to pass from supplier to recipient; or(b) causes some benefit to arise for recipient = the recipient receives something tangible/intangible OR is conferred with a benefite.g. sale, lease, licence, creation of rights or obligations • Supplies may involve other entities (to whom the thing supplied is provided) but the tax consequences fall on the supplier and the recipient
Two kinds of supplies:supplies of goods and services Supplies of goods= sales, leases, licences, options to purchase: so long as they are supplies of tangible personal property & real property Supplies of services = any supply that isn’t of goods is a supply of services; e.g. service industries, IP, supplies of rights,etc. Q:Does it matter whether a supply is of goods or services? A:Yes; particularly for place of supply rules & export rules
Hotels & restaurants • Restaurantssupply & servefood & beverages:this is a supply of goods • Hotels supply services (serviced accommodation, internet access, telephone services, tours) and goods (food and beverages, use of yachts/diving equipment etc) • Hotels often supply rights to their goods & services in a separate transaction from the supply of the goods or services themselves: the rights are taxed if the goods or services themselves would be taxed
Who is required to pay GST? On supplies: • RegisteredSuppliers collect it from recipients (customers) by including it in the price of supplies • Some registered persons who acquire services offshore (“imported services”) must charge GST to themselves On imports: • All persons importing goods into Belize (no registration requirement for importers);
How GST works for businesses • GST-registered businesses claim back GST on most of their business inputs (input tax)(input tax includes tax paid on imports and on goods/services acquired from other registered businesses). • No input tax credits for private acquisitions, for purchases that relate to making exempt supplies, nor for cars (unless business = supplies of cars) • Input tax on capital acquisitions is immediately creditable .
GST for registered businesses • GST charged on supplies = Output Tax GST returnsare submitted for each tax period Net tax payable = OUTPUT tax – INPUT tax • Input tax that cannot be claimed back is also passed on to consumers (because it is part of cost of sales) Must have an GST Invoice to claim input tax credit If GST invoice not received until a later period, the input tax is deducted in the later period
Global basis for calculations • Net GST payable is calculated for each tax period • Input tax on a particular purchase does not have to be credited when the output tax is paid for the supply to which it relates • Rather, the input tax incurred in a tax period is credited against the output tax collected in that period. • Tracing is only required in a limited sense:for determining whether an acquisition relates to making exempt supplies or private purposes (and therefore is denied an input tax credit)
GST for unregistered businesses • Unregisteredbusinesses cannot charge GST on their supplies of goods and services and cannot claim back the input tax incurred on business inputs • No output tax and no input tax credits, therefore they are effectivelyinput taxed • Same as suppliers who makeexempt supplies • in both cases, the value addedby the unregistered or exempt supplier is not taxed • The uncreditable input tax on acquisitions is passed on in the prices charged to consumers • Effective rate of tax depends on proportion of price that represents untaxed value added.
How GST works for consumers GST operates like a retail sales tax on consumer purchases of goods and services in Belize Consumers: • pay GST on imports • are ‘charged’ 10% GST when they buy goods or services from registered businesses • effectively pay partial GST on purchases from unregistered businesses • services will go down more than goods because they will now be able to claim input credits.
Who will be registered? • To be registered you must: • be a taxable person (includespartnerships, trusts, and unincorporated entities) • be carrying on a taxable activity (wider than business) • have an annual turnover ≥ the registration threshold • A person with more than one taxable activity will only need to be registered once: persons are registered, not activities. • Some things are not counted in measuring the threshold: exempt supplies, other non-taxable supplies, sales of capital assets, closure of a business… …
Documentation requirements A registered person will be required to: • issue GST invoices for taxable supplies to other registered persons • issue sales receipts showing GST paid on taxable supplies to unregistered persons • advertise prices GST-inclusive, stating how much GST is included • display GST registration certificate at places of business
To reiterate: TAXABLE supplies: • GST payable; input tax credits allowed ZERO-RATED taxable supplies: • no GST payable; input tax credits allowed EXEMPT supplies: • no GST payable; no input tax credits TRANSACTIONS are exempt; not persons
= $20 $20 GST Treatment:Supplies zero-rated until retailer taxede.g. rice sold by a registered restaurant To GSTD $30 $20- 0$20 300 Consumers Wholesaler Restaurant Importer Rice & Beans Rice Rice Rice Cost: $60 Value added: $40 Sell for:$100 Cost: $100 Value added: $20 Sell for: $120 Cost: $120 Value added: $80 Sell for: $200plus GST: $20Taxed Price: $220 Cost: $220(includes $20 tax)
+ = $12 $6 $4 + $2 GST: Supply to consumer is exempt(e.g. financial services) To customs To GSTD $9 $6 $3 $10- 6$4 $12- 10$2 Wholesaler Bank Consumer Importer Cost: $60 Value added: $40 Sell for:$100 plus GST: $10 Taxed Price: $110 Cost: $100 Value added: $20 Sell for: $120plus GST: $12 Taxed Price: $132 Cost: $132 Value added: $80 Sell for: $212plus GST: $0Taxed Price: $212 Cost: $212(includes $12 tax)
Time of supply • When do you account for GST output & input tax? • If time of supply is in the current tax period • Time of supply is earlier of(a) when invoice issued(b) when all or part of the price is paid • Related parties – time of supply is earlier of above or time when goods are delivered or services are provided • Supplies that span periods (leases, licenses etc) – each part treated as a separate supply therefore pay periodically and pay GST periodically
Place of supply • Goods: place where goods are when supplied • Services: most are where supplier has place of business; some are where supply effectively used or enjoyed
Zero-ratings for restaurants • basic foods are zero-rated, but restaurant food is not • GST is more like a retail sales tax for restaurants because many inputs will not be taxed (therefore no input tax to claim back) • not entirely because rent of premises will be taxed, power will be taxed, equipment, cutlery & crockery etc all taxed therefore input tax credits for these
Zero-ratings for hotels • as for restaurants, basic foods are zero-rated, but restaurant food is not • not likely to be any zero-ratings for hotels: the services and goods they provide are consumed here and are therefore taxable • this is the case even when they are sold via transactions with related or unrelated non-resident management companies and travel agents/tour operators
Sales to non-residents • Many supplies of goods or services to offshore recipients are zero-rated exports • This doesn’t apply to supplies of rights or options (including vouchers) if the goods and services will ultimately be consumed in Belize • Differences between approaches around the world relate only to the VALUE on which GST is charged • all agree that there should be a local tax burden • question is whether value added by non-resident suppliers should be taxed locally
Foreign Travel Agent Rights Rights Management Company Tourist (while overseas) Travels to Belize Overseas Belize Tourist (in Belize) Rights Local Hotel Services & goods
How are these rights taxed? • Not treated as an export even though supplied to a non-resident (because the end consumption is in Belize) • Tax must be applied to the transactions • Some countries require the non-resident suppliers to register and pay tax on each transaction (ensures the full consumption price paid by the tourist is taxed) • More commonly, the non-residents are left out of the tax regime • If the parties are related, market valuation rules apply
How are these rights taxed? • If the non-residents are not included, how much tax is collected? • One option is that the local hotel must pay GST on the sale to the management company based on the value that will be charged to the tourist • Alternatively, this may only be required if all the suppliers are related parties: if the non-residents are unrelated entities, the local hotel can be taxed only on what it charges to the first overseas supplier • The foreign tour operator’s/travel agent’s margin is taxed where they are located.
What do you need to do? • identify whether you will exceed the threshold • if yes: will your supplies be taxable, exempt, zero-rated, out-of-scope, or a combination • implement systems to ensure GST is charged on the right kinds of supplies • work out how your prices should change: subtract taxes saved and then add GST • get ready to print invoices and documents • be prepared for submitting GST returns
What do you need to do? • ensure there are appropriate links to your accounting systems to separate GST from your income & costs • systems to capture input tax credit entitlements – to ensure you hold GST invoices and to determine connection between inputs and any exempt or private outputs • will your customers be registered? • will your suppliers be registered? • are you record-keeping systems up to the task?