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Belize General Sales Tax (GST):. Issues for financial institutions. WHAT IS GST?. 1. Is a Broad-Based, Multi-Stage Tax on Value Added Broad–based: charged on a wide range of goods and services Multi-stage: charged at every level of the economic chain

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belize general sales tax gst

Belize General Sales Tax (GST):

Issues for financial institutions

slide2
WHAT IS GST?

1. Is a Broad-Based, Multi-Stage Tax on Value Added

Broad–based: charged on a wide range of goods

and services

Multi-stage: charged at every level of the economic chain

Value added: is a tax on the mark up on goods and services supplied by one business to another or to the final consumer

slide3
WHAT IS GST (cont)
  • A transaction tax on supplies
  • Charged on each and every transaction involving the supply of goods or services, including business to business and business to consumer transactions
  • A consumption tax
  • Passed on to consumers in price of each consumer transaction
slide4
MAIN FEATURES OF GST
  • RATES - STANDARD RATE IS 10%
  • - ZERO RATE (0%)
  • THRESHOLD $75,000.00 PER ANNUM
  • PRICES CHARGED TO BE GST INCLUSIVE
  • EXEMPT AND ZERO RATED GOODS OR SERVICES
types of supply outputs sales
Types of supply (≈ outputs/sales):
  • taxable supplies (standard-rated and zero-rated)
  • exempt supplies
  • non-taxable supplies

Tax is only charged on taxable supplies:

(a) supplies(b) made in Belize(c) by a taxable person (registered or required to be)(d) in the course or furtherance of the business, and(e) not exempt

exemption main issues for banks
Exemption = main issues for banks

Net GST payable = output tax – input tax

  • Consequences of exemption:
    • no tax chargeable on exempt supplies
    • no input tax credits for the related inputs including overheads)
slide7
“FINANCIAL SERVICES” MEANS 

granting, negotiating, and dealing with loans, credit, credit guarantees, and security for money, including management of loans, credit, or credit guarantees by the grantor;

transactions concerning money, deposit and current accounts, payments, transfers, debts, cheques, or negotiable instruments, other than debt collection and factoring;

(c) transactions relating to financial derivatives, forward contracts, options to acquire financial instruments, and similar arrangements;

slide8
“FINANCIAL SERVICES” MEANS  cont’d

transactions relating to shares, stocks, bonds, and other securities, other than custody services;

management of investment funds;

provision, or transfer of ownership, of an insurance contract or the provision of reinsurance in respect of such contract;

slide9
“FINANCIAL SERVICES” MEANS  cont’d

provision, or transfer of ownership, of an interest in a scheme whereby provision is made for the payment or granting of benefits by a benefit fund, provident fund, pension fund, retirement annuity fund or preservation fund;

a supply of credit under a finance lease, if the credit for the goods is provided for a separate charge and the charge is disclosed to the recipient of the goods; or

(i) the arranging of any of the services in paragraphs (a) to (h);

slide10
Functions of financial services

intermediation provides cost efficiencies, pooling of savings, pooling of risks, & provision of liquidity

transaction clearing services  cheques, credit cards…

creation & maintenance of markets in financial instruments  provision of an efficient means for exchanging securities

agency services reduce costs of geographical separation between buyers & sellers or securities by acting as agent in the transaction

slide11
Categories of exempt transactions

Deposit-taking intermediationbetween suppliers and users of financial capital;

Risk intermediationbetween high risk takers & low risk takers; hedging & gambling

Insurance intermediation:pooling risks to spread exposure of the risk;

Brokerage services:connecting buyers and sellers of commodities, currencies, & debt or equity securities.

slide12
Problems created by exemption

B2C under‑taxation where exemption applies to a consumer transaction the bank’s value added is untaxed

B2B cascading over‑taxation where exemption applies to an intermediate transaction

Incentive to in‑source/‘self-supply’ essential activities, rather than out-sourcing

Incentive to outsource to offshore suppliers

slide13
+

=

$12

$6

$4

+

$2

Exempt financial services: B2C

To customs

To DGST

$6

$4

$2

$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)

slide14
+

+

=

$31

$6

$4

+

$21

Exempt financial services: B2B

To DGST

To customs

$6

$4

$21

$21- 0$21

$10- 6$4

Bank

Retailer

Consumer

Importer

Cost: $60

Value added: $40

Sell for:$100

plus GST: $10

Taxed Price: $110

Cost: $110

Value added: $20

Sell for: $130

Cost: $130

Value added: $80

Sell for: $210plus GST: $21Taxed Price: $231

Cost: $231(includes $31 tax)

why are financial supplies exempt
Loan

Loan

Lender

Bank

Borrower

Interest

Interest

Why are financial supplies exempt?
  • 2 party supplier/recipient analysis breaks down – problematic for the tax credit mechanism
  • measurement problem identifying the value added on a transaction by transaction basis (separating interest from inflation and from underlying flow of financial capital)
  • allocation problem allocating the value added to particular recipients of supplies
approaches around the world
Approaches around the world

All countries exempt financial services but some try to minimise problems this creates:

  • many have no specific provisions to minimise cascading & outsourcing problems
  • some countries tax insurance (very complex provisions)
  • some extend exempt treatment to a limited range of types of supply to the financial supplier
  • NZ zero-rates B2B financial supplies
  • some give partial input tax credits (ITCs) for financial supplies
  • many require reverse charging to deal with offshore outsourcing  Belize
  • some tax explicit fees but not implicit fees
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