Preface In continuation of our discussion on evolution of VAT and its journey to India, while Indian GST is still to be legislated, let’s try to understand in brief the practices being followed in some of the leading countries the world over.
VAT (GST) in Australia
Introduction
The Federal Government of Australia introduced the system of Goods and Services Tax (GST), throughout the country, with effect from 1st July 2000. GST has replaced the age old system of Wholesale Sales Tax, (which was prevalent in Australia) and many other taxes, duties and levies such as banking taxes, stamp duties etc., (which were being levied by various States and Territorial Governments).
Threshold
Business Enterprises : T urnover of GST supplies Australian Dollar (A$) 75,000 Non-profit
Non-profit Organisations : Turnover of GST supplies Australian Dollar (A$)1,50,000
Provider of Taxi Travel : Nil
Business Enterprises/charitable organisation having annual turnover below the threshold may opt for voluntary registration.
Business Enterprises are defined as follows:
An enterprise includes a business. It also includes other commercial activities but does not include:
• Private recreational pursuits and hobbies,
• Activities carried on as an employee, labour-hire worker, director or office holder,
• Activities carried on by individuals (other than trustees of charitable funds) or partnerships (in which all or most of the partners are individuals) without a reasonable expectation of profit. It however includes the activities of entities such as charities, deductible gift recipients, religious and government organisations, and certain non-profit organisations.
The term ‘sales’ (supplies) includes: Sale of goods or services, leasing of premises, hiring of equipments, providing advice, exporting goods, etc. However, a sale (supply) will fall in one of these three categories:
1. Taxable Sale
2. Input Taxed Sale
3. GST Free Sale
Registration:
There is very simple procedure for registration. Once a business enterprise or an organisation is liable to register on the basis of crossing the threshold, it needs to apply for registration [to obtain Australian Business Number (ABN)], within 21 days, to the Australian Tax Office (ATO) either online via the Business Portal External Link, or by phone (by calling on a given number) or through a registered tax agent or BAS agent. On satisfactory submission of necessary details, the registering authority will notify the ABN to the applicant.
Similarly, a business enterprise or an organisation may apply for voluntary registration any time as it may desire.
Coverage
GST is levied on all taxable sale/supply of goods, properties and services. It is to be paid by a taxable person, who sells/supplies such goods, properties and/or services for a consideration.
The consideration may be monetary or otherwise. The non-monetary considerations may be such as barter transactions or payment in the form of refraining from doing something, etc.
Certain kind of transactions in land and buildings are covered under taxable sale/services. The term ‘property’ includes; an interest or right over land, a personal right to call for or be granted any interest in or right over land, and a licence to occupy land or any other contractual right exercisable over or in relation to land. Sale of newly constructed premises (whether commercial or residential) are included in the category of ‘taxable sales’.
Exemptions (Tax free sales)
1. Exports
2. GST free products and services
3. Sale of a business as a going concern
Exports:
Export of goods and services from Australia to any foreign destination are generally tax free (zero rated). Thus, no tax is levied on exports but full input tax credit is available to the exporters.
It may be noted that exported goods are generally tax free (zero rated) if they are exported from Australia within 60 days from one of the following, whichever occurs earlier:
(1) The supplier receives any payment for the goods,
(2) The supplier issues an invoice for the goods so exported
And in case of services – broadly the supply of service/s are GST free (zero rated) if the recipient of service is outside Australia.
There is also a Tourist Refund Scheme whereby a receipt for goods with a combined total over A$ 300 is eligible for a refund of any GST paid upon exiting the country with refunds claimed at a TRS (Tourist Refund Scheme) counter at the airport. The advantage of this arrangement is that goods purchased 60 days prior to departure may be freely used within Australia prior to departure as long as they are carried in hand luggage and presented when making a refund claim, or shown to customs officials before being checked in as baggage.
GST free products and services
Certain goods and services are tax free (zero rated). The sale/supply of such goods and services are not liable for GST but full input tax credit is available to the seller/supplier. The list of GST free products and services includes:
Most of the items of food and beverages, some medical and health care services, specified medicines, medical aids & equipments, educational courses, course material, child care services, religious services, some of the charitable activities, supply of accommodation and meals to residents of retirement villages, cars for disabled people, water sewerage & drainage services, precious metals (such as Gold, Silver, etc.), sale of goods through duty free shops, farm land, grant of land by Government, international mail, specified tele-communication services, etc.
Sale of a business as a going concern
The Sale of a business as a going concern is GST free (zero rated) if all of the following conditions are satisfied:
(1) Everything necessary for the business’s continued operation is supplied to the buyer,
(2) The seller carries on the business until the day it is sold, that is, until settlement,
(3) The buyer is registered or required to be registered for GST, and
(4) Before the sale, the buyer and seller agree in writing that the sale is as a ‘going concern’.
Input Taxed Sales
Certain types of transactions of sale/supply of goods and/ or services are categorised as Input Taxed Sale. No tax (GST) is levied on the sale/supply of such goods and/or services as the case may be, but such transactions are not eligible for input tax credit, These include; banking and financial services, and supply of residential premises by way of rent or sale.
Financial sales (supplies) are defined under the GST Regulation. Examples include: Lending or borrowing money, buying or selling shares or other securities, creating, transferring, assigning or receiving an interest in, or a right under a super fund.
Charitable institutions (non-profit organisations) are permitted to have input taxed sales of food by school tuck shops and canteens, etc.
Taxable Sale
Sale of goods and services, that must have GST included in their price, are referred to as ‘taxable sales’. The term ‘taxable sale’ does not include sale/supplies which are described as (1) GST Free Sales and (2) Input Taxed Sales. Thus sale/supply of all goods and services (other than GST Free and Input Taxed Sale) are taxable sale, if such sale/supplies are made by a taxable person (i.e. a business enterprise or an organisation registered or liable for registration), and such sales/supplies are made;
1. for a consideration,
2. in the course of furtherance of business (enterprise), and
3. the sale is connected with Australia
It may be noted that:
1. Consideration may be monetary or non-monetary such as barter or refraining from doing something.
2. Only those goods and services are considered as taxable sales which are sold/supplied as part of conducting business. It will also include sale of business assets such as machinery, equipments, vehicles, etc. And it also includes things done during the course of setting up or winding down the business.
3. A sale of goods is connected with Australia if the goods are any of followings:-
(i) Delivered or made available to the purchaser in Australia
(ii) Removed from Australia (however exports of goods and services, as described above, are generally tax free)
(iii) Brought to Australia – provided the seller either imports the goods or installs or assembles the goods in Australia.
4. A sale of property is connected with Australia if the property is situated in Australia.
5. A sale/supply of something other than goods and property is connected with Australia if any of the following applies:
(i) The thing is done in Australia
(ii) The seller makes the sale/supply of thing through a business which is carried on in Australia
(iii) The sale/supply is a right or option to purchase something that would be connected with Australia.
Rate of Tax
Australia has adopted the single rate of GST @ 10% on sale/supply of all taxable goods, properties and services.
Input Tax Credit (ITC)
A registered tax payer as well as a required to register tax payer is entitled to claim input tax credit of GST paid on goods and services acquired for the purposes of its business (except in case of input taxed sales).
There are provisions to work out input tax credit in case of mixed sale such as ‘taxable sale’ and ‘input taxed sale’, and, in case of mixed purchases (acquisitions) i.e. purchases for the purposes of business and for personal use.
The only document required, for the purposes of claiming Input Tax Credit, is the possession of ‘Tax Invoice’ issued by the supplier. Input tax credit in respect of any purchases (acquisitions) of the value exceeding A$ 82.50 can be claimed only on the basis of ‘tax invoice’ issued by the seller/supplier. However, ITC on small purchases having value up to A$ 82.50 can be claimed even without a ‘tax invoice’ (i.e. on the basis of records maintained by the purchaser).
There is a four years time limit to claim input tax credit.
Tax Invoice
It is necessary for a ‘tax payer’ (seller/suppler of taxable goods/services) to issue ‘tax invoice’ to its customer for sales/supplies exceeding A$ 82.5 (including GST). The time limit for issuing tax invoice is 28 days from the date of supply. A purchaser can claim input tax credit only after receiving ‘tax invoice’ from its supplier. If the supplier fails to issue a tax invoice within the prescribed period of 28 days, the purchaser can seek permission from the concerned GST authorities for claiming input tax credit on such purchases (acquisitions).
For sales/supplies of up to A$ 82.50, the supplier can either issue a ‘tax invoice’ or ‘invoice’ or ‘cash docket’ or a ‘receipt’. The purchaser can claim input tax credit on the basis of such ‘invoice’ or ‘cash docket’ or a ‘receipt’, etc., as the case may be.
In absence of any such document (from the supplier), the purchaser still can claim input tax credit of such small purchases on the basis of his own books/diary having full particulars of such purchases such as description of purchases, quantity, date, price paid and the ABN of the supplier. There is also a provision for Recipient Created Tax Invoice.
Essential Ingredients of a Tax Invoice
Tax invoices for taxable sales of less than A$1,000 must include enough information to clearly determine the following seven details:
1. that the document is intended to be a tax invoice
2. the seller’s identity
3. the seller’s Australian business number (ABN)
4. the date of issuing tax invoice
5. a brief description of the items sold, including the quantity (if applicable) and the price
6. the GST amount (if any) payable – this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, as a statement such as ‘Total price includes GST’
7. the extent to which each sale on the invoice is a taxable sale (that is, the extent to which each sale includes GST).
In addition to above, a ‘tax invoice’ of A$ 1000 and above must contain ABN of the purchaser, Interstate sales/ supplies
All taxable sales/supplies within Australia are liable to single rate GST (whether sold within a particular state or inter-state).
It may be noted that Australia is having federal structure. There is a Central Parliament called ‘common wealth parliament’, six states and two major territories, each having a separate parliament. The states are sovereign entities, subject to certain powers of the Commonwealth as defined by the Constitution. Australian Constitution governs the rights of Federal Legislative Powers and States Legislative Powers.
As far as GST is concerned, it is collected and administered by the Federal Parliament and the revenue is distributed to the States under a set system.
Sales/supplies within the Group Enterprises There are provisions whereby related entities may form a single group for GST purposes.
An entity may separately register a branch for GST purposes if this suits its management and accounting structure. Two or more related entities may form a GST group if they satisfy certain membership requirements.
GST groups are treated as a single entity. Generally, transactions between group members are ignored for GST purposes. So, there is no tax on inter-group supplies and so no input tax credit to the receiver.
One entity, known as the representative member, manages the group’s GST affairs. The representative member is responsible for the GST payable and can claim the GST credits on transactions undertaken by group members (except transactions between group members).
The representative member is the only group member who must complete the GST component of an activity statement. In doing this, the representative member will effectively be accounting for the group’s total GST liability. However, if an entity opts to register separately a branch for GST purposes, the branch operates as a distinct entity for reporting purposes, accounting for GST separately from its parent entity. Thus, unlike GST groups, transactions between the branch and the parent entity will be taxable and GST credits can be claimed accordingly.
Filing of Returns & Payment of Taxes
A ‘Taxable Person’ is required to submit Business Activity Statement (BAS) generally quarterly and the taxes are required to be paid accordingly within 28 days from the end of reporting period. But, certain dealers (tax payers) have to submit their statement on monthly basis, within 21 day from the end of month, such as those dealers whose annual GST turnover is A$ 20 million or more. Small dealers are permitted to submit BAS annually.
There are also provisions whereby a dealer (having annual turnover of less than A$ 20 million) can be permitted to make payment of GST quarterly and the BAS is submitted annually. There is also an easy installment payment scheme for small dealers having turnover up to A$ 2 million. The Financial Year in Australia is from 1st July to 30th June.
For payment of taxes, there are various options such as internet banking, credit/debit card, direct transfers, through cheque/money orders, and, also through cash payment at post offices (up to A$ 3,000). The monthly/quarterly or annual BAS to be submitted mainly electronically either through ATO’s business portal or directly from business software enabled for Standard Business Reporting (SBR) or through myGov account linked to Australian Tax Office (ATO). However, there is also a facility to submit paper return by post (in specific circumstances). And, if there is no activity to report during the period i.e. if it is a ‘NIL turnover return’, it can be just reported on phone to the ATO.
There are prescribed provisions regarding accounting for GST purposes for different classes of tax payer such as accounting on cash basis, normal mercantile basis and there are also separate provisions regarding sale of goods made under ‘lay by sale agreement’ (i.e. goods identified by the purchaser, initial payment made, the balance payable in installments and the delivery of goods on receipt of final payment).
There are also provisions for simplified accounting methods to make calculating GST easier for the retailers such as bakeries, milk bars, convenience stores, etc.
Assessment
Australia has adopted Self Assessment System since 1st July 2012. The periodic Activity Statement submitted by the tax payer is treated as notice (order) of assessment.
Refunds
Refunds, if any, due to the tax payer as per periodic Business Activity Statement submitted by the tax payer, are granted within prescribed time limit of 14 days from the date of submitting return, and, the same is directly sent to the nominated bank account of the tax payer (unless withheld for any further enquiry or investigation or for adjusting against earlier dues). No separate application is required for claiming refund.
VAT (GST) in New Zealand
GST in New Zealand was introduced much earlier i.e. with effect from 1st October 1986. Its introduction represented a major change in New Zealand’s taxation policy as until this point almost all revenue had been raised via direct taxes. It is administered by the Inland Revenue Department of Government of New Zealand.
Most of the provisions under New Zealand GST Law are similar to those as discussed in Australian GST, with a few exceptions. One major notable difference is the rate of GST. It was 10% at the time of introduction in the year 1986. But, since then it has undergone two changes; first in the year 1989, it was raised to 12.5% (on 1st July 1989) and thereafter in 2010 it was raised to 15%. At present, it is 15%, effective from 1st October 2010.
However, there is no departure from the concept of single rate GST. It is the same rate applicable to all taxable goods and services. Overall, the broad scheme of taxation is the same in Australia and New Zealand.
Some minor differences in procedures may be such as the registration threshold is 60,000 New Zealand Dollars. Application for registration is to be made within 21 days from the date of liability, etc.
A registered tax payer is liable to pay GST (under the same value added tax system i.e. Output Tax – Input tax credit), either on monthly, two monthly or six monthly basis, within 28 days from the end of reporting period. Periodic returns can be filed either online or in paper form Taxes to be paid generally online but cheque payment facility is available to small tax payers. The refunds are granted within 15 working days from the date of submission of periodic return in which refund is claimed by the tax payer.
(To be continued – GST in Singapore, Malaysia, EU countries.)
