G is a company incorporated in Mauritius and is a VAT registered person.
It has been stated that G runs two tourist shops situated in Grand Baie and Moka under the
trading name “G”. The principal business activity of G is the sale of products held on
consignment from local artisans and producers (collectively “Partners”).
It has been further explained that as part of its modus operandi, G enters into a one-year
contract (“Agreement”) with each Partner to have their brands featured in the store. The key
clauses within the Agreement are summarised as follows:
(i) Partners pay a monthly participation fee to G towards the running costs of the
shops. The participation fees vary in accordance with the type of product showcased.
(ii) G works on consignment and the goods sold remain the exclusive property of the
partners until sold. Prices are determined by the Partners themselves.
(iii) G provides to the Partners their summary report of sales made on their behalf
every 6th of the previous period.
(iv) G collects 25% commission upfront on the sales made on behalf of the Partners
and remits the balance to them.
The process for the sale of products on consignment is spelt out below:
(a) An invoice is raised in the name of G upon sale of the product;
(b) G collects the retail amount from customers;
(c) G subtracts 25% as commission; and
(d) The remaining amount is remitted to the Partners.
G recognises the commission received and participation fees as gross revenue for income tax
purposes in line with IFRS 15.
Point at issue
Whether G , acting as an agent for the Partners ought to charge VAT on the commission and
participation fees received?
Ruling
On the basis of the facts provided above, it is ruled that the goods on consignment from the
Partners is a supply of goods by virtue of item 6(a) of the Third Schedule to the VAT Act.
Therefore as a VAT registered person, G will have to charge VAT at the rate of 15% on the
sale of goods made to final customers and subsequently issue VAT invoices in its name as
provided in section 20 of the VAT Act. G will also have to charge VAT on the commission
and participation fee received from its Partners.
Source: mra.mu
