The Guyana Revenue Authority (GRA), in its continued effort to sensitize the general public on matters of interest, has prepared the following policy to provide guidance on Value-Added Tax (VAT) on Financial Services.
Section 18 of the Value-Added Tax (VAT) Act, Chapter 81:05 states that:
“Subject to subsection (2), a supply of goods or services is an exempt supply, if it is specified in Schedule II” of the Act.
Schedule II, Paragraph 2(a) of the Value-Added Tax Act, Chapter 81:05 states that:
“(a) a supply of financial services to the extent provided in regulations issued by the Minister;” are exempt for the purposes of section 18..
Therefore, financial services, to the extent provided in the Regulation 11 of the Act, offered by financial institutions to customers are exempt from VAT.
Regulation 11(5) of the Value-Added Tax (VAT) Act, Chapter 81:05 however, states that:
“Some services are not exempt under Schedule II, paragraph 2(a), whether or not they are rendered in connection with an exempt financial service. They include the following –
(a) legal, accounting and record package services, actuarial, notary, and tax agency services (including advisory services) when rendered to a supplier of financial services or to a customer of that supplier of financial services;(b) safe custody for cash, documents, or other items;
(c) data processing and payroll services;
(d) debt collection or factoring services;
(e) trustee, financial advisory, and estate planning services; and
(f) leases, licenses, and similar arrangements relating to property other than a financial instrument.”
Financial Institutions that are registered for VAT must charge VAT on all services at the standard rate of fourteen percent (14%).
Additionally, where the financial institution supplies zero-rated, standard rated and exempt services, the partial exemption method will be applicable to determine the VAT the financial institution will be able to reclaim.
Partial exemption is a term, which relates only to businesses that make both exempt and taxable supplies.
In accordance with Section 25 (3) of the VAT Act, Chapter 81:05, where only a part of the supplies made by a taxable person during a tax period is a taxable supply, the amount of the input tax allowed as a credit, shall be calculated using the formula, A x B/C; where:
- A is the total amount of input tax payable in respect of supplies and imports received during the period for which a credit is allowed under Section 24(1)(a), less the input tax accounted for under paragraphs (a) and (b);
- B is the total amount of taxable supplies made by the taxable person during the current month of the taxable person; and
- C is the total amount of all supplies made by the taxable person during the current month of the taxable person.
Consequently, where the outcome of the fraction B/C is more than 0.90, the taxable person may deduct the total amount of the input tax on supplies and imports in keeping with Section 25(3).
Moreover, in accordance with Section 25(6) of the VAT Act, Chapter 81:05.where a taxable person makes both taxable and exempt supplies during a tax period, the Commissioner may determine the amount of input tax allowed for the tax period on such other basis as the Commissioner considers reasonable.
Source: gov.gy
