The Value-Added Tax (VAT) in Fiji is aligned with the di­rection that global tax policy trends have taken.

In this week’s Tax Talk, we look at what VAT is, why it is important, and how the taxpayer can make sure he or she is VAT compliant.

What is Value-Added Tax?

A Value-Added Tax, or VAT, as it is most commonly known, is a con­sumer tax.

It is placed on a product, whenever value is added at each stage of the supply chain, from production to the point of sale.

It is based on the taxpayer’s con­sumption or use of goods and servic­es, rather than on his or her income.

VAT is an indirect tax that is paid by the consumer to a VAT-registered business.

It is the duty of the business to re­mit all VAT collected from consum­ers to the Government.

Why is it important to pay VAT?

VAT is trust money collected by all registered person(s) and businesses in Fiji on behalf of the Government.

It is remitted to the Fiji Revenue and Customs Service (FCRS) so that it can be channeled to Government for the funding of services for or­dinary Fijian services, such as free education, social welfare payments, and hospitals, health centers and free medical programs.

The VAT payments also go towards building the infrastructure needed for economic growth and social in­teraction, such as roads, bridges and jetties, for example.

When is it compulsory to register for VAT?

VAT registration is compulsory when the annual gross turnover of a business is above $100,000.

Even if a person does not regis­ter when their business passes this threshold, FRCS deems that person is liable to register for VAT.

Do I need to pay VAT if I have a Small to Micro Business?

Some businesses that started out as Small to Micro Enterprises (SMEs) have grown to medium and large businesses, with total sales exceed­ing $100,000 but have yet to register for VAT.

The sales turnover may have been below the $100,000 threshold, but during the financial year (say mid-year), the year-to-date sales go be­yond $100,000.

The business should immediately register for VAT and charge VAT; that is their prices should become VAT Inclusive Prices or VIP.

As soon as gross sales exceed the $100,000 threshold, FRCS deems the business to be VAT registered and all sales deemed to be VAT inclusive.

This means you cannot claim that, as your business was not VAT regis­tered, VAT has not been charged and thus is not payable to FRCS.

FRCS will not take such cases light­ly.

A prudent business-person should be able to forecast and estimate how much sales their business will make in the next 12 months and ensure tax compliance accordingly.

Supporting Ease of Doing Business in Fiji

FRCS introduced a VAT self-assess­ment system in 2015 in the Service’s efforts to ease the process of filing VAT.

The VAT Self- Assessment system is based on the principle of trust and partnership with the business com­munity.

With this system, the bonus is on taxpayers to correctly calculate and pay the correct VAT without FRCS issuing a notice for payment.

The VAT Return filed by the taxpay­er serves as a Notice and there is no manual intervention for inspection or audit, pre-processing of the VAT returns.

Where VAT is payable, the business is required to lodge the VAT returns with the applicable payments.

In general, the returns are pro­cessed and any refunds due to the taxpayer are issued to the taxpayer’s bank account.

Voluntary VAT compliance

VAT voluntary compliance is still a challenge to FRCS.

The Service continues to find that taxpayers are deliberately not de­claring nor remitting the correct amount of VAT payable to FRCS.

The non-lodgment of VAT returns and overdue payments are serious non-compliance behaviour.

What are the penalties for serious, non-compliant behaviour?

Taxpayers are strongly reminded that VAT is trust money.

Any abuse of such trust fund mon­ey is punishable by a fine of $25,000 or imprisonment of up to 10 years or both.

Hence, the penalties applied for VAT offenses are more severe than those applied to direct Income Tax infringements.

The penalties for VAT offences are payment of 300 per cent of the VAT total owed and a jail sentence.

What happens if there are discrepan­cies in my VAT return documents?

A desk or documentary audit would kick in post processing.

In instances of major discrepan­cies, full VAT audit and investiga­tions are conducted – again this is post processing.

VAT Fraud and Evasion

Most abuses by VAT registered per­sons identified in the VAT system is through the VAT Input Schedule.

Using the Input Schedule, busi­nesses claim bogus invoices from suppliers that do not exist or are not registered for VAT purposes.

For ease of reference, the FRCS website is regularly updated for VAT registered taxpayers.

In the event that you find invoices and receipts suspicious, you can ver­ify if the TIN number is registered for VAT through the FRCS website.

Other fraudulent behaviour in­clude gross sales understatements and dealings in cash, where the cash does not go through the entire VAT chain.

These are subject to maximum pen­alties.

When a person files a VAT Return, FRCS conducts a post assessment to verify the figures and the necessary documentation.

These desk audits are done in all FRCS offices Fiji wide.

Risk analysis profiles and tax dodg­ers

FRCS is mindful that dishonest peo­ple will take try to take advantage of the system.

Therefore, the Service carries out regular risk analysis and profiling to identify high, medium and low risk cases, the likelihood that they will defraud the system, and then deals with those appropriately.

Risk profiling may sometimes indi­cate holding refunds pending further verifications.

Any fraudulent attempts by taxpay­ers are met with the imposition of a 300 per cent penalty or prosecution – absolutely non-negotiable!

FRCS also consults and shares in­formation with our stakeholders to assist in the identification of tax dodgers.

For example, Service is looking at the list of all building and other con­tractors and subcontractors awarded construction works and reconciling the tender award amounts with the sums declared in the VAT Returns.

Where discrepancies are estab­lished, the VAT short payments be­come subject to the 300 per cent pen­alty. Again, this is non-negotiable.

Assisting voluntary compliance

FRCS has been conducting a num­ber of awareness sessions with construction companies and sub-contractors on the importance of voluntary compliance.

We encourage taxpayers to volun­tarily comply and save themselves from unnecessary penalty exposure by doing the right thing.

Unregistered Tax Agents

FRCS encourages the business community to refer to the website, www.frcs.org.fj for a list of all regis­tered tax agents.

The business community is warned against engaging un-registered tax agents for the preparation and lodg­ment of VAT returns.

Some taxpayers have paid substan­tial amounts of fees to unregistered tax agents; however, returns were not lodged, nor payments remitted to FRCS.

We know of one advisor or so-called tax agent who prepares VAT returns for clients for refunds and charges a fee of 50 per cent of the refund amount.

Taxpayers should understand that such a concept in itself indicates fraudulent intention.

Under the Tax Administration Act 2009 only a registered tax agent is allowed to charge a fee for any tax consultation.

It is a serious offence for an unreg­istered tax agent to be charging for any tax service provided.

Furthermore, any expense claimed as a deduction by a business person for services conducted by an unreg­istered tax agents will not be allowed.

On other occasions, FRSC has be­come aware that some so-called tax agents and accountants are provid­ing incorrect advice to their clients, which leads them to file incorrect VAT returns.

Submission of false returns is a chargeable offense under the VAT and Tax Administration Act.

FRCS also warns business people to not buy-in to unscrupulous tax agents and accountants who claim to have contacts with FRCS officers or executives to settle tax matters other than lawfully and transparent­ly. FRCS will assist you free of any charge or fee, if you need assistance with an issue.

Here to serve

FRCS is here to serve taxpayers so that they can operate effectively and efficiently through the use of the VAT Self-Assessment System.

The business community is encour­aged to communicate and use the FRCS services, and they are most welcome to call or visit any FRCS office, Fiji-wide, if they need assis­tance in understanding their tax ob­ligations.

Feedback: maraia.vula@fijisun.com.fj