This week in Tax Talk, we attempt to clarify what is meant by the term Produce Supplier.

This follows the recent issue of the Standard Interpretation Guide­line (SIG) 2018-05 Value Added Tax (VAT) – Produce Supplier by the Fiji Revenue and Customs Service (FRCS).

This sets out FRCS’ interpreta­tion in relation to the application of Value Added Tax (VAT) based on the operational practices of people dealing with produce supplies.

The above SIG is available of the FRCS website: https://www.frcs.org.fj/our-services/practice-state­ments/standard-interpretation-guideline-2018-02/.

A key part of this guideline is the definition of the terms Produce Supplier and Middleman.

While both could be called per­sons dealing with produce sup­plies, their roles are very different.

Produce Supplier for VAT

Purposes

A produce supplier is a person who deals in produce in a raw and unprocessed state.

Produce is defined as the pro­duce from the activity of agricul­ture and includes any fruits, veg­etables, root crops, fish and other aquatic produce for the purpose of consumption.

For VAT purposes, it is not man­datory for a produce supplier to register for VAT if produce supply makes up 90 per cent or more of the person’s total value of supplies (even if the total value of supplies exceeds the compulsory registra­tion threshold of $100,000).

The balance of supplies must also be produce but does not have to be in a raw and unprocessed state.

It can be produce which has been processed through basic cutting, separation etc. e.g. minced meat, steak, pounded yaqona.

Raw and unprocessed state in re­lation to produce means:

nnot yet cooked, smoked or baked;

nunmanufactured, undiluted, crude, un-milled, un-powdered, un-pounded;

nnot processed mechanically or by the use of chemicals, except through basic separation, cutting of parts, packaging or freezing (ex­cluding blast, quick or snap freez­ing).

Are produce suppliers required to register for VAT?

It is not mandatory for a produce supplier to register for VAT if –

1. the produce supply makes up at least 90 per cent of the person’s total value of supplies, and
2. the person’s balance supplies (if any) are produce but does not have to be in a raw or unprocessed state.

Even if the value of produce sup­plies exceeds the compulsory reg­istration threshold of $100,000, a produce supplier is not mandatori­ly required to register if the above conditions are satisfied.

Can a produce supplier supply pro­duce together with other taxable supplies?

A registered person who supplies both produce and other taxable supplies from the same place (e.g.

Shop) is not a produce supplier.

Exception is made only in case of branch or division, explained below.

Can a branch or division be consid­ered as a produce supplier division?

A person who is registered for other taxable supplies and who does not want to charge VAT on produce prices, can apply to the CEO to treat a separate branch or division of the person’s business as a produce supplier division.

Once approved in writing, that part of the produce supply busi­ness is treated as a separate branch or division.

This means that:

nalthough the owner is a reg­istered person, VAT will not be charged on sales of produce from that branch or division exclusively meant for produce supplies;

nthe registered person is NOT al­lowed to claim ANY input tax on purchases and expenses not relat­ed to the branch or division;

nany asset (equipment etc.) used in a taxable activity that is trans­ferred for use in the produce sup­ply branch or division, is a deemed supply and the person will be re­quired to account for output VAT on either the cost or the market value of the asset, whichever is less.

However, NO input tax is claim­able by a produce supply branch.

Is middleman a produce supplier?

If a person buys the produce from farmer and then supplies it to cus­tomers, the supply will not be con­sidered as produce supply and the person supplying will not be con­sidered as a produce supplier.

Activity of buying and selling the agricultural products does not constitute activity of agriculture but trade.

For these reasons middle man’s business activity is treated as nor­mal taxable activity.

Hence, if their annual gross turnover exceeds $100,000 it is mandatory for them to register and charge VAT effective from 1st January, 2019.

Example 1: Kava Dealers

An individual is registered as sole trader business, who buys the yaqona from farmers in raw state, cleans the yaqona (basically re­moving of the dry left over muds) and sells to kava shop in raw state.

Will the wholesaler be classified as a produce supplier?

The factors below will determine if a wholesaler can be considered as a produce supplier?

nIs the sole trader supplying 100 per centof produce supplies (can be yaqona with other produce)?

nIs produce supplied by sole trad­er from the agricultural activity which is also owned by him? If an­swer to both questions is YES, the wholesaler will be considered as a Produce Supplier.

Answer to question 1 – YES.

Answer to question 2 – NO.

Conclusion: The wholesaler can­not be considered as a Produce Supplier.

Reason: The sole trader was sell­ing yaqona purchased from suppli­ers of produce (farmers), the sole trader is a middleman, therefore he cannot be considered as a pro­duce supplier.

Example 2: Green Grocer Shop

A green grocer has two shops.

Shop 1 – sells locally produced fruits and vegetables from agricul­tural activity in his own farmland Shop 2 – sells imported fruits and vegetables. The shop owner main­tains independent system of ac­counting for both shops.

Will the shop owner qualify as a produce supplier?

The factors below will determine if the shop owner will qualify as a produce supplier?

nDo the two shops solely supply produce?

nDo the two shops maintain an independent system of account­ing?

nAre the two shops separately identified by reference to being a produce supplier, (i.e. are shop 1 and 2 separately located)?

Is the produce supplied in both shops from agricultural activity which is also owned by the shop owner?

Answer to question 1 – YES An­swer to question 2 – YES Answer to question 3 – YES

Answer to question 4 – YES for Shop 1 and NO for Shop 2.

Conclusion: The shop owner will be considered as a produce suppli­er only in respect to shop 1.

As for shop 2, the shop owner im­ports fruits and vegetables.

Therefore cannot be considered as a Produce Supplier.

Reason:

The shop owner meets all the re­quirements of produce supplier thereby making him eligible to be a produce supplier.

For shop 2, the shop owner im­ports fruits and vegetables (does not sell produce grown in his own farm).

Therefore supplies of shop 2 can­not be considered as supplies made by the produce supplier.

For further queries please email us on vat@frcs.org.fj