1. ACC402 – Foundation Accounting
Week 4
Value Added Tax (VAT)

2. OVERVIEW What is Value-Added Tax (VAT) When VAT is applied
How to calculate VAT

3. What is VAT
Value Added Tax (VAT) is a tax on spending that is levied on the supply of goods and services in Fiji at the rate of 15%, with effect from 1 January, 2011.
The tax is collected on behalf of the Government by businesses and organizations which have been registered with the Taxation Division.

4. VALUE-ADDED TAX
After the military coup in 1987 – there was talk of what strategies would be need to boost Fiji’s economy.
This tax that was first introduced in 1992 was an outcome of this meeting
Tax on goods and services

5. VALUE-ADDED TAX
VAT was introduced to reduce avoidance and evasion by picking up in the consumption tax net those who would avoid or evade direct income tax

6. VALUE-ADDED TAX
A consumption tax to penalise those who spend their savings and reward those that keep their savings.
Will help reduce the country’s expenditure on imported goods and offshore loans.

7. VALUE-ADDED TAX
Essential feature of VAT – taxes final and intermediate at each stage of production and distribution process through the INVOICE METHOD.

8. VALUE-ADDED TAX
All businesses with a turnover of F$30,000 (increased to F$50,000; 2009 Budget Address) or more in respect supply of goods and F$15,000 (increased to F$50,000; 2009 Budget Address) or more for supply of services are required to register with the VAT unit and must charge 15% percent VAT on the price of all the goods and services supplied.

9. VALUE-ADDED TAX
Monthly or quarterly VAT returns must be lodged with the VAT office and, payments are made by the end of the month following the month of the VAT return.

10. VALUE-ADDED TAX The following are exempt from VAT:
Financial services (banking services, insurance services, dealing in stocks, granting of credit)
Rents from residential dwellings
Supply of education (including goods and services incidental to education by an educational institution)
Donated goods sold by non-profit bodies

11. VALUE-ADDED TAX
VAT is added to all invoices in Fiji. VAT is charged by each supplier in the chain of distribution where goods are sold.
VAT is a tax on spending and the rate in Fiji is 15%

12. VALUE-ADDED TAX
Paid and borne by the final consumer and is designed to tax spending by consumers evenly and fairly
It is NOT a tax on sellers of goods and services.
Sellers / business will simply collect the VAT on Government’s behalf.

13. Analyzing the effects of VAT on the Accounting equation
A = L + P
(Assets = Liabilities + Proprietorship)
Sold goods for cash, $2,000 plus Vat
2,000 x .15% = $ 300
$300 is VAT portion to collect for Government

14. Analyzing the effects of VAT on the Accounting equation
A = L + P (Assets = Liabilities + Proprietorship)
Sold goods for cash, $2,000 plus Vat
Total cash collected = 2, =$2,300

15. Effect on the Accounting equation
Assets = Liabilities + Proprietorship
+$2,300 = +$ $2,000
+(cash) = (VAT) + (sales)

16. Example
AB (a wholesaler) sold goods of $1,000 to XY (a retailer) and charged 15% VAT. The invoice will be shown as follows:
Cost of goods $1, VEP
+ VAT (15%) $ VAT
Total invoice $1,150.00VIP

17. Therefore AB rec’d $150 from XY
For AB, the $150 is VAT output (VAT collected)
For XY, the $150 is VAT input (VAT paid)

18. Therefore AB rec’d $150 from XY
The end result is that the tax (VAT) is paid by the consumer but collected by the retailer
So VAT every dollar the retailer pays at the input stage is recovered from the consumer.

19. In PRACTICE
Because a credit can be claimed for tax input, all VAT is passed on through the distribution chain
ONLY the final consumer of the goods and services bears all the VAT tax imposed.

20. Example 2
Calculate the amount of VAT paid for the following transactions
Bought goods for cash, $500 plus VAT
Solution:
VAT paid = $500 x .15%
= $75.00

21. Example 3 Bought goods for cash, $4,000, VAT Exclusive Price [VEP]
Solution:
VAT paid = $4,000 x .15%
= $600

22. Example 4 Bought goods for cash, $1,350.00 VIP Solution:
VAT paid = $1,350/7.666 … 0r X3/23
= $176.10

23. Example 4
You will have noticed that instead of multiplying by .15% we have instead divided by …or … x 3/23
The reason being – VAT is already included in the amount.
We just want to know how much of the gross amount makes up for VAT.

24. NOTE: VAT paid is VAT INPUT VAT collected is VAT OUTPUT
If VAT output > VAT input = VAT payable
If VAT input > VAT output = VAT refund

25. Assets = Liabilities + Proprietorship
Lets analyze the effects of VAT on the Accounting Equation with one transaction
ACCOUNTING EQUATION
A = L + P
Assets = Liabilities + Proprietorship
Sold goods for cash, $1, plus VAT
Cost of the goods =$1,000.00

26. Assets = Liabilities + Proprietorship
Lets analyze the effects of VAT on the Accounting Equation with one transaction
ACCOUNTING EQUATION
A = L + P
Assets = Liabilities + Proprietorship
VAT collected ($1,000x .15 %) $150.00
Total cash collected =$1,150.00

27. Effect on the Accounting Equation
Assets = Liabilities + Proprietorship
+$1,150 = $ $1,000
Cash = IRD (VAT) + Sales

28. SUMMARY
VEP, plus VAT, VAT exclusive – VAT is not included = So multiply by 15% to calculate VAT
VIP, VAT inclusive – VAT is included = divide by or x3/23 to calculate VAT
VAT collected (VAT output) = add all plus(+) to IRD

29. SUMMARY VAT paid (VAT input) = add all the minus (-) to IRD
VO is greater than VI = VAT payable
VI is greater than VO = VAT Refund

30. Practice
……….Practice