Partial Exemption

Under the Guyana Value Added Tax (VAT) Act#10 of 2005, goods and services are divided into three categories of supply:-

  • Standard-rated
  • Zero-rated
  • Exempt

'Standard rated Supplies' are those goods andd services that are taxed at a standard rate of 14 percent (14%) of their total value in money, at the time they are sold or acquired. All goods and services provided for domestic consumption in Guyana (including imports) attract VAT at the standard rate, unless explicitly excluded in the law as "zero-rated or exempt supplies".

'Zero rated Supplies' are those goods and services that are taxable but, for economic reasons, are taxed at zero percent (0%). Examples of zero-rated supplies are basic food items, medical services and supplies (including prescription and 'over-the-counter' drugs), education services and materials (inlcuding books), electricity supplied under the Electricity Sector Reform Act, water and sewage servics, some locally- produced building materials, motor vehicles older than four years, computers, sports gear (subject to the Customs Act).

'Exempt Supplies' are those that, for social or difficult-to-tax reasons, are not taxed. Examples of exempt supplies are kerosene, liquid propane gas (LPG/cooking gas), gasoline and diesel, residential rent, insurance and financial services and locally-mined raw gold and diamonds.

'Taxable Supplies' are those goods and services that attract VAT at the standard of zero rate.

'Taxable turnover'   is the total value of all taxable supplies (standard and zero-rated supplies) made in Guyana in the course of or furtherance of your business. It does not include exempt supplies. VAT must not be charged on exempt or zero-rated supplies and exempt supplies cannot be countered in calculating your taxable turnover for the purposes of determining whether you should be registered for VAT. (See 'Completing the Value Added Tax Registration)

It is importation, therefore, that you know which of the supplies you make, or intend to make, or are exempt. (See 'Guide to Zero-Rated Items)


RECOVERY OF VAT BY VAT-REGISTERED PERSONS

 

The VAT legislation allows VAT-registered persons to recover the majority of VAT they incur in the course of making taxable supplies- i.e., the VAT they pay on raw materials, other goods and business expenses. This is known as 'input tax', as opposed to the tax on your sales, known as 'output tax' . As such, any VAT that you pay on your business expenses in the course of making supplies (your input tax) can be recovered in full, subject to certain conditions. Input tax incurred in making exempt supplies is classified as 'exempt input tax' and cannot be recovered.

 

If you make a mixture of taxable and exempt supplies you can reclaim the proportion of input tax that relates to your annual sales of taxable supplies. You will need to use the 'partial exemption method' to calculate the proportion of input tax which you can reclaim.

 

NOTE:

There will be instances when some of your input tax paid may not be reclaimed, whether or not it relates to the supply of taxable goods and services. For example, VAT incurred in obtaining entertainment, hospitality, food, beverages, tobacco, amusement, or recreation, may not be claimed as input tax unless the person is involved in the business of providing entertainment and the taxable supply relates to that business. Additionally, no amount may be claimed for a passenger vehicle, unless the person is in the business of hiring vehicles and the vehicle was acquired for that purpose.

 

 

THE PARTIAL EXEMPTION METHOD OF CALCULATION

The 'Partial Exemption Method' utilises direct distribution, i.e.-

 

  • All input tax directly attributable to exempt supplies (exempt input tax) cannot be claimed
  • All input tax which is directly attributable to taxable supplies (zero and standard rated sales) can be claimed, subject to the conditions outlined in 'NOTE' above.
  • Input tax relating to mixed supplies (i.e., that which cannot be related directly to exempt or taxable supplies - such as maintenance of buildings, telephone calls, and other general overheads), may be claimed in proportion to the total taxable outputs for the period in question divided by the total outputs.

The following formula may be used to calculate the amount of input tax you can claim on mixed supplies:

A*B\C

Where:

A is the amount of input tax on mixed supplioes

is the amount of total taxable supplies

is the total amount of all supplies

Where the result is 90 percent or more, the entire amount of input tax may be claimed as though all your supplies were taxable supplies. The calculation will normally be based on the previous financial year's figures but, for the first year following registration, it will be based on the accumulated figures for the completed monthly tax periods.

 

RECORDS AND ACCOUNTS

Persons registered for VAT are required by law to keep records and accounts as specified in Chapter XIII of the Guyana VAT Act#10 of 2005 (See Books and Records to be kept).