Correct use of the terms VAT inclusive and exclusive

Businesses that are registered to charge and collect Value Added Tax (VAT) are hereby notified and advised of the correct use of the terms VAT Inclusive and VAT Exclusive with regards to the advertising of the price for taxable items they sell and whether or not such price includes the VAT.

Section 90 (1) of the Value Added Tax Act No. 10 of 2005 states that a price charged by a taxable person (VAT registrant) in respect of a taxable supply (an item on which VAT should be charged) is deemed to include tax whether or not the VAT registrant has included tax in such price.

Further, Section 90(2) states that a price advertised in respect of an item is required to include tax and the advertisement or quotation must state that tax is included.

However, section 90(3) makes provision for VAT registrants to advertise or quote a price for an item exclusive of the tax, provided that the advertisement or quotation also states the amount of tax charged on the supply and the price inclusive of the tax. For example:

Price VAT exclusive (item name e.g. Coffee) $100
VAT rate 16% $16
VAT inclusive $116 total to be paid

In this instance, that is, where the price of the item is advertised or quoted exclusive of the tax, the registrant is also required to ensure that the price exclusive of the tax and the price inclusive of the tax are given equal prominence and impact.

Hence, as in the example above, equal emphasis must be placed on the cost of the item before tax and the total after tax is added.

Moreover, based on the foregoing, VAT registrants are advised to use the correct terms when advertising or quoting prices. Therefore the term VAT INCLUSIVE must be used when describing a price that already includes the tax, and the term VAT EXCLUSIVE when describing a price to which tax is yet to be added to arrive at the final cost.

Persons who require more information can call the TAX Hotline on telephone number 227-6060 Ext 1201-1204.