Opinion
Tax invoice

According to the VAT to be introduced on July 1, 2002, invoices have to be raised by a VAT registered person when making a sale in the following manner to the respective customers:

(1) On a sale to a customer who is also registered under VAT and wishes to include this purchase in his taxable supply a tax invoice should be raised giving the name and address of the customer and his VAT registration no. (as identified by the supplier). In addition, the Invoice should state the VAT break-down which will enable the customer to claim VAT input credit.

(2) On a sale to a customer ,who is not registered under VAT, an ordinary invoice should be raised without showing the VAT breakdown.

Violation of the above regulations will result in a fine being imposed in the range of Rs.25,000/= to Rs.250,000/-. In the event of the offence being continued to be committed, after conviction a fine of Rs.500/= will be imposed for each day on which the offence is so continued to be committed.

The above requirement causes several problems, the main problems being:

Audit by the Dept. of Inland Revenue

If a person sells a variety of goods liable at differential rates of VAT (20%,10% and exempt) to a customer who is not registered under VAT, his invoice will show the all inclusive total. Then, on inspection of this invoice, how can the Dept. of Inland Revenue be sure that the VAT liability has been properly computed ?

Since the non-tax invoice will not show the VAT break-down, how will the Dept. of Inland Revenue be able to assess the actual VAT embedded in that invoice? It creates a major problem to the audit staff of the Department of Inland Revenue.

Cash Invoices

Usually, cash invoices do not carry the name and address of the customer. In this case a person who wishes to receive a tax invoice should inform the supplier in advance of the necessary particulars to be inserted on the invoice to be issued to him. Or otherwise, the supplier will not be in a position to insert the required particulars which have to be "identified by him". It is compulsory that the supplier has to satisfy himself that the particulars given by the customer are correct and consistent.

Sundry Customers

Consider a case where a trade chamber invites the public at large for a seminar charging a fee. The chamber will have to issue appropriate receipts to the relevant customers, inserting their names, addresses and VAT registration no. wherever applicable.

How will the chamber ensure that proper VAT registration nos. are inserted?

They must request the public to forward the relevant particulars to them at the time of registering their participation at the seminar for them to issue the receipts accordingly. Even then chances of violation with possible penalties could be envisaged.

Similar problems would be encountered when goods are sold by auction.

Notwithstanding the above problems, the following action has to be taken by the relevant persons for due compliance:

(1) Supplier

Should send circulars to his customers requesting confirmation as to whether or not they (the customers) are registered under VAT, and if so, their VAT registration nos. and their correct names and addresses.

(2) Customer

Should send circulars to his suppliers requesting to raise tax invoices stating his (customer’s) VAT registration No., correct name, address etc. Further, it would be better if these particulars are inserted in the purchase order sent to the suppliers, ensuring due compliance.

(3) Dept. of Inland Revenue

It is better to finalise the VAT registration process and issue the respective certificates early (say, by at least June 21, 2002). A schedule of taxable supplies (goods & services) indicating the differential rates of VAT (20%, 10% and exempt) should also be published on time.

The suppliers have to print new sets of Invoices with their VAT registration No. inserted. In addition they have to insert the words "Tax Invoice" on the face of the respective invoices when making taxable supplies to VAT registered customers. For the time being GST invoices with suitable amendments should be permitted to be used.

Suppliers and customers have to send circulars as mentioned in (1) and (2) above at least by June 25. They have to also educate their staff for due compliance of the new regulations which become effective on 1st July 2002.

It has to be admitted by all concerned that adequate time is not available to implement suitable amendments. Violations are possible at the beginning and a grace period of minimum 15 days should be considered by the Dept. of Inland Revenue for due compliance.

Caution

Suppliers are advised that adequate records of supplies effected by them under non-tax invoices are kept. In the event of failure, all such supplies shall be considered as supplies made under the standard tax rate of 20 % ie. unlike in the case of GST where a uniform rate of 12.5% was applicable, in the case of VAT there are differential rates of 10 % and 20%. Therefore, when the supplier raises a non-tax invoice for a mixture of items (liable for both rates), in the absence of adequate records, the Dept. of Inland Revenue will consider the entire sale to be liable at the standard rate of 20% VAT.

I bring these facts to the note of all concerned for suitable action.
S. R. Balachandran
Council Member
The National Chamber of Commerce of Sri Lanka


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