Most businesses which are VAT-exempt believe that they must never submit any VAT returns to BURS. That sounds reasonable until you bring in one of the lease known taxes called VAT on Imported Services (VOIS).
VAT extends to everyone including persons who are actually exempt from the very same tax, in the form of VAT on imported services.
The affected taxpayers
Put in other words, even VAT exempt persons such as medical aid societies, pension funds, educational institutions, micro-lenders, government departments and parastatals as well as those not registered for VAT must pay the said VOIS whenever they import services from outside Botswana. As a matter of fact, the VAT laws require VAT exempts taxpayers to charge themselves VAT and remit to BURS when they procure services from offshore service providers. Interesting right? In this article, words importing the masculine shall be deemed to include the feminine.
Enter importation of services
Firstly, let us have a brief look at what is regarded as importation of a service in as far as VAT is concerned. The VAT Act defines the term service to mean anything that is not goods or money. Technically, this definition is wide and embraces anything done which is not tangible. Accordingly, any person is construed to have imported a service if they derive any form of valuable intangible benefit from a non-resident service provider. Let us now have a look at why VAT exempt persons should be liable to VAT on importation of services.
As alluded to above, any resident person who enjoys services provided by a non-resident supplier would have actually imported a service. The VAT law goes further to provide that VAT on imported services need not to be accounted for in cases where the services are consumed in the making of taxable supplies. For the avoidance of doubt, only a Vat registered person can be said to be making or producing taxable supplies i.e., goods or services that would ordinarily be chargeable to VAT at the rate of either 12% or 0%. Conversely, this technically implies that VAT on imported services should be accounted for in cases where the services are consumed in the making of exempt supplies.
Now to bring everything into perspective, it is apparent that one needs to account for VAT on imported services if the same is utilised in making or producing exempt supplies. Accordingly, such criteria clearly bring Vat exempt persons in the tax net in instances where they import services from foreign suppliers. The mechanism for paying for this VAT is that the recipient being the VAT exempt person, charges VAT on the invoice amount and pays the same to BURS, even when they are VAT exempt! It is also key to note that the same is still required to be paid even if withholding taxes are deductible on the same transaction.
Well folks, we hope that was insightful. As us the two Yours Truly say goodbye, remember to religiously pay your taxes. If you want to consult, join our free Tax WhatsApp group or to know about our 9 Tax e-books, send us a text on the +267 71 81 836. You can read more tax articles on our website, www.aupracontax.co.bw under the ‘Tax articles’ tab.