Transcript ABST - Sales tax

Belize General Sales Tax
(GST):
Issues for financial institutions
WHAT IS GST?
1. Is a Broad-Based, Multi-Stage Tax on Value Added
Broad–based: charged on a wide range of goods
and services
Multi-stage: charged at every level of the economic chain
Value added: is a tax on the mark up on goods and services
supplied by one business to another or to the final
consumer
WHAT IS GST (cont)
•A transaction tax on supplies
Charged on each and every transaction involving the supply
of goods or services, including business to business and
business to consumer transactions
•A consumption tax
Passed on to consumers in price of each consumer transaction
MAIN FEATURES OF GST
•RATES - STANDARD RATE IS 10%
- ZERO RATE (0%)
•THRESHOLD $75,000.00 PER ANNUM
•PRICES CHARGED TO BE GST INCLUSIVE
•EXEMPT AND ZERO RATED GOODS OR SERVICES
Types of supply (≈ outputs/sales):

taxable supplies (standard-rated and zero-rated)

exempt supplies

non-taxable supplies
Tax is only charged on taxable supplies:
(a) supplies
(b) made in Belize
(c) by a taxable person (registered or required to be)
(d) in the course or furtherance of the business, and
(e) not exempt
Exemption = main issues for banks
Net GST payable = output tax – input tax
Consequences of exemption:
 no tax chargeable on exempt supplies
 no input tax credits for the related inputs
including overheads)
“FINANCIAL SERVICES”
MEANS 
(a) granting, negotiating, and dealing with loans, credit, credit guarantees, and
security for money, including management of loans, credit, or credit
guarantees by the grantor;
(b) transactions concerning money, deposit and current accounts, payments,
transfers, debts, cheques, or negotiable instruments, other than debt
collection and factoring;
(c) transactions relating to financial derivatives, forward contracts, options to
acquire financial instruments, and similar arrangements;
“FINANCIAL SERVICES”
MEANS  cont’d
(d) transactions relating to shares, stocks, bonds, and other securities, other
than custody services;
(d) management of investment funds;
(f) provision, or transfer of ownership, of an insurance contract or the
provision of reinsurance in respect of such contract;
“FINANCIAL SERVICES”
MEANS  cont’d
(g) provision, or transfer of ownership, of an interest in a scheme whereby
provision is made for the payment or granting of benefits by a benefit fund,
provident fund, pension fund, retirement annuity fund or preservation fund;
(h) a supply of credit under a finance lease, if the credit for the goods is
provided for a separate charge and the charge is disclosed to the recipient
of the goods; or
(i) the arranging of any of the services in paragraphs (a) to (h);
Functions of financial services
intermediation  provides cost efficiencies, pooling of
savings, pooling of risks, & provision of liquidity
transaction clearing services  cheques, credit
cards…
creation & maintenance of markets in financial
instruments  provision of an efficient means for
exchanging securities
agency services  reduce costs of geographical
separation between buyers & sellers or securities by acting
as agent in the transaction
Categories of exempt transactions
Deposit-taking intermediation
between suppliers and users of financial capital;
Risk intermediation
between high risk takers & low risk takers; hedging &
gambling
Insurance intermediation:
pooling risks to spread exposure of the risk;
Brokerage services:
connecting buyers and sellers of commodities, currencies, &
debt or equity securities.
Problems created by exemption
B2C under-taxation where exemption applies to a consumer
transaction the bank’s value added is untaxed
B2B cascading  over-taxation where exemption applies to
an intermediate transaction
Incentive to in-source/‘self-supply’ essential activities,
rather than out-sourcing
Incentive to outsource to offshore suppliers
Exempt financial services: B2C
To customs
$6
$6
To DGST
+
$4
$4
$10
-6
$4
+
=
$2
$2
$12
$12
- 10
$2
Importer
Wholesaler
Cost: $60
Value added: $40
Sell for:$100
plus GST: $10
Taxed Price: $110
Cost: $100
Value added: $20
Sell for: $120
plus GST: $12
Taxed Price: $132
Bank
Cost: $132
Value added: $80
Sell for: $212
plus GST: $0
Taxed Price: $212
Consumer
Cost: $212
(includes $12 tax)
Exempt financial services: B2B
To
DGST
To customs
$6
+
$4
+
Cost: $60
Value added: $40
Sell for:$100
plus GST: $10
Taxed Price: $110
$21
=
$31
$21
-0
$21
$10
-6
$4
Importer
+
Bank
Cost: $110
Value added: $20
Sell for: $130
Retailer
Cost: $130
Value added: $80
Sell for: $210
plus GST: $21
Taxed Price: $231
Consumer
Cost: $231
(includes $31 tax)
Why are financial supplies exempt?
Loan
Loan
Bank
Lender
Interest
Borrower
Interest

2 party supplier/recipient analysis breaks down –
problematic for the tax credit mechanism

measurement problem  identifying the value added on a
transaction by transaction basis (separating interest from
inflation and from underlying flow of financial capital)

allocation problem  allocating the value added to
particular recipients of supplies
Approaches around the world
All countries exempt financial services but some try to
minimise problems this creates:
many have no specific provisions to minimise cascading &
outsourcing problems
some countries tax insurance (very complex provisions)
some extend exempt treatment to a limited range of types
of supply to the financial supplier
NZ zero-rates B2B financial supplies
some give partial input tax credits (ITCs) for financial
supplies
many require reverse charging to deal with offshore
outsourcing  Belize