We are now a day away from the effective date of Value Added Tax (VAT) implementation. There is apprehension, resolve and a bit of worry among businesses to be able to fully comply with the regulations.
VAT is expected to improve the business culture in this part of the world as it has done in other parts of the world where it has been introduced. In the absence of taxation, lack of proper accounting, extended credit durations, contract terms which were not always amenable to a tax regime are what constitutes common business practises. These are expected to take a big hit and usher in better more compliant business practices.
For e.g. there are businesses which settle invoices partly and expect the supplier to include the balance in the next invoice being raised. This is not possible in a VAT regime. Hence, it benefits the supplier and also the buyer by standardizing the invoicing and payment settlement process to align more closely with the VAT requirements.
What is it that the business needs to do to be fully compliant, we thought a ready reckoner would be of use, so here goes.
- Register for VAT (based on eligibility)
- Maintain proper books of accounts
- Ensure that all purchases and expenditure of the business is supported by bills / invoices from the supplier, specially VAT compliant invoices where the supplier is registered for VAT.
- Ensure that all sales are based on VAT compliant invoices
- Compliance of invoices to VAT requirements (incorporation of TRN and item-wise VAT application)
- Update your supplier and customer records for their TRN numbers
- Use VAT compliant Debit Note or Credit Note for adjustments of transactions
- Focused management of receivables and establish a process of write-off to ensure that the business is in a position to claim at least the VAT component of the write-off if any.
- Timely creation, review and submission of Tax Returns and settlement of the Tax obligations to the tax authorities.
- Most importantly, establish a record keeping process to support easy retrieval of records on demand and capacity to retain at least 5 years records.
Please note, the first tax period notified is 1st January 2018 to 31st January 2018 and consequently, the first return and settlement are due by 28th February 2018.
The above are indeed a basic requirement for any business irrespective of VAT, but given the historical practices, needs to be adopted to remain compliant. Once adopted businesses do realize the value and simplicity of these requirements.
Happy New Year