Compliance challenge

VALUE added tax more commonly known as VAT is a consumption tax aligned to global tax policy direction and trend.

By nature of VAT and the administration mechanism, VAT is trust money collected by all registered person(s) and businesses in Fiji on behalf of the Government.

It is, therefore, mandatory for all businesses charging VAT to net off the same with input VAT, and remit the excess VAT to Fiji Revenue and Customs Service (FRCS) to be channeled to Government for funding of public goods and service for the ordinary Fijians such as free education, social welfare payments, free medicine program, building the needed infrastructure (roads, bridges, jetties, etc).

However, VAT voluntary compliance is still a challenge for the FRCS. The service continues to find that either taxpayers deliberately not declaring nor remitting the correct amount of VAT payable to FRCS.

On other occasions, we also noticed that some so-called tax agents and accountants are providing incorrect advice to their clients which leads them to file incorrect VAT returns. Submission of false returns is a chargeable offense under the VAT and Tax Administration Act. All in all, it boils down to the culture of dishonesty and greed within these taxpayers and their advisers. We know of one advisor or so-called tax agent who prepares VAT returns for clients for refunds and charges a fee of 50 per cent of the refund amount. Taxpayer should understand that such concept in itself indicates fraudulent intention.

Supporting ease of doing business in Fiji

In our efforts to ease the process of VAT filing, FRCS introduced a VAT self-assessment system in 2015. The VAT self-assessment system is based on the principle of trust and partnership with the business community.

With the system, the onus is on taxpayers to correctly calculate and pay their correct VAT without FRCS issuing a notice for payment. The VAT return filed by the taxpayer serves as a notice and there is no manual intervention for inspection or audit, pre-processing of the VAT returns. Desk or documentary audits kicks in post processing and in instances of major discrepancies full VAT audit and investigations are conducted — again this is post processing. So all returns where VAT is payable, the businesses are required to lodge the VAT returns with the applicable payments.

Generally, for VAT refund cases, the returns are processed and refunds issued to taxpayer bank accounts. However, risk profiling may sometimes indicate holding refunds pending further verifications.

Checks and balances

We encourage all VAT registered person(s) and businesses to use the platform of the VAT self-assessment system. FRCS is mindful of the risks that dodgy and dishonest people will take advantage of the system thus we carry out regular risk analysis and profiling to identify high, medium and low risk cases and the likelihood that they will defraud the system and deal with those appropriately. Any fraudulent attempt by taxpayers are dealt with 300 per cent penalty imposition or prosecution — absolutely non-negotiable!

Apart from the risk profile and analysis, we also consult and share information with our stakeholders to assist and identify tax dodgers. An example is, currently the service is looking at the list of all contractors (building and other subcontractors) awarded construction works and reconciling the tender award amounts with the sums declared in the VAT Returns. Where discrepancies are established, the VAT short payments become subject to 300 per cent penalty. Again, non-negotiable.

FRCS has been conducting a number of awareness sessions with construction companies and subcontractors on the importance of voluntary compliance. We encourage taxpayers to voluntarily comply and do the right thing to save themselves from unnecessary penalty exposure.

VAT fraud and evasion

Most abuses identified in the VAT system by VAT registered persons, is through the VAT input schedule. Using the input schedule, businesses claim bogus invoices from suppliers that do not exist or are not registered for VAT purpose(s) at all. FRCS website is regularly updated for VAT registered taxpayers for ease of reference. In the event, you find invoices and receipts suspicious, you can verify if the TIN is registered for VAT through the FRCS website.

Also gross sales understatements are another area and dealings in cash where cash does not go through the entire VAT chain. These are out rightly fraudulent and subject to maximum penalties.

When a person files a VAT return, FRCS conducts a post assessment to verify the figures and the necessary documentation. These desk audits are done in all FRCS offices Fiji wide.

Dealing with fraudulent claims

When a perpetrator is identified, FRCS will not hesitate to apply the maximum penalty for engaging in such fraudulent activity. People who knowingly defraud FRCS and try to beat the system will face the full brunt of the law.

The identification and prosecution of such cases is fair for honest paying taxpayers and such provides security and confidence to business community.

Liable to register for VAT

Any persons conducting business either as sole trader or via a company, partnership, trust, etc. is required to adhere to the VAT Act 1991. The obligation to comply with VAT laws starts from the date of registration for VAT or from the date that they are liable to register. VAT registration is compulsory for businesses whose annual gross turnover is above $100,000. This also means that FRCS will deem a person liable to be registered for VAT even though they have not registered if their annual gross turnover goes beyond $100,000.

FRCS has noted that some businesses that started out as small to micro enterprises (SMEs) have grown to medium and large businesses with total sales exceeding $100,000 but have yet to register for VAT.

FRCS will not take such cases lightly. A prudent business person should be able to forecast and estimate how much sales the business will make in the next 12 months and ensure tax compliance accordingly. A business maybe be trading and the sales turnover was below threshold but during the financial year (say mid-year), the year-to-date sales goes beyond $100k, the business should immediately register for VAT and charge VAT that is their prices should become VIP. As soon as gross sales exceed the $100,000 threshold, the business is deemed VAT registered and all sales will be deemed VAT inclusive.

So effectively, there is no argument that you were not registered therefore VAT has not been charged and thus not payable to FRCS.

The law is very clear and the reasonability to voluntarily comply is on the taxpayer. If you are not sure of your tax obligations, you can seek assistance from FRCS or a Certified Tax Agent or better still business consultants, advisors should be advising their clients of this obligations. When taxpayers register business names or companies, they certainly do business sales projections and thus should know their obligations.

VAT trust

FRCS has also discovered serious non-compliance behavior in terms of the non-lodgment of VAT returns and overdue payments. Taxpayers are strongly reminded that VAT is trust money and must be paid to FRCS on time. The penalties applied for VAT offences is more severe (penalty is 300 per cent of owing VAT total and a jail sentence) compared to that of direct taxes e.g. income tax. VAT is an indirect tax which is paid by the consumer to a business who is VAT registered. It is the duty of the business to remit all VAT collected from consumers to the Government. Any abuse of such trust fund is punishable by a fine of $25,000 or an imprisonment of up to 10 years or both.

FRCS is here to serve taxpayers so that they operate effectively and efficiently through the use of the VAT self-assessment system. The business community is encouraged to communicate and use the FRCS services and they are most welcome to call or visit any FRCS Fiji-wide if they need assistance in understanding their tax obligations.