Time of Supply for Value Added Tax (VAT )
Value Added Tax (VAT) become due and payable at the time of supply. That is when the supplier must issue an invoice or when the supplier issues an invoice , whichever happens first.
A company is required to issue an invoice within seven days after the goods are shipped or services are rendered or after the payment if the payment occurs before the goods are shipped or the services are rendered.
Example 1
ABC Company received $11,000 from Customer A that paid in advance to ABC Company, so ABC Company must issue invoice for amount of $11,000 ( included VAT) to Customer A.
Example 2
XYZ Company delivered goods of $11,000 (included VAT) to Customer B on 8 October 2018, so XYZ Company must issue invoice within 7 days after delivering goods( service) to Customer B.
Example 3
CBA Company received $1,100 ( assume 10% of full amount $11,000) on 2 October 2018 from Customer C that paid in advance to CBA Company, after that on 8 October 2018 , CBA Company delivered goods (service) to Customer C, so CBA Company must issue within 7 days after delivering goods( service) to Customer C for remaining amount $9,900 ( 90% x $11,000=$9,900 ) included VAT even CBA company does not receive cash from Customer C after 7 days.
Example 4
ABC Company sold two computers to Mr.A. Two computers are $2,200 including VAT.
On 1 August 2018, Mr. A prepaid $1,100, but next amount ( $1,100) will repay 1 September 2018.
On 2 August 2018, ABC Company delivered two companies to Mr.A.
Required:
- Calculate VAT payable for 31 August 2018.
- Calculate Prepayment of Income Tax (PIT) payable for 31 August 2018.
Solution
1.Calculate VAT payable for 31 August 2018.
VAT base = 2,200/1.1=$2,000
VAT output = $2,000 x 10% = $200 **
**Because two computers are delivered to Mr.A, so VAT payable charge full amount of $2,200 though remaining amount will repay at 1 September 2018.
2.Calculate Prepayment of Income Tax (PIT) payable for 31 August 2018.
PIT base = 2,200/1.1=$2,000
PTI = $2,000 x 1% = $20