25 März 2020 | Geschäft
VAT in the time of Covid
Countries around the world initiated lockdowns and mass quarantines in the hopes of slowing down the spread of the virus.
This article aims to highlight the value-added tax (VAT) considerations arising from potential impact of the lockdown on the supply chain and the import VAT paid and consequently the potential impact of quarantine on the demand of consumer goods which inherently impacts the VAT paid thereon.
It can be said that global trade has contributed to the success of businesses around the world; so much so that world trade agreements are negotiated to lower tariffs and other barriers that may prohibit trade between nations.
Exposures are created where businesses have a dependency on their international suppliers, whether it be raw materials used in production or finished goods that are not readily available locally; it is inherent that any lockdowns will have an impact on the supply chain.
The value of an import for VAT purposes is the greater of the market value or the sum of the free-on-board value uplifted with 10%. This value is known as the consideration, i.e. the price the importer pays for the goods on which import VAT at the rate of 15% is further paid.
It can be argued that the price paid on the importation of goods increases where it becomes more difficult to acquire those goods.
This price by the importer may be increased as a result of additional fees, duties or levies that may be charged for having to consider alternate sources should their usual supplier initiate a lockdown on their borders in addition to the cost of alternate routes to bring the goods into Namibia.
An example of global dependency is on China due to their competitive pricing which is attributable to the low cost of production; where businesses must consider alternate sources for their products, the price they will pay is likely to be more; bearing in mind that an added 15% VAT also becomes payable on that already increased price.
Any increased cost that must be borne by the business is likely to be passed down to the consumer to ensure profit margins are maintained. Notwithstanding this, the panic around the virus, in addition to the quarantine measures that were put in place, have seen recent media reports show an increase in “panic buying”.
It is important to note that panic buying creates a shortage in the availability of goods, this in turn impacts the supply chain and the cost thereof as businesses are faced with having to meet this increased demand which directly impacts the consumer prices, further increased by a 15% VAT thereon.
It is also important to bear in mind the cash flow impact of the current situation on businesses.
VAT is accounted for on the earlier of invoice or payment, meaning that businesses often must carry the VAT costs while waiting for their debtors to settle.
The VAT implications arising from debtors and their payment terms become an important consideration, especially bearing in mind the viability of businesses in these trying times.
A further consideration when planning cash flows is the uncertainty around when refunds will be paid by Inland Revenue and the VAT audits being put on hold that further strain the burden on businesses.