Every country in the world needs money to provide health, education, social services, roads, and a wide range of other facilities for all its citizens. To provide these facilities or services, the Government of the day budgets for the expenditure of public money. In Swaziland, a major part of Government revenue is collected by way of direct and indirect taxes on income and consumption. Income Tax is a DIRECT TAX payable by individuals and businesses based on their income or profits. However, everybody who benefits from services provided by the Government is also expected to contribute through a broader, neutral tax that is fair to all. Most countries in the world, therefore, impose some form of INDIRECT TAX, usually based on the amount of goods or services consumed by the taxpayer.
VAT is an indirect tax that is levied on the consumption of goods and services in Swaziland, and is also levied on the importation of goods and services into Swaziland. It was introduced on 1 April 2012 to replace Sales Tax. Like Sales Tax, it is an indirect tax and it is levied on most goods and services at the rate of 14%. The legal basis is the VAT Act 2011 supplemented by VAT Regulations
WHO PAYS VAT?
A person who brings taxable goods or services into Swaziland (usually the importer).
A person who receives supplies of taxable goods or services in Swaziland. A person in this case includes any individual,partnership, company, trust, government and any public or local authority.
ADVANTAGES OF VAT
- VAT is levied in stages and businesses only remit tax on the value addition they achieve in the supply chain. The input credit mechanism gives registered businesses back much of the VAT they pay on purchases and expenses used for making taxable supplies and, as a result it eliminates the “tax on tax” characteristic of Sales tax.
- VAT provides potential for a stronger home manufacturing industry and more competitive export prices as direct exports are taxed at 0%. The price of exports does not include any VAT which makes exports more competitive internationally.
- Strong penalties and effective enforcement policies result in a higher level of reliance being expected from taxpayers as the tax administration has a higher visibility under the VAT system brought about by the self-policing nature of VAT.
- A wider VAT base means that the tax burden is evenly distributed, as more goods and services are taxed under the VAT system than the Sales tax system. VAT is largely invoice based and therefore uniform and less complicated than the Sales Tax system as there are fewer exceptions. It offers a sound financial management system with less collection risks and a strong emphasis on keeping proper records.
The VAT (Output VAT) that the supplier charges his customer becomes the customer’s input tax. This provides an audit trail to the tax administration to verify the amount declared because output tax by the supplier can be reconciled to the customer’s input VAT.