In Sri Lanka VAT law requires not to show VAT amount when the invoice is issued without the heading “Tax Invoice”. Accordingly, option is required to avoid showing VAT amount when invoice is issued VAT Inclusive basis.
As shown in the attached picture, line marked in red should have a tick box to avoid it in printed invoice for Sri Lankan VAT registered suppliers when selling to a buyer not registered for VAT.
That is acceptable to some but not for all. For example, when the price is preset. I think this will be possible without much effort in the same way we currently avoid tax column in the invoice.
If you are claiming (registered with your tax authority to claim) VAT you have to
maintain appropriate records AND
show the VAT on your invoices.
If you are not claiming VAT (not registered with your tax authority to claim) from your tax authority you
don’t charge your customers VAT
do not show VAT on your TAX invoice (use not or a tax free Tax code in Manager
If you are claiming VAT from your tax authority but not showing it on your invoices you are probably breaking your tax authority law by not maintain records consistent with their requirements.
Since buyers who are not registered are not entitled to claim VAT charged by a registered supplier, the Authority itself has imposed this restriction as shown in the above extract of the law. This request was made after analyzing it carefully with the help of tax professionals.
That is completely normal. VAT is an end-user tax, meaning value is added through a value chain. The end-user does not need to be VAT registered, as they cannot claim VAT back. However, anyone in the supply chain between the seller and the end-user may be entitled to reclaim VAT, provided they are VAT registered. That said, VAT registration is not always required for all businesses in the chain, and in some cases, it may not be necessary.
These businesses (who are not VAT registered) cannot claim back the VAT they have paid, but you are still required to charge VAT on your invoices and remit it to the government. You neither “earn” nor “own” the VAT; it is not considered part of your income or your expenses.
Therefore, whether VAT is presented as “inclusive” or “exclusive” on an invoice is not critical—the key factor is the amount of VAT collected on behalf of the government. You cannot retain any VAT paid to you, which I am sure the tax professionals you’ve spoken to have also explained. This is consistent with the relevant legal provisions.
As is standard in most countries, you must charge VAT on your sales (whether VAT is shown as inclusive or exclusive on the invoice does not matter) and remit the VAT payments to the tax authorities in accordance with their schedule. Non-registered buyers cannot claim VAT refunds because the necessary tax identification number (or equivalent) is not included on the invoice. As such, the invoice is considered a regular invoice, on which no VAT refund can be claimed.
Here the scenario is clearly explained in the extracted text of the law.
Regulator requests to show VAT inclusive total without showing VAT amount included.
And it clearly saws that regulator consider total consideration is inclusive of VAT for the purpose of the law.
(6) (a) Notwithstanding the provisions of subsection (2), where a registered person makes a taxable supply and the recipient of such supply is not a registered person such supplier shall issue an invoice giving the total consideration of such supply including the tax charged. Where the supplier has not kept adequate records on such supplies covered by such invoices all such supplies shall be considered as supplies made under the appropriate rate specified in section 2 of the Act Standard rate of tax. An invoice issued under this subsection shall not be considered as a tax invoice for the purposes of this Act.
As explained in my previous comment, if you are a VAT-registered supplier and make a taxable supply to a non-registered recipient (buyer), you must issue an invoice that includes the total value of the goods or services, plus VAT.
However, if you do not maintain adequate records for such supplies/services, the law will assume you have applied the standard VAT rate to the transaction, even if the actual rate might differ. Importantly, this invoice cannot be treated as a “tax invoice” under VAT law.
While the provision does not specify whether the VAT should be inclusive or exclusive in the invoice issued to a non-registered buyer, it emphasizes that the seller cannot label the invoice as a “Tax Invoice” in the way that is required for VAT-registered businesses. This means the buyer cannot claim VAT refunds or offsets from the government, as the invoice does not meet the formal requirements for a VAT tax invoice.
Still, VAT is applied and collected, but the invoice issued is treated as a regular commercial invoice rather than an official VAT invoice. The VAT charged will be at the standard VAT rate, unless otherwise specified by the law.
Noted with thanks. However, your interpretation of the law is different when compared with tax professionals and the IRD Sri Lanka. There is no need to include 20 6 (a) in the law what you interpret is correct.
VAT is always in the invoice, and it is traced to VAT reconciliation in Manager.io. To comply with law registered supplier shall not show it separately when invoicing to non-registered buyer. The reason is such invoice is not named “Tax Invoice” and “Tax Invoice” can be issued only when the transaction is between two registered persons in this case.
That is correct. VAT should not be shown separately on invoices issued to non-registered buyers and as such @Mabaega advise is correct and @Patch is not. This approach is intended to prevent unregistered consumers from claiming any tax credit or deduction. However, registered suppliers must still ensure they meet VAT reporting requirements and remit the correct VAT amounts to the tax authority. VAT should be included in the total invoice amount but not broken out as a separate line item visible to the non-registered buyer.
Not sure how a business not registered for VAT with their tax authority is suppose to have any real chance of claiming a tax credit from their tax authority.
That system implies a business must maintain an accurate current record of the VAT status of every customer prior to the business issuing an invoice to each customer.
Sounds like an expensive regulation with extremely small benefit to anyone in the jurisdiction to me.
For a simple example
Driving to work I stop a the local supermarket and buy a few rolls of toilet paper for the staff toilet. The cashier (automatic or human) offers an invoice showing VAT.
Next day I stop at a different supermarket and get a litre of milk for the staff tea room, again a receipt showing VAT/GST is collected.
Then go to a petrol station and fill up a car for work travel with fuel, again getting an invoice / receipt showing GAT/VAT
Under to proposed interpretation in all the above cases the automated or human checkout would have to establish (and I assume record / or verify) my VAT status prior to printing a receipt / invoice showing VAT/GST or not.
That interpretation sound highly improbable to me.
Shows once more that there is enormous variability in what tax authorities require and how difficult it is for any accounting application to match such.
In countries such as the Netherlands the customer has to indicate the need for a tax invoice or tax receipt and need to provide more details to the supplier so that one can be issued. Otherwise it is just a normal commercial invoice or receipt.
This is still the simplest variation. There is something called SVAT system in which buyers and sellers have to take different positions depending on whether they are related to export -oriented manufacturing or not. In this case, VAT is dealt in without the movement of cash. Buyer gets credit vouchers from IRD under strict restrictions and VAT portion is settled with the acknowledgement of these credit vouchers by the seller. Situation is more complex when they have mixed purchases and sales to non-export-oriented enterprises. Lot of complications and reconciliations involved. This is too much to discuss now and so far no client is in this complexity.
