On June 1, the Government made changes to its policy resulting in public sector entities now being required to pay general consumption tax (GCT) on goods and services purchased or acquired.
These entities are designated Tax Withholding Entities (TWE). The main objective of the new policy is to broaden the tax base, increase compliance and ultimately improve revenue collections.
To get a better understanding of the new policy, let's look briefly at how the GCT system works. Basically, GCT is charged on the supply of goods and services by a registered taxpayer once that taxpayer is carrying out a taxable activity.
Most persons are familiar with this concept as they are charged GCT at the standard rate of 16.5 per cent on certain goods and services.
Prior to June 1, government entities, such as ministries, departments and agencies (MDAs) were allowed to acquire goods and services, which normally attract tax, at zero percent, by getting their invoices 'zero-rated' at a tax office. This has now changed.
Despite the introduction of the new policy relating to GCT on government purchases, the zero-rating of goods and services remains in place under certain circumstances. Entities such as approved charities and organisations that are exempt by virtue of their statute, as well as educational institutions, will continue to benefit from the zero-rating regime.
In addition, goods and services acquired under certain contractual arrangements that started prior to June 1, 2014 will continue to be zero-rated until the contract expires.
RESPONSIBILITIES OF MDAs
Purchases of goods and services for contracts funded by foreign governments and multilateral agencies will also continue to be zero-rated by Tax Administration Jamaica (TAJ).
In implementing the new policy, a mechanism has been introduced whereby the MDAs and designated public bodies will not pay the invoiced GCT amount to the local supplier, but will instead withhold the GCT charged on the purchase of goods and services.
A withholding tax certificate (WTC), also known as a Form 5, will be issued by the TWE to the supplier for the amount withheld, within 30 days of receipt of the invoice.
If payment of the GCT withheld by the MDAs and designated public bodies is being made from funds allocated by the accountant general, then the accountant general will pay over these funds to the TAJ, and inform the TWE when the payment is made.
However, the GCT withheld in respect of purchases made from non-warrant or non-budgetary funds must be paid by the TWEs directly to TAJ by the end of the month following the tax period for which the WTC was issued.
Each month, the MDAs and public bodies that have TWE status are to prepare and file a GCT Remittance Return for TWEs - a Form 4F.
Additionally, where a TWE is also a registered taxpayer, it is also required to file the GCT Standard Return - Form 4A.
RESPONSIBILITIES OF SUPPLIERS
Under the new regime, a registered taxpayer who supplies goods or renders services to a TWE must issue to the TWE a tax invoice showing the applicable GCT.
The manner in which the supplier operates, whether on an invoicing or cash basis, will determine how the GCT charged is to be accounted for. Suppliers operating on the invoice basis are to account for the GCT they have billed the TWE as an output tax on the tax return for the period in which the good/service was supplied. Those operating on a cash basis are to account for the GCT billed as output tax, when payments are received.
The tax withholding certificate received from the government entity is to be used by the supplier to claim the amount of GCT withheld as a tax credit in the taxable period in which the withholding tax certificate was issued or in a subsequent period.
In order for suppliers to claim the GCT withheld by a TWE as a credit on their monthly GCT return, the return must be e-filed.