What is Goods and Services Tax?
Sierra Leone’s Goods and Services Tax (GST) is a modern form of sales tax—a tax on the domestic consumption of imported and locally-produced goods and/or services, paid as a percentage of their value at the time they are imported, sold, exchanged, or delivered.
From the start date of 1st September 2009, GST is applied at a single rate of fifteen per cent (15%) on the majority of goods and services (including imports) supplied in Sierra Leone for local use or benefit.
It will replace seven existing taxes—Import Sales Tax, Domestic Sales Tax, Entertainment Tax, Restaurant and Food Tax, Messages Tax, Hotel Accommodation Tax and Professional Services Tax—thereby simplifying and streamlining the present system of indirect taxation and reducing the cost of administration for the Government, the National Revenue Authority (NRA) and businesses.
Note 1: Non-tax charges, direct taxes such as Income Tax and Corporation Tax, and Import Duty, Excise Duty and Export Duty will continue to be charged, as previously, after the introduction of GST.
GST will be collected from customers only by registered businesses (mainly large businesses) when they make supplies of those goods and services that are not specified in the GST Act 2009 as exempt or zero-rated. (See the Section ‘Do I have to register for GST?’ below).
However, GST is not a tax on businesses. Although registered businesses will have to make regular accounting of the tax they have collected (known as output tax) they will be able to deduct from the output tax the GST they have incurred on their raw materials, goods purchased for resale and other legitimate business expenses that was directly related to the making of taxable supplies (known as input tax). They will pay only the difference to the NRA.
It was not possible to reclaim Sales Tax on business expenses under the previous regime. Therefore, operating costs for registered businesses will be reduced as a result of GST and they will have the opportunity to pass on savings to their customers.
Note 2: Payments of GST must be made to the Commissioner General of the NRA (the Commissioner General), who is the official appointed by law to administer the Tax.
What will be taxed under GST?
Under Sierra Leone’s GST Act 2009 there are four categories of goods and services collectively known as ‘supplies.’ These are:
- Standard-rated supplies
- Zero-rated supplies
- Exempt supplies and
- Supplies outside the scope of GST
‘Standard-rated’ Supplies are those goods and services that are taxed at a standard rate of their total value in money at the point of sale, exchange or importation. There is a single standard rate of GST in Sierra Leone of fifteen per cent (15%).
All goods and services provided for use or benefit in Sierra Leone (including imports) will attract GST at the standard rate, unless explicitly specified in the GST legislation as ‘zero-rated’ or ‘exempt’ supplies, or where an item is outside the scope of GST.
‘Zero-rated’ Supplies are those goods and services that are taxable but for economic reasons, are taxed at zero per cent (0%). Examples of zero-rated supplies are exports (except the exports of minerals, including gold and diamonds), and goods shipped as stores on ships or aircraft leaving Sierra Leone. Zero-rating is important for exports since it maintains Sierra Leone’s competitiveness in world markets.
Standard rated supplies and zero-rated supplies are together known as ‘taxable supplies.’
Some examples of taxable supplies are:
- the sale of new and used goods, including those under a hire purchase agreement
- renting and hiring out of goods
- business stock used for private purposes
- the provision of a service—for example hairdressing or hotel accommodation
- charging admission to enter into premises and
- the majority of imported goods
‘Exempt Supplies’ are those supplies that for social, economic or difficult-to-tax reasons are not taxed. Examples of exempt supplies are rice, piped water, fuel, books, educational and medical services, specified pharmaceutical supplies and financial services and minerals for export, including gold and diamonds.
Only one item is listed as ‘outside the scope of GST’ namely the transfer of a going concern.
There is also relief from GST for some institutions and in certain circumstances, for example for foreign embassies and for goods imported for rehabilitation or relief following a natural disaster.
Note 3: A registered person making supplies to these institutions must charge GST in the normal way, unless an official relief voucher, as issued by the Commissioner General, is presented by the person benefiting from the relief for the amount of tax involved. Relief vouchers must be retained by the supplier and the total GST. Exclusive value of goods for which relief vouchers have been presented must be recorded in the GST Return for the tax period.
However, in fact, there is relatively little exclusion to GST charges in Sierra Leone.
Note 4: In deciding whether your business qualifies as a GST-registered business, it is important that you should know which of the goods and services you make or intend to make, fall into the categories described above. The NRA’s public information leaflet “What will be taxed under GST?” (Under the Publication Section of the website) provides more details. In addition, the GST Act, 2009 Part One, Sections 6-14, deals with classification issues and Schedules 1-4, of the Act give a list of zero-rated and exempt supplies, institutional reliefs and transactions outside the scope of GST. (See the Laws & Regulations Section for details)
Do I have to register for GST?
If on 1st June 2009 your business has made ‘taxable supplies’ (i.e. goods and services that are taxed at the standard and/or zero-rate) above a threshold of Le 200,000,000 in the preceding 12 months, or if there are reasonable grounds to believe that your taxable supplies in the coming 12 months are likely to exceed Le 200,000,000, or your taxable supplies in the previous four calendar months have exceeded one third of the registration threshold (i.e. Le 66,666,666), you must be register for GST not later than two months before the start date of GST on 1st September 2009.
Thereafter you must register within 30 days if at the end of any month your business has made taxable supplies in the preceding 12 months, or is likely to make taxable supplies in the coming 12 months above the Le 200,000,000 threshold, or your taxable supplies in the previous four calendar months has exceeded one third of the registration threshold (i.e. Le 66,666,666). (See Note 5 below).
Note 7: Since zero-rated goods are also classified as taxable supplies, they must be included in determining whether you exceed the threshold for registration. But remember, you cannot include the value of your exempt supplies in calculating your taxable turnover and if the only services you supply are exempt supplies, you cannot be registered for GST.
Irrespective of your turnover, you must register if you are the promoter of public entertainment, the licensee or proprietor of a place of public entertainment, or a Government entity or a council carrying out a taxable activity.
The rules for registration apply also if you take over a business as a going concern. It does not matter whether the last owner was registered. If the business is trading at a level above the threshold for registration, or meets the requirement stated above, then you will need to register. Your effective date for registration will be the day you take over the business.
Note 8: The actual transfer of a going concern is outside the scope of GST.
If your business qualifies for registration, you will be classed as a ‘taxable person.’
It is important to note that only those taxable persons who are registered are allowed to charge GST. If you are not registered for GST it will be an offence under the Law to charge GST to your customers and you will not be able to reclaim any GST incurred on your business expenses. However, you will be liable for any GST that should have been collected on supplies made by you after the date on which you were first required to be registered, whether or not you were registered.
If you are unregistered at a time when you should be legally registered, and if you charge GST to your customers, you will commit two offences under the GST Act 2009—one of being unregistered and another for charging GST unlawfully and you will be liable for financial and/or penal penalties. (See “Penalties” below).
How do I register?
To register for GST you must complete the GST Registration Form GST 01 which is available from any NRA office. The completed form must be returned to:
The Taxpayer Services Unit,
National Revenue Authority,
However, before registering you must be in possession of a Taxpayer Identification Number, or TIN. (See the NRA’s public information leaflet “The Taxpayer Identification Number”).
Note 9: As soon as you apply for registration, the full advice and support from the NRA in understanding your legal obligations and in making your preparations for accounting for the tax will be available to you.
Supplies made by the State
Government entities and councils are also liable to be registered if they undertake a taxable activity but will be treated as a single person. Any ministry, department, or agency of the government or council will be taken to be that same person. However, GST will not be charged on any regulatory functions or services—only where goods and services are provided in competition with commercial concerns (e.g. the provision of sports facilities).
Can I register for GST if my taxable turnover is below the threshold?
If your taxable turnover is below the registration threshold but you are able to demonstrate that what you do is a business for GST purposes, you can apply for ‘voluntary registration.’ This is not a right but can be granted at the discretion of the Commissioner General.
The advantages and/or disadvantages of voluntary registration will vary depending on the nature of your business activities.
Advantages could include increased credibility for your business and the ability to reclaim input tax. (See the Section ‘Will GST be an additional burden on my business?’ and Note 12 below). Nevertheless, before you apply for voluntary registration, you should carefully consider whether it will indeed be beneficial to your type of business and you may wish to seek guidance from the NRA, or independent professional advice.
Can I de-register?
A person, who is required to register and is registered for GST must apply to the Commissioner General for cancellation of registration if they cease to make taxable supplies for a six month period. A registered person who continues to make taxable supplies, but does not exceed the registration threshold for a period of 12 months, may apply to have his or her registration cancelled except where the person is required to be registered irrespective of the registration threshold. (See the Section ‘Who must register for GST?’ above).
Cancellation of registration will take effect from the date set out in the cancellation notice which will not be less than two years after the date of registration (including voluntary registration), unless otherwise authorised by the Commissioner General.
However, a person whose registration is cancelled will be required to re-register if at any time in the future they reach the threshold.
Note 10: For further information see Part Three of the Goods and Services Tax Act 2009 which deals with registration issues, and the NRA’s public information leaflet “Should I be registered for GST?”
What must I do once I am registered?
Once you are registered, you must charge GST to your customers on all taxable items. You will be required to issue a GST invoice when supplying taxable goods or services to a customer which must contain:
- your name, address and taxpayer identification number (TIN);
- the time of supply;
- the number of the invoice taken from a consecutive series;
- your customer’s name address and TIN (if that customer is also a taxable person);
- a description of the goods or service, including the quantity, or extent of the service;
- the type of sale (i.e. whether sale, hire purchase, lease, exchange, or goods and services; received from your customer;
- the GST charge for each description of goods or services supplied;
- the rate of GST;
- the total charge on the invoice exclusive of GST;
- the rate of any discount;
- the total GST charge; and
- the total charge inclusive of GST.
Note 11: A simplified accounting system is allowed for businesses that are primarily retail businesses (i.e. those selling directly to the general public) subject to the permission of the Commissioner General. (See the NRA’s public information leaflet “GST Special Retail Schemes”).
You will be required to make returns of all your standard, zero-rated and exempt supplies and pay any tax that is due for each ‘tax period’ (See Note 12, below) not later than the end of the month following the tax period to which they relate. However, as mentioned above, you will be able to reclaim the GST you have incurred on your allowable business expenses. (See ‘Will GST be an additional burden on my business?’ below).
Note 12: ‘Tax period’ means a period prescribed by the GST Regulations for specific classes of registered persons. For taxpayers with an annual taxable turnover in excess of Le 600,000,000 this is one calendar month. For all other taxpayers it is two calendar months.
Your returns must be submitted in Leones. Where foreign currency is accepted as the consideration for goods and services, the amount must be converted to Leones using the exchange rate pertaining at the time the supplies were made. Where a consideration other than money is given in exchange for your taxable supply, this must be valued at the fair market rate and must be submitted in cash terms.
You will also have to maintain records of your sales and purchases and retain these for at least six years following the period to which they relate. (See the NRA’s information leaflet “GST: Books and records to be kept”). If relevant GST documents and computer records are not maintained in English, the Commissioner General has the power to demand a translation into English at the taxable person’s expense.