Dealings with local consumers: IMF for GST registration of online digital platforms

ISLAMABAD: The International Monetary Fund (IMF) has recommended sales tax registration of online digital platforms engaged in transactions with local consumers.

According to the sources, the IMF has also recommended that online digital platforms that control key elements of the transactions with consumers should be required to register for the value added tax (VAT) and to collect and remit tax in respect of the sales the platform facilitated of digital products/services and/or LVGs of non-resident vendors to domestic consumers.

Sources referred to the IMF recommendation that the platforms may be referred to as intermediaries in some countries. As there are a variety of different types and models of platforms and intermediaries in the online sector, some precision should be taken in determining which non-resident digital platforms are deemed the supplier and required to register and collect VAT on a sale.

30pc taxpayers have obtained ST registration to get sales tax refunds fraudulently?

There are some generally used descriptions of the non- resident digital platforms that are deemed the supplier and required to register and collect VAT.

It included a digital platform (intermediary) that controls or sets the essential elements of the transaction between the third-party vendor and the purchaser, for example, by providing listing services for the sale of services and setting payment terms and delivery conditions. If no such person exists, the digital platform would include a person that is involved, directly or through arrangements with third parties, in collecting, receiving, or charging payment for the sale and transmitting payment to the third-party vendor.

However, a digital platform would not include a person that operates a website that simply allows vendors to list their services for sale, such as a classified or advertising website, or is solely a payment processor.

IMF recommended that the VAT registered business will continue to be required to self-assess and remit (reverse charge) any applicable VAT on its purchases of digital products/services and/or LVGs from non-resident vendors and non-resident digital platform operators. In some jurisdictions, there is no requirement to self-assess and remit any VAT where the purchase is for use exclusively in the business’s commercial activities.

Sources quoted IMF recommendation that the government departments and agents are typically registered and have a VAT registration number or special tax identification number. Their purchases would therefore generally be treated as business-to-business (B2B) transactions, and they will continue to be required to self-assess and remit (reverse charge) any applicable VAT on their purchases of digital products/services and/or LVGs from non-resident vendors and non-resident digital platform operators.

The IMF has also recommended helping protect the integrity of the proposed simplified VAT framework, a penalty could apply if a person provides a VAT registration number to a non-resident vendor or non-resident digital platform operator to evade, or attempt to evade, tax on the purchase of digital products/services and/or LVGs acquired for personal consumption.

Where a VAT registered business provides its VAT registration number and is nevertheless charged the VAT, the business would be able to request a refund from the non-resident vendor or non-resident digital platform operator. Any VAT paid by the registered business in such cases would not be recoverable by claiming any input tax or by filing a tax paid in error claim, sources added.

Copyright Business Recorder, 2024