1. APPLICATION OF VAT IN THE FINANCIAL SERVICES SECTOR -
THE SIERRA LEONE EXPERIENCE
NOVEMBER 2016
Presented by Alfred Akibo-Betts
at the
17th VADA General Assembly – Kampala, Uganda 1

2. PRESENTATION OUTLINE Introduction
VAT Methods of taxing Financial Services
The Sierra Leone Approach
Administration of VAT on Financial Services
Challenges in implementing VAT on Financial Services
Strategies implemented to improve compliance 2

3. INTRODUCTION
General Approach is that Financial Services cannot be included in the VAT Base
Intermediation Charge which should be taxed cannot be separated from interest rate, premium or rate of return which should not be taxed.
Pure Financial Services (Core) versus Fee-Based Financial Services (Secondary) 3

4. VAT METHODS OF TAXING FINANCIAL SERVICES
Exempt all Financial Services (including fee-based): all financial services provided by a provider will be exempt from VAT.
Partially Exempt: Pure (Core) financial services exempt and Fee-Based (Secondary) financial services taxable.
The Addition Method: Value added computed as the sum of wages and income net of the normal return on investment.
The Subtraction Method: the difference between lending revenues and borrowing costs.
Cash-Flow Approach: cash inflows treated as taxable sales and cash outflows treated as purchases and taxable inputs. 4

5. THE SIERRA LEONE APPROACH (1)
Based on the model adopted in South Africa
Pure (Core) Financial Services: EXEMPT
Fee-Based (Secondary) Financial Services: TAXABLE
Item 10 of the Second (Exempt) Schedule of GST Act 2009
Supply: Financial Services.
Description: Provision of insurance; dealing in money (including foreign exchange); provision of credit; operation of any bank but excluding fees and similar charges for non-intermediation services including transfers, professional advice such as accountancy, investment and legal; and safe-keeping services. 5

6. THE SIERRA LEONE APPROACH (2)
Operational from May 2012
Consultation with the Financial Services Sector:
Educational workshops and one-on-one education
Steering Committee including banks and Central Bank
Agreement on list of fee based financial services 6

7. ADMINISTRATION OF VAT ON FINANCIAL SERVICES
Banks are required to charge VAT on only Fee Based (Secondary) Financial Services
Input Tax Treatment (Section 29 of the GST Act 2009):
Input Tax for Fee-Based Financial Services – Claimable
Input Tax for Pure Financial Services – Not Claimable
General Overhead Expenses – Partial Exemption Apportionment by ”Turnover Basis Method”
Reverse Charge (Section 24 of the GST Act 2009) 7

8. CHALLENGES IN ADMINISTERING VAT ON FINANCIAL SERVICES
Confusion with Banks as to what is taxable and exempt
Backlash from the general public
Suppression of taxable supplies by banks
Difficulty in apportionment by banks
Excess input tax credit claims
Dealing with international money transfer and mobile money transactions 8

9. STRATEGIES IMPLEMENTED TO IMPROVE COMPLIANCE
Extensive education of sector players from audit findings
Education of the general public on the administration of VAT on financial services
Specialized Financial Audit Teams at LTO (extensively trained)
Provision of IDEA Software and Training for auditors
Using Audit Findings to build into Risk Analysis 9

10. THANK YOU 10