Everald Dewar | GCT on goods versus services
To quote Alice in Wonderland: “I’m afraid I can’t explain myself, sir. Because I am not myself, you see.”
I find myself in this same wonderland as Alice as it relates to the subject of general consumption tax, or GCT, on services, as this always defied common sense. The legal definition for a supply of service, for GCT, is anything which is not goods, but done for a consideration – that is, whether for money or a right.
In this case ‘anything’ can mean ‘everything’.
A case was discussed in one of the GCT workshops put on by the Institute of Chartered Accountants of Jamaica, ICAJ, where a taxpayer imported certain data cards. He contended at Customs that as the cards contained data, they were an importation of service, but if there were no data on them, they would have been importation of goods.
This would be similar to saying that the selling of a telephone card with unused credit is the supply of service, but if all the credit was used up it would be a supply of goods. The telephone card grants a right to use telephone services. Or is it goods with entitlement to service? One has to consider the true nature of the transaction and not the motive of the contracting parties.
The humbug gets even more complicated, as where a trader carries out minor work on his customer’s goods it is a supply of service, but major work could make it a supply of goods. Intelligence alone is not enough to sift through issues this complicated.
Knowing when one is making a supply of goods as opposed to service is also very important when accounting for international services.
Under our omnibus fiscal incentives framework, it is regarded as supplying goods in Jamaica if the work carried out alters the essential characteristics of the various components or material. The test is whether the combination of the various elements by a process of manufacturing changes the composition, resulting in an article so significantly different from the original items in character or nature that it can be described as new or unique. Otherwise, it is a supply of service.
Such service may include repair or reconditioning. If the goods are subsequently removed or exported from Jamaica then the service, consisting of making arrangements for export of those goods to places outside Jamaica, can be zero-rated.
The first rule of thumb is that the supply of service takes place where the supplier belongs to, or that is the location of their business, rather than where they perform the service. But this rule varies. Certain service is supplied where it is performed – that is where it is physically carried out – such as cultural, artistic and entertainment services.
Other services are supplied where receive, and if it used by a business, the recipient would need to charge himself GCT on the service and reclaim it in his GCT return. This is generally referred to as reversed charges. They do this as if they are the supplier of the service, and is treated as importing the service.
The overseas supplier cannot charge and account for GCT on these services, as they take place outside Jamaica and are outside the scope of GCT, for example, Netflix, whether you watch from your phone, tablet or smart TV. The service is transmitted by some means, perhaps fibre-optic cable or satellite, and the provider is supplying a product, namely transmission signals.
It must be recognised that these services can be made to businesses that are not registered for GCT and are not required to register even though they are in a trade. However, once the service is considered imported, it matters not whether the business person is registered for GCT. They must charge GCT on themselves, once it is clear they receive the service for the purpose of the business.
Where the service from overseas is made to an individual, who is not in business, there is no GCT as the overseas supplier is not able to charge GCT. However, where the service ends at a certain point to the Jamaican gateway and must eventually be taken to the customer by a local supplier – for example, a telephone call coming from overseas – the local supplier will then be required to charge GCT on these service on final transmission to the customer.
Everald Dewar is associate tax partner at BDO Chartered Accountants in Kingston.evadew@ yahoo.com