Insight

FAQ: GST Rate Change (Updated)

December 12, 2022

Introduction

On 22nd November 2022, the 6th Amendment to the GST Act (“Sixth Amendment”) was ratified and published in the Government Gazette. The 6th amendment increases the current GST rate applicable on standard rated goods and services as below commencing from 1st January 2023.

Particulars	General GST	Tourism GST
Current rate	6%	12%
Rate applicable from 1 Jan 2023	8%	16%

The “time of supply” determines the point on which GST is applicable for the goods sold and services supplied. In our prior memo, the rules to determine “time of supply” is discussed in detail.

Simply put, time of supply is the earlier of either:

the time at which a tax invoice is issued for a good or service; or
the time at which the recipient of the goods or service makes full or partial payment.

A pro forma invoice is not considered as a tax invoice and issuance of a pro forma invoice will not trigger the time of supply.

Example 1 – General rule on time of supply
Company A sold goods worth USD 3,000 to Company B on 30th December 2022 and the tax invoice was issued on the same day. Company B settled the invoice on 2nd January 2023. Assume that Company A is registered for GST at the General GST sector. In this case, the time of supply of this transaction is 30th December 2022 and GST is applicable to the transaction at the rate of 6%.

Example 1 – General rule on time of supply

Company A sold goods worth USD 3,000 to Company B on 30th December 2022 and the tax invoice was issued on the same day. Company B settled the invoice on 2nd January 2023. Assume that Company A is registered for GST at the General GST sector.

In this case, the time of supply of this transaction is 30th December 2022 and GST is applicable to the transaction at the rate of 6%.

This memo covers frequently asked questions and further clarifications with the help of guides and fact sheets issued by the Maldives Inland Revenue Authority (“MIRA”).

Cut -Off Time

Businesses operating on a 24-hour basis is required to apply the new GST rate depending on the sector they are registered from 00:00hrs of 1 January 2023. All other businesses are required to charge the new GST rate upon the time of opening their business operations on 1st January 2023.

Example 2 – Cut-Off Time on non 24hr businesses
Company A operates a tourist resort in the Maldives. The resort has a staff shop operated by a third-party (“Individual B”) in the resort staff area and is registered for GST under General GST. The staff shop is operated from 8am till 2am. Individual B must charge GST at the increased rate of 8% for all goods sold and services supplied upon the time of opening of the staff shop on 1st January 2023 as the staff shop is not run on a 24-hour basis.

Example 2 – Cut-Off Time on non 24hr businesses

Company A operates a tourist resort in the Maldives. The resort has a staff shop operated by a third-party (“Individual B”) in the resort staff area and is registered for GST under General GST. The staff shop is operated from 8am till 2am.

Individual B must charge GST at the increased rate of 8% for all goods sold and services supplied upon the time of opening of the staff shop on 1st January 2023 as the staff shop is not run on a 24-hour basis.

Example 3 – Cut-Off Time on 24hr businesses (Accommodation)
A guest arrives at a tourist resort on 27th December 2022 and departs on 5th January 2023. The resort policy is to issue the tax invoice on arrival for fixed fees such as accommodation and transportation charges. Resort issued a tax invoice for a total of USD 30,000 on 27th December 2022 which includes accommodation for the entire stay and the transportation charges to and from the resort to the Velana International Airport. Payment for the same was settled by the guest on the same day. The Resort must charge GST at the rate of 12% (rate applicable before 1st January 2023) for the whole invoice as the time of supply occurred on 27th December 2022.

Example 3 – Cut-Off Time on 24hr businesses (Accommodation)

A guest arrives at a tourist resort on 27th December 2022 and departs on 5th January 2023. The resort policy is to issue the tax invoice on arrival for fixed fees such as accommodation and transportation charges.

Resort issued a tax invoice for a total of USD 30,000 on 27th December 2022 which includes accommodation for the entire stay and the transportation charges to and from the resort to the Velana International Airport. Payment for the same was settled by the guest on the same day.

The Resort must charge GST at the rate of 12% (rate applicable before 1st January 2023) for the whole invoice as the time of supply occurred on 27th December 2022.

Example 4 – Cut-Off Time on 24hr businesses (Extra Consumption)
A guest arrives at a tourist resort on 27th December 2022 and departs on 5th January 2023. The resort policy is to issue the tax invoice on extra consumptions such as spa, restaurants, and dive center on departure. Guest had accumulated extra consumption of USD 20,000 which was billed to the guest on 5th January 2023. GST is applicable for the transaction as follows. GST at the rate of 12% for the services consumed on 27th and 28th December 2022 as the resort is required to issue a tax invoice within 3 days of providing the goods or service. GST at the rate of 16% for the balance (that is services consumed on 29th December 2022 till 5th January 2023) as the tax invoice and the payment for this was received on 5th January 2023.

Example 4 – Cut-Off Time on 24hr businesses (Extra Consumption)

A guest arrives at a tourist resort on 27th December 2022 and departs on 5th January 2023. The resort policy is to issue the tax invoice on extra consumptions such as spa, restaurants, and dive center on departure.

Guest had accumulated extra consumption of USD 20,000 which was billed to the guest on 5th January 2023. GST is applicable for the transaction as follows.

GST at the rate of 12% for the services consumed on 27th and 28th December 2022 as the resort is required to issue a tax invoice within 3 days of providing the goods or service.
GST at the rate of 16% for the balance (that is services consumed on 29th December 2022 till 5th January 2023) as the tax invoice and the payment for this was received on 5th January 2023.

Advance Receipt

If an advance payment or non-refundable deposit is received before issuance of a tax invoice for the goods and services supplied, the time of supply of this transaction will be the receipt date of the advance payment or deposit.

Example 5 – Advance Receipt
Company A who operates a tourist resort issues a pro-forma invoice of USD 10,000 on 20th December 2022. Th guest was expected to arrive at the resort on 4th January 2023 and depart on 7th January 2023. The guest makes a payment of USD 8,000 on 27th December 2022 and the balance payment of USD 2,000 was settled on 2nd January 2023. The resort issued the tax invoice for the stay on 7th January 2023. Since the pro-forma invoice is not considered as a tax invoice, the time of supply of this transaction will be as follows. 27th December 2022 for the payment of USD 8,000 2nd January 2023 for the payment of USD 2,000

Example 5 – Advance Receipt

Company A who operates a tourist resort issues a pro-forma invoice of USD 10,000 on 20th December 2022. Th guest was expected to arrive at the resort on 4th January 2023 and depart on 7th January 2023.

The guest makes a payment of USD 8,000 on 27th December 2022 and the balance payment of USD 2,000 was settled on 2nd January 2023. The resort issued the tax invoice for the stay on 7th January 2023.

Since the pro-forma invoice is not considered as a tax invoice, the time of supply of this transaction will be as follows.

27th December 2022 for the payment of USD 8,000
2nd January 2023 for the payment of USD 2,000

Issuing Tax Invoice on Confirmed Bookings

Tax invoice can be issued on confirmed bookings prior of receiving advance payment or arrival of guest.

Example 6 – Issuing Tax Invoice on Confirmed Bookings

Mr. Smith makes a booking for a stay from 4th January 2023 to 10th January 2023 at a Maldives Tourist Resort operated by Company A. Company A issues a tax invoice in relation to Mr.Smith’s stay on the date of booking confirmation (12th December 2022).

Payment was settled by Mr.Smith on departure on 10th January 2023.

GST must be charged at the rate of 12% since the time of supply occurred on 12th December 2022 on issuance of the Tax Invoice. GST must be declared and paid to MIRA in the tax return of Dec 2022 (if filed monthly).

Issuing Split Invoices

A taxpayer can issue a separate tax invoice for goods sold and services supplied in 2022 and a separate tax invoice for goods sold and services supplied in 2023.

Example 7 – Issuing Tax Invoice on Confirmed Bookings
A guest arrives at a tourist resort on 27th December 2022 and departs on 5th January 2023. On 31st December 2022, the resort operator issues a tax invoice for all the goods and services consumed by the guest from 27th December 2022 till 31st December 2022. This invoice includes accommodation and extra consumption for the said period. For the goods and services consumed by the guest from 1st January 2023 till 5th January 2023, the resort operator issues a second invoice on 5th January 2023. This invoice includes accommodation and extra consumption for the said period. Resort operator must charge GST at the rate of 12% for the invoice issued on 31st December 2022 and GST at the rate of 16% for the invoice issued on 5th January 2023.

Example 7 – Issuing Tax Invoice on Confirmed Bookings

A guest arrives at a tourist resort on 27th December 2022 and departs on 5th January 2023.

On 31st December 2022, the resort operator issues a tax invoice for all the goods and services consumed by the guest from 27th December 2022 till 31st December 2022. This invoice includes accommodation and extra consumption for the said period.

For the goods and services consumed by the guest from 1st January 2023 till 5th January 2023, the resort operator issues a second invoice on 5th January 2023. This invoice includes accommodation and extra consumption for the said period.

Resort operator must charge GST at the rate of 12% for the invoice issued on 31st December 2022 and GST at the rate of 16% for the invoice issued on 5th January 2023.