Kairat Uazhanov, Manager of MinTax LLP Tax Department, in his article informs about certain aspects of deferred VAT accounting.
Today, for most companies registered for VAT, the correct and timely accounting for deferred VAT is an issue of big importance. The term “Deferred VAT” is not used in the tax legislation and is a consequence of the difference in the period of booking of received goods, works, services and VAT subject to offset.
According to paragraph 1 of Article 401 of the Tax code[1], VAT subject to offset shall be accounted for in that tax period in which the most recent of the following dates occurs:
1) the date of receipt of goods, work, services;
2) the date of issue of an invoice or another document which is a basis for VAT offsetting in accordance with paragraph 1 of Article 400 of the Tax code.
The VAT tax period is the calendar quarter.
The situations when goods, work, services are received at the end of the reporting tax period (quarter) and related invoices are received in the next reporting tax period (quarter) give rise to so-called “transitory invoices”, for which VAT amounts should be referred to offset based on their issuance date.
However, according to paragraph 6 of Article 401 of the Tax code, an exception shall be made in respect of invoices related to purchases of electric and (or) thermal energy, system services in accordance with the Law of the Republic of Kazakhstan “On Electric Power Industry” dated 09 July 2004 No 588-II, for which VAT is booked in that tax period in which the turnover from selling such goods, work, services occurs.
Deferred VAT is booked on account 1422. The amounts of deferred VAT are accumulated on account 1422 and are carried over to account 1421 (VAT to be offset) based on the issuance dates of invoices received.
In order to minimize errors, one must periodically reconcile the invoice data recorded on account 1422 with the invoice data placed on the IS EI[2]. The balance of account 1422 at the beginning of the reporting tax period (quarter) must correspond to the total of invoices carried over from the previous reporting tax period (quarter) and, respectively, the balance at the end of the reporting tax period (quarter) must correspond to the total of invoices carried over to the next reporting quarter.
The lack of control over the correctness of deferred VAT accounting may lead to in-house control notices being issued by the tax authorities. In the meantime, in case of a tax inspection, VAT amounts recognized as offset may be eliminated from the audited period.
In addition, it should be borne in mind that, according to the “Rules for the application of the risk management system based on criteria that are not confidential information”, approved by the Order of the Minister of Finance of the Republic of Kazakhstan No. 252 dated 20 February 2018 – in the event of repeated changes and additions of a reduction nature made to the previously submitted VAT declaration (more than five times for a total amount of more than ten million Tenge), if more than twelve months have elapsed from the date set for the submission of that declaration, the risk level of the taxpayer is increased by 4 points.
Thus, the organization of control over the correct and timely accounting for deferred VAT is important in reducing the risks for companies registered for VAT.
[1] The RoK Code No. 120-VI dated 25 December 2017 “On Taxes and Other Obligatory Payments to the Budget”.
[2] Information system of electronic invoices.
