Facts about Tax Invoice

Why a tax invoice?

A tax invoice is the document stating the occurrence of a transaction. Therefore, it is considered the cornerstone of any system of sales taxation. Since the taxable act is the "sale" of goods or the supply of services, this act needs to be proved or documented. Without these documents (tax invoices) there is no tax, no books, no records, no accounting and the tax system collapses. Therefore, tax officers, allover the world, always insist on the issuance of a tax invoice to cover each sale or transaction, since most common way of tax evasion arises through failing to issue a tax invoice to cover deals or transactions.

Invoice versus Tax Invoice:

Before the introduction of sales taxes the issuance of an invoice was set by the Commercial Code, since it was appropriately considered the core of accounting. Therefore, all compliant traders find it normal to issue invoices covering their dealings and thus guaranteeing the quality of their supplies of goods and services. The ordinary invoice includes the name of the business, vendor and its logo, the description of goods or services sold, the price of each unit, value thereof and the total value as well as the serial number and the date of issue. Often the invoice is stamped PAID to indicate actual payment. Also, every invoice has a serial number and a date for recording it in books for accounting purposes.

Now what is new with the Sales Tax Invoice?

Only that the seller or vendor shall add the tax rate and the tax due SEPARATELY in order to declare the amount of tax he charged the purchaser - an amount which he shall send to Sales Tax Department accompanied with his return. It is that simple. The tax invoice should also include Sales Tax Registration Identification Number of the vendor and the purchaser, if registered. If a retailer uses a till, its tape may replace a tax invoice.

Why do SOME businessmen resist or deliberately neglect the issuance of tax invoices?

Logically, for one single reason: to commit tax fraud or tax evasion. Dear registrant, of course you are not one of them!

Following are some legal facts about tax invoice that you should be aware of:

First: Issuance of tax invoice: -

Non-issuance of tax invoices by a registrant for his sales of taxable goods and services is deemed a tax evasion act according to the provision of paragraph (8) of article 44 of law no 11 of 1991. Each sale not documented by issuing a tax invoice is considered a separate act of tax evasion. Article (7) of the Regulations specifies the details required in tax invoices.
A registrant is required by virtue of Article (14) of law no. 11 of 1991 to issue a tax invoice for each sale of taxable goods or services. Article (8) of the Regulations specified the details that should be included in a tax invoice.
Issuance of a tax invoice is deemed a taxable act by virtue of article (1) of law no. 11 of 1991.
A registrant is required by virtue of article (15) of law no. 11 of 1991 to keep books, records and invoices for three successive years following the year in which the data were entered in such books and records.
As for Table no.(1) commodities, the possession of such commodities without keeping the documents proving the payment of sales tax due thereon is deemed a tax evasion act by virtue of paragraph (9) of Article (47) of the law.

Second: Procedures taken by the Department in relation to non-issuance of tax invoices:

The Department launched educational campaigns to educate both registrants and tax community of the importance of issuing tax invoices through: mass media, "Tax Culture" Magazine, businessmen societies, chambers of commerce and registrants' assistance units in each district office. The Department willingly replies all queries and offers free training courses to those who want.
After offering the necessary educational services, the Department applies the provisions of the law pertaining to tax invoices. In case of non-issuance of tax invoices, audit and anti-evasion officers are required to take legal procedures stipulated in the law.

And don't forget that:

*Price statements are not considered tax invoices.

*If an invoice does not show the data of purchaser to enable him to evade tax payment in the further stages of trade, such invoice is not considered a tax invoice.

*If a tax invoice does not show the full details required by virtue of law, it is not considered a tax invoice.

*Every sale not documented by issuing a tax invoice is deemed a separate act of tax evasion even if it occurs in the same period of audit. Thus, a registrant may be accused of multiple tax evasion acts in the same audit period.

*Tax auditors examine registrants compliance with implementing provisions of sales tax law, its regulations and tax instructions specially in the following fields :

Keeping the books and records provided for in the law;
Issuing a tax invoice for each individual sale;
Identifying the taxable act as recorded in the invoice or other documents and verifying reporting such act in the return relating to the same taxable period;
The relevance between the goods included in the invoice and the activity practiced by the business;
Input tax credit is allowed only when tax invoices are issued and recorded in the books and records of the business during the same taxable period;
Verifying the invoices of a business with its clients and suppliers;
Verifying tax calculations, due amounts of tax, and applicable tax rates;
In case of issuing more than one copy of a tax invoice, the purpose of issuing such copies and the parties receiving them is to be verified;
Examining the possession of tax invoices by the registrant of the same amounts claimed by him as tax credit or tax refund; and
Regularly educating registrants of the instructions to be followed in issuing, keeping and handling tax invoices.

Third: The reasons behind the non-issuance of invoices at all level:

The absence of tax awareness, which is the main reason of non- issuance of tax invoices.
Increasing the price of commodities by some registered traders when consumers ask for tax invoices.
The fear, on the part of registered traders, of revealing their true turnovers by issuing a tax invoice for each transaction. Hence the increase of their income tax liabilities.
The impossibility of crediting the tax previously paid on services as no provision allows such credit.
The misunderstanding by tax community that the tax increases prices and diminishes the products' competitiveness in the markets. Hence tax avoidance by traders to decrease products costs.

Fourth: The sequence of invoice issuance from manufacturers to wholesalers and down to retailers:

The problem lies in the fact that manufacturers or importers don't issue tax invoices for wholesalers or retailers. Thus, a manufacturer is fraudulent.

The aim of extending the tax to traders is to regulate the tax community and attain the system self-control. Thus, the distribution chain should be regulated from the beginning (registered manufacturers) till the end (retailers).

Fifth: How can a trader deal with the importer or manufacturer who refrain from issuing a tax invoice?

In this case, a trader shouldn't deal with such importer or manufacturer at all to maintain his right to tax credit on purchases to which he is entitled only by a tax invoice, in addition to his right to tax refund in case of exportation.
If it is necessary to deal with such an importer or a manufacturer, a trader should reluctantly buy goods without invoices. But, he has to inform the Department of the volume of his transactions with such manufacturer or importer and attach any relative documents. In this case, he is considered an honest trader.

Sixth: How can a consumer deal with the trader who refrains from issuing tax invoices?

First of all, a consumer should refuse purchasing from such a trader as the consumer has already paid the price in full including the tax. Consequently, he is entitled to have a document indicating payment of the tax that should be remitted to the Treasury.

A tax invoice is not only an evidence of possessing a commodity, but it also enables a consumer to change it in case of any defects or take back its price as well as the tax. In addition, a tax invoice indicates that a commodity is safe to use and has no harmful physical effects. Otherwise, a consumer should inform the Department of the traders' names and addresses.

Seventh: How to regulate the market by issuing invoices:

The aim of extending the tax to the second and third stages is to regulate and control the market by means of tax invoices being circulated from manufacturers to wholesalers to retailers to consumers. A tax invoice entails system self-control as a manufacturer's sales are a wholesaler's purchases and the latter's sales are a retailer's purchases.
A tax invoice facilitates surveying tax community by registering traders on reaching the registration threshold to attain fair competition among them. Thus, the Department attaches a great importance to invoices which insure the remittance of tax revenues to the Treasury.

Eighth: Increasing tax awareness for women including the importance of getting a tax invoice:

Playing a great part in shopping particularly in Egypt, women must be educated of the importance of getting a tax invoice on purchasing commodities to insure the following:

Proving the possession of a commodity.
The possibility of changing a commodity or taking back its price.
The remittance of the tax to the Treasury.
Safety and soundness of a commodity particularly food products and cosmetics.

Tax awareness of women can be increased through T.V. programs for women.

Ninth: The form and data of a tax invoice:

According to Article (7) of the Regulations of Sales Tax Law, a registrant shall issue a tax invoice on selling a taxable commodity or rendering a taxable service. It shall be issued in duplicate: the original is given to the purchaser and a copy is kept by the registrant. Invoices shall have serial numbers according to dates of issuance. An invoice shall include the following data:

The serial number and date of issuance.
The registrant's name, address and registration number.
Description, price and tax rate of sold commodity or service in addition to the invoice total value.
The purchaser's name, address and registration number, if registered.

A Simplified Model of a Tax Invoice

(To be issued at selling and received at purchasing)

(Some information might be changed by adding additional data

According to the type of business)

Invoice serial no.:…………………. Date: / /

Vendor’s name: ……………………………………..S.T.D Registration no....... …………….

Address………………………………………………………………………………………….

Purchaser’s name: …………………………………

Address………………………………………………………………………

S.T.D Registration no.(if registered):……………...

Serial No.	Goods or Service	Qty	Price/unit	Net Price	Tax Rate	Tax	Total
1	Radio Cassette	2	300	600	10%	60	660
2	Boxes of Soap	5	70	350	5%	17.5	367.5
3	Mixer	1	200	200	10%	20	220


	TOTALS			1,150		97.5	1,247.5

Tenth: Traders' claims of non-issuance of tax invoices and how can the Department face such claims:

1-Some traders allege that they do not issue tax invoices because they purchase commodities from manufacturers without invoices. Thus, the documentary cycle is not affected either by sale or purchase.

**As to this claim, the Department should make registered manufacturers aware of the necessity of issuing tax invoices, as they are the beginning of the distribution chain. Moreover, the Department should apply the provisions of the law on such manufacturers who are considered fraudulent according to Article (44) of the Law.

2-Some traders are afraid of revealing their true turnovers lest they should be liable to higher income tax rates.

** It should be noted that each of the sales tax Dept and the Income Tax Dept. has a separate law. Consequently, the returns submitted to the former differs from those submitted to the latter as to date of filing in addition to the secrecy of data of each Department.

3- The absence of tax awareness among traders who believe that the tax leads to price increases and non-competitiveness in the markets.

** In this regard, it could be argued that sales tax is an indirect tax. Thus, its burden falls on the final consumer, as a trader is only responsible for collecting and remitting the tax to the Department.

4- As to the claim that the tax will increase prices by the tax rate percentage, it could be argued that the tax has been levied since 1991 and the resulting price increase had been once determined at the beginning of application by 1.2% approximately, not by the tax rate percentage.

5- As to the fear because of the contingent unfair competition between registered and non-registered traders, this is untrue as a registered trader is entitled to credit the tax previously paid on his purchases. The Department will conduct a survey including traders who actually reached the threshold and has not applied for registration and will take legal actions against them in order not to treat the honest registered traders and dishonest unregistered ones in the same way.