STANDARD INTERPRETATION GUIDELINE 2021-31 - FRCS

STANDARD INTERPRETATION GUIDELINE 2021-31

INCOME TAX ACT 2015 ? EXPORT INCOME DEDUCTION

This Standard Interpretation Guideline (SIG) sets out Fiji Revenue and Customs Service's (FRCS) policy and operational practice in relation to the Export Income Deduction incentive.

The SIG is issued with the authority of the Chief Executive Officer (CEO) of FRCS.

All legislative references in this SIG are to the Income Tax Act 2015 (unless otherwise stated).

This SIG is in effect from 1 August 2021 and replaces SIG 2020-06. The SIG may need to be reviewed in the event of any relevant legislative amendments.

Purpose

CONTENT 2

Introduction

2

Legislative Analysis

2

Example 1 - Export of Goods in tax year 2022

3

Example 2 ? Export of Agricultural Goods in tax year 2023

4

Example 3 ? Export of Fish in tax year 2023

4

Example 4 ? Export of Services in tax year 2023

5

Example 5 ? Export of Timber in tax year 2023

6

Mixed Sales

6

Example 6 ? Export and Domestic Sale of Agricultural Goods

7

Re-Export

8

Example 7 ? Re-Export of Fish

8

Remittance of Export Earnings

8

Record Keeping

8

Appendix

10

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PURPOSE

1. The purpose of this SIG is to issue a practical guidance on the Export Income Deduction incentive.

2. It includes the 2021-2022 Budget changes where the export income deduction has been divided into two categories, (a) one for agriculture or fisheries industry and (b) another for any other industry effective for tax years 2023 and 2024.

INTRODUCTION

3. The export income deduction is a tax incentive provided by the Fijian Government to encourage the export of goods and services from Fiji.

4. The incentive also promotes economic growth and inflow of foreign exchange.

5. Export income deduction is an allowable tax deduction provided under section 25 of Income Tax Act 2015 (ITA).

6. Examples illustrated in this SIG demonstrate the CEO's interpretation and application of the taxation implications relating to any Export Income Deduction. The examples do not cover the infinite number of factual scenarios that may arise. The relevant legislative provisions must be considered and applied to each case on its particular facts. That is, conclusions should not be drawn by determining whether the facts of a particulars case may be analogous with particular examples, but rather on the basis of applying the correct tests established by the law.

LEGISLATIVE ANALYSIS

7. Section 25(8) of ITA 2015 allows a person to claim a deduction for exporting goods or services.

8. The deduction is computed representing a percentage of the export income and is computed as follows:

Export Income Deduction = Export Income * Export Income Deduction Rate

9. In the 2021-2022 National Budget, the export income deduction has been divided into two (2) categories, (a) one for agriculture, fisheries or forestry industry and (b) another for any other industry effective for tax years 2023 and 2024.

10. For the purpose of this incentive, the following definitions of produce or products will be used to be eligible to enjoy this incentive in the Agriculture, fisheries and forestry industry:

Agriculture industry: Agro produce which includes root crop, vegetable, fruit, live animal, handicraft and any other types of plant product, animal product, marine product or aqua product1.

1 Section 2 - Agricultural Marketing Authority Act 2004

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Fisheries Industry: Fish means any aquatic animal whether piscine or not, and includes shellfish, sponges, holothurians (beche-de-mer), sea urchins, crustaceans and turtles and their eggs2.

Forestry Industry: Forest produce means timber and uncultivated plants. Timber means any tree which has been felled or has fallen, and the part of any tree which has been cut off or has fallen, and all sawn or split wood3.

11. The percentage of export income deduction is set out in the following table.

YEAR OF ASSESSMENT

2011 2012 2013 2014 2015 2016 Tax Year 2017 Tax Year 2018 Tax Year 2019 Tax Year 2020 Tax Year 2021 Tax Year 2022 Tax Year 2023 Tax Year 2024

PERCENTAGE OF EXPORT INCOME TO BE DEDUCTED (AGRICULTURE,

FISHERIES OR FORESTRY INDUSTRY) 50% 40% 40% 40% 50% 50% 50% 50% 50% 60% 60% 60% 90% 90%

PERCENTAGE OF EXPORT INCOME TO BE DEDUCTED

(ANY OTHER INDUSTRY)

50% 40% 40% 40% 50% 50% 50% 50% 50% 60% 60% 60% 60% 60%

12. Furthermore, section 25(9) defines the term export income for the purpose of section 25 as -

"Export income means chargeable income derived by a person from the business of exporting goods or services, but excludes re-exports."

2 Section 2 - Fisheries Act 1991 3 Section 2 - Forest Act 1992

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13. The chargeable income of a person for a tax year is the gross income of the person for the year reduced by the total amount of deductions allowed to the person for the year4.

14. The business of exporting goods or services for the purpose of this incentive means a business specifically established to sell goods and/or services in the export market. It may include businesses which have: - only export sales; or - a mixture of export sales and domestic sales

Example 1 ? Export of Goods in tax year 2022 XCo is a Fiji company which exports goods to Tonga. Assume XCo does not sell goods in Fiji. The export details for the tax year 2022 are as follows: Total export sales - $1,000,000 Total expenses relating to export sales - $500,000

Calculate the Export Income Deduction for XCo for tax year 2022?

CEO's position: The Export Income deduction will be computed as follows:

Step 1: Calculate Export Income

Export Sales Less Expenses relating to export sales Export Income

($) 1,000,000 500,000 500,000

Step 2: Calculate Export Income Deduction Export Income Deduction = Export Income * Export Income Deduction Rate

= $500,000 * 60% = $300,000

Therefore, XCo can claim $300,000 as Export Income Deduction in tax year 2022.

Example 2 ? Export of Agricultural Goods in tax year 2023 ZCo is a Fiji company which exports cassava and dalo to Pacific Island countries. Assume ZCo does not sell cassava and dalo in Fiji. The export details for the tax year 2023 are as follows: Total export sales - $5,000,000 Total expenses relating to export sales - $2,000,000

Calculate the Export Income Deduction for ZCo for tax year 2023?

CEO's position: The Export Income deduction will be computed as follows:

Step 1: Calculate Export Income

Export Sales Less Expenses relating to export sales

($) 5,000,000 2,000,000

4 Section 13 ? ITA 2015

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Export Income

3,000,000

Step 2: Calculate Export Income Deduction Export Income Deduction = Export Income * Export Income Deduction Rate

= $3,000,000 * 90% = $2,700,000

Therefore, ZCo can claim $2,700,000 as Export Income Deduction in tax year 2023.

Example 3 ? Export of Fish in tax year 2023 ACo is a Fiji company which exports fish to United States of America. Assume ACo does not sell fish in Fiji. The export details for the tax year 2023 are as follows: Total export sales - $10,000,000 Total expenses relating to export sales - $7,000,000

Calculate the Export Income Deduction for ACo for tax year 2023?

CEO's position: The Export Income deduction will be computed as follows:

Step 1: Calculate Export Income

Export Sales Less Expenses relating to export sales Export Income

($) 10,000,000 6,000,000 4,000,000

Step 2: Calculate Export Income Deduction Export Income Deduction = Export Income * Export Income Deduction Rate

= $4,000,000 * 90% = $3,600,000

Therefore, ZCo can claim $2,700,000 as Export Income Deduction in tax year 2023.

Example 4 ? Export of Services in tax year 2023 YCo is a Fiji company which exports accounting services to a Samoan company. Assume YCo does not provide any services in Fiji. The details for the tax year 2023 are as follows: Total export revenue - $700,000 Total expenses relating to export sales - $300,000

Calculate the Export Income Deduction for YCo for tax year 2022?

CEO's position: The Export Income deduction will be computed as follows:

Step 1: Calculate Export Income

Export Sales Less Expenses relating to export sales Export Income

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($) 700,000 300,000 400,000

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