Goods and Services Tax in Reverse Factoring

Abstract

There are various forms of factoring, e.g. reverse factoring. Goods and Services Tax Act doesn’t treat factoring services taxation as dependent on the agreement between the parties. It means that every type of factoring is subject to taxation with goods and services tax as chargeable service. A taxpayer provides a reverse factoring service to his clients which is making an arrangement with the client and under this arrangement the taxpayer is obliged to pay the client’s obligations in exchange for remuneration. The tax authorities reckon that reverse factoring service should be taxed at the basic rate – 23%. Reverse factoring enables taxpayers having problems with liquidity to avoid goods and services tax adjustement and tax costs. It lets avoid a 30% goods and services tax penalty, which would be imposed on the purchaser of the good or service if he didn’t adjust the tax imposed after a 150 days from the payment date.