Valuation primarily revolves around determination of the value of supply of goods and/or services on which tax is to be levied. In general, the transaction value is taken as the value of supply.
The value of supply for a transaction is the price or consideration paid by the customer to the supplier. It includes extra charges like shipping and handling, but it does not include GST.
Some actions that aren’t sales, such as stock transfers between two states, are still considered taxable transactions. In these cases, the value of supply is the open market value or the amount the goods are expected to sell for.
Why is the value of supply important?
The GST to be applied to a transaction will depend on the value of these goods and services sold or transferred.
Buyers can pay for transactions with a monetary consideration by giving the seller cash or electronically transferring money. They can also pay for transactions with non-monetary considerations by giving the seller other goods or services in exchange.
Finally, there are cases where they can pay for transactions partly in cash and partly in kind (by bartering goods or services). Hence it is really important to accurately calculate the value of supply.
How is the value of supply determined?
As a general rule, the value of supply is the amount that was paid for the goods or services, minus GST. Because some transactions are paid in cash while others are in trade or barter, there are two sets of rules for calculating the value of supply.
- The General Valuation Rules apply to transactions where the buyer pays the whole price of the products or services in cash.
- In this case, the value of supply is the total price or consideration paid, minus the GST on that amount.
- Value of Supply = Consideration – GST on Consideration
- The Special Valuation Rules apply to transactions where some or all of the payment is in trade instead of cash.
- Completely non-cash payment: If the buyer pays entirely in trade and no cash, the value of supply is the open market value of the products or services, minus the GST on that amount.
- Value of Supply = OMV – GST on OMV
- Partially non-cash payment: If the buyer pays partially in cash and partially in trade, the value of supply is the cash price paid plus the open market value of the traded products or services, minus the GST on that total amount.
- Value of Supply = (Monetary Consideration + In-kind Consideration) – GST on Total Consideration
Note: The value of supply includes cess, billable expenses, subsidies, penalties, and all taxes except GST (and any other charges that may or may not be included in the price of the goods and services supplied).