VAT for medicines: best option of taxation system for drugstores
Inputting 7% VAT on realization of medicines and medical products according to approved list, a lot of entrepreneurs (especially the ones who are on the simplified system of taxation) doubt which system of taxation has to be chosen.
There are a general system of taxation with an income tax and a simplified system of taxation with a simplified tax.
The first option has 18% tax on income which is calculated through the decrease in the amount of income during reporting period according to the Article 135-137 of the Tax Code of Ukraine and for cost of realized supplies, services and other exes during reporting period according to the Article 138-143 of the Tax Code of Ukraine.
The second option has a rate of tax which depends on the group of entrepreneur. The third and the fourth group are the most popular for realization of medicines and medical products. The rate for it is:
- 5% on income;
- 3% on income+VAT.
VAT is calculated and paid through the same rate of tax – 7%.
We need to admit that the Verkhovna Rada adopted additionally to the “anti-crisis law” the Law of Ukraine “On putting changes about eliminating inconsistencies in the laws to the Tax Code of Ukraine and other legal acts of Ukraine”. According to this law 7% rate of VAT spreads on supply of medicines and medical products not only across the territory of Ukraine but also their import into Ukraine.
Except it there is a clause which regulates that from the 1st of April 2014 to the 1st of June 2014 tax payers don’t have to put legal requirements to check according to the laws. For example, they don’t have to put a code of VAT rate on supplies, general amount of VAT tax on every supply, general sum of money, including VAT, which must be paid by buyer.
This law came into force on the 19 of April 2014.
The Ministry of Economic Development and Trade of Ukraine gave the clearest notion for this. It says that there must be not more that 10% of premium on wholesale price of medicines and not more than 25% on retail price for medicines and medical products, included to the National list of the main medicines, (except narcotic, psychotropic preparations, precursors and medical gases) and for mandatory minimum list (socially oriented) of medicines and medical products of drugstores list approved by the Ministry of Health of Ukraine.
A tax base of goods supply is calculated according to the contractual price (in a case if control operations are conducted -not less than usual price determined by the Article 39 of the Code) including the state taxes (except VAT) according to the Article 188.1 of the Code.
The tax base includes price of supplies and services which are supplied as a production subsidy from the state budget (except compensations for covering the difference between exes and regulated prices or/and sum of compensations for maintenance of property to lessor – the state institutions) and price material and non-material assets which are transferred to a tax payer by buyer according to the Article 188.1 of the Code.
Considering this, 7% rate of Vat is added to the tax base which is calculated through the contractual price of medicines, including marginal retail surcharge for procurement price.
As follows the Ministry of Economic Development and Trade of Ukraine supposes tha retail drugstore has a right to recalculate trade surcharge to the price which is determined in the agreement about purchase without 7% rate of VAT. At the same time 7% rate of VAT drugstore must recalculate on the price which is composed including a trade surcharge.
Considering this explanation we can try to examine which system of taxation and tax rate are the best for entrepreneurs.
The main matter of the general system of taxation is optimization of exes and profits which allows to minimize the tax base. So if you want to determine effectiveness of the general system of taxation then you have to examine your business activity, opportunity and necessity of forming exes etc. At the same time you have to keep in mind that this system has more complex tax accounting.
There is an opportunity to count approximate calculations if you choose the simplified tax system.
For example, let’s take goods which cost 1000 UAH and which is included into the National list of medicines and medical products according to the Decree of the Cabinet of Ministers of Ukraine “On events for stabilization prices for medicines and medical products” and is taxed by 15% tax rate.
a) 3% rate of the simplified tax + VAT:
In this case drugstore buys from a supplier goods for this price:
1000 UAH + 7% rate of VAT = 1070 UAH.
The own price of purchase will be formed like this:
(1000 UAH (price without VAT) + 15% (marginal surcharge)) = 1150 UAH, except it there will be 7% rate of VAT and it will be 80,5 UAH.
So the price of purchase will be 1230,5 UAH.
Tax duties are (you need to take into account that according to the Article 292.11 of the Tax Code of Ukraine profits of the simplified tax payers don’t include: VAT, VAT which is included to the price of goods(services), supplied in the period of taxes’ payment):
Profit 1230,5 (the price of realization) – 80,5 (VAT) = 1150,00.
The simplified tax – 1150*3% = 34,5 UAH.
VAT: 80,5 (a tax duty) – 70 UAH (a tax debt: money which are paid to the supplier) = 10,5 UAH.
For payment: 34,5 + 10,5 = 45 UAH.
b) 5% rate of the simplified tax:
In this case drugstore buys from a supplier goods for this price:
1000 UAH + 7% rate of VAT = 1070 UAH.
The own price of purchase will be formed like this:
(1000 UAH (price without VAT) + 15% (marginal surcharge)) = 1150 UAH
Profit: 1150 UAH.
The simplified tax – 1150*5% = 57,5 UAH.
VAT isn’t paid.
For payment: 57,5 UAH.
Conclusion: according to the calculations it is more profitable for entrepreneurs to choose “3% rate of the simplified tax + VAT”. But keep in mind that these calculations are made according to the opinion of the state bodies which can be changed. So you need to look after official explanations.
Except it, it may be more profitable to choose the general system of taxation but you must do additional financial work. Anyway it is better to ask specialists to count your profits and risks and only then choose a system of taxation which will be more profitable for your company.
