Author: Cliff Watson, associate tax director, Grant Thornton Johannesburg
Repeal of zero rating for farmers
In a previous e-taxline (link), we alerted our readers of the potential disadvantage farmers would face as a result of SARS and National Treasury’s proposal to repeal the zero-rating of certain goods such as animal feed, animal remedy, fertilisers and pesticides that are used or consumed for agricultural, pastoral or other farming purposes from 1 April 2015. The proposal would effectively add an additional 14% cost to acquire these products for farmers who are currently qualifying for the zero-rate, naturally affecting these farmers’ cash flows negatively.
As was expected, the proposal was met with significant pushback by the affected stakeholders in the industry such as farmers, their unions, cooperatives and representatives contesting the repeal of the zero-rating provision.
The good news
SARS and the National Treasury recently issued a draft response document on the feedback hearings with the Standing Committee on Finance, relating to the Draft Taxation Laws Amendments Bill of 2014 and Tax Administration Laws Amendment Bill of 2014.
One of the responses was the repeal of the provision for zero-rating of certain agricultural inputs will be postponed for at least another year. They indicated that this step will allow SARS and the National Treasury, in conjunction with the Department of Agriculture, to further examine and analyse the impact of these amendments. They also undertook to embark on additional consultations and will provide farmers sufficient time to prepare for the repeal. Hopefully farmers will not have to prepare for the repeal and that SARS and the National Treasury will come up with a more suitable alternative solution.
New import VAT timing rules
We also informed readers in a previous edition of e-taxline (link) about the recent change in the VAT legislation which further extended the period which businesses importing goods into South Africa would have to claim the import VAT from SARS.
From 1 April 2014, importers may only claim back the import VAT in the tax period once the goods have been imported and the VAT is paid to Customs. This means VAT vendors who work with a clearing agent that only pays the import VAT to Customs in the next tax period via its deferment scheme, can only claim the import VAT after their clearing agent has paid the required VAT to Customs.
SARS and the National Treasury also received numerous comments and submissions from affected stakeholders in the industry such as importers, clearing agents, their unions and representatives on the adverse effect of the amendment. Effectively, importers had to finance the import VAT by a further one to two months, which had a severe negative effect on importers’ cash flows. Another negative effect was the accounting and administrative burden that the new amendment placed on importer and clearing agents alike. As the accounting entries are made in the importers records in the tax period in which the clearing agent issues its invoice to the importer, the VAT claim must be manually deferred to the tax period in which the VAT is paid to SARS. This necessitated significant human intervention, which often resulted in errors.
The good news
SARS and the National Treasury also indicated in the draft response document mentioned above that they will effectively reinstate the previous rules that importers may claim an input tax deduction in the tax period in which the goods are released by Customs, provided that the VAT is to be paid to SARS either by the importer or its clearing agent, before the importer submits its VAT return. It didn’t clarify if the proposed change will be effective retrospectively as if the amendment was never made, or if it will become effective from a future date.