The requirements for claiming VAT when importing goods to South Africa have always been contentious and the affected VAT vendors are often unsure about the documentary evidence they need to retain to survive a SARS VAT audit. Even SARS offices interpret or enforce the provisions of the VAT Act differently. For example, some allow the clearing agent’s invoice as proof of import and others accept payment to the clearing agent as proof that VAT has been paid. Even the timing for claiming the input tax deduction has been disputed. These uncertainties have resulted in many VAT vendors receiving significant assessments, penalties and interest charges from SARS.
However, pending changes to the requirements will now further restrict the options available to vendors wishing to claim VAT on imports.
Current requirements for claiming import VAT
The VAT Act currently provides that a vendor can only claim VAT on imports in respect of goods imported to South Africa, when payment of the VAT has been received by SARS. The documentary evidence required to claim VAT on imports includes the bill of entry or other document prescribed in terms of the Customs and Excise Act, together with a receipt proving that the necessary tax was paid in respect of the said import.
In practice, vendors proof to SARS is their proof of payment to their clearing agent, trusting that the agent has indeed paid the required amounts to SARS. However, this practice is actually not sufficient as documentary evidence.
Clearing agents are generally reluctant to provide a copy of their statement of account to vendors, as it contains confidential information regarding all its other clients’ imports. However, some clearing agents provide statements to vendors that show when the VAT on the specific import was paid to Customs, and this is generally accepted by SARS.
These documents should be in the possession of the vendor or its agent, at the time the return is submitted.
In essence, this practice allowed vendors to import goods but defer the VAT and Customs payments until the time that the vendor submitted its return to SARS. Vendors could thus claim the VAT in one tax period while the clearing agent only paid Customs via its deferment account in the next tax period, but before the vendor submitted its VAT return.
New timing rules
However, a change in VAT legislation affects businesses importing goods to South Africa as it even further limits the period when VAT on imports can be claimed.
VAT on imports can only be claimed during or after the tax period during which the VAT is actually paid to SARS. It means that when vendors using the services of a clearing agent that only pay the VAT on imports to Customs in the next tax period via its deferment scheme, they can only claim the VAT on imports during the tax period in which the clearing agent pays the required VAT to Customs.
Clarification of documentary evidence
The documentary evidence requirements remain the same as before for now. However, the Minister of Finance proposed in his 2014/2015 Budget Speech that clarification will be provided on the documentary evidence that will be acceptable to claim the VAT on imports. Until this issue is clarified, there is a potential risk that vendors might not have sufficient documentation to support the input tax deduction on imported goods, resulting in SARS raising assessments, penalties and interest.
VAT: Section 16 and 54, Interpretation Note 49