Author: Ferdie Schneider, National Head: Tax, BDO South Africa The Minister has various options at his disposal concerning how he could use VAT as a fiscal instrument to raise revenue and reduce the budget deficit that has occupied the brain trust in government. South Africa’s VAT rate has been constant since 1993 when it was raised from 10% to 14%, it is also relatively low compared to international standards. Emerging markets average at approximately 18%, whereas developed countries average at approximately 17%.
Category: VAT
Foreign electronic services
In a recent report by the Davis Tax Committee, recommendations were made in order for South Africa to address various problems in relation to e-commerce transactions. With the continuous advancement of technology, it is becoming difficult to track (and tax), the sale of electronic goods and services.
Temporary rental of units – Extension of cut-off date
Where developers are unable to sell their units and decide to find a tenant to temporarily let the property in order to earn rental income, they were previously required to account for VAT on the market value of the property, as the change in use of the property from making taxable supplies to exempt supplies, resulted in a deemed supply. Specifically, when a developer temporarily changed the use of properties held for resale (taxable supplies) by letting them as dwellings to tenants (exempt supplies), s18(1) of the Value-Added Tax Act, No 89 of 1991 (VAT Act) provided for a change in use adjustment and the developer was obliged to pay VAT on the deemed supply of the property as at the date that it was applied for exempt purposes.
VAT – Confusion regarding interpretation
In this matter, a registered vendor for purposes of Value-added Tax (VAT), made certain supplies to an entity, C, entailing the rectification and rehabilitation, as well as the construction of new, low-cost housing. The vendor levied VAT at the standard rate of 14% in respect of the supplies, received payment from C, and paid the VAT to the South African Revenue Service (SARS).
Relationship between a VAT vendor and Sars
The Supreme Court of Appeal (SCA) recently handed down judgment in the matter of Director of Public Prosecutions, Western Cape v Parker (103/14) [2014] ZASCA 223 (12 December 2014). In this matter a close corporation, being a registered vendor for purposes of Value-added Tax (VAT), together with its sole representative, Mr Parker, were charged in the regional court on several counts.
Good VAT-news from SARS
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.
No more VAT fat for developers
Cape Town – Unprepared property developers are in for a nasty shock when VAT relief designed to assist with cash flow comes to an end on the first day of 2015. BDO SA head of Tax Ferdie Schneider warned property developers that this will have a negative impact on their cash flow and are advised to prepare accordingly. “This VAT relief was implemented during a time of economic challenge in 2012 and applied to the temporary letting of residential property by property developers,” said Schneider. “In terms of the VAT relief, the temporary letting of residential property by a property developer was not subject to the normal change in use adjustments required by the VAT Act where goods or services on which a VAT credit was claimed are later applied for non-taxable purposes,” said Schneider.
Value Added Tax and entertainment
It is well-established that, in terms of section 17(2)(a) of the Value-added Tax Act, No 89 of 1991 (VAT Act), a vendor is not entitled to deduct any amount of input tax in respect of goods or services acquired for the purposes of ‘entertainment’, unless certain exceptions apply. The Tax Court recently gave judgment in the case of AB (Pty) Ltd v Commissioner for the South African Revenue Service (case no 1015, as yet unreported) concerning input tax deductions and entertainment expenses.
Value Added Tax – Zero rating of indirect exports
The Value-Added Tax (VAT) rules relating to the exportation of goods are rather complex and intricate. Many vendors do not always appreciate the issues that arise in circumstances where goods are exported, either by the vendor or the purchaser of the goods. The South African VAT system is essentially destination based, which means that the supply of goods or services are to be taxed in the country where such goods or services are consumed. In other words, where goods are exported from South Africa, the goods will be consumed outside of South Africa, and the supply of such goods should therefore not attract VAT in South Africa.
Streamlining the VAT registration process: an update
Background The Taxation Laws Amendment Act (31/2013) introduced legislative amendments aimed at streamlining the value added tax (VAT) registration process as contained in the Value Added Tax Act (89/1991). In the 2013 Budget Minister of Finance Pravin Gordhan indicated that there would be efforts to reorganise the VAT registration process in order to ease the compliance burden of the registration requirements. This culminated in amendments being made to Sections 23(3)(b)(ii) and 23(3)(d) of the VAT Act, respectively.