By Basil Dikobe, Tax Manager, Grant Thornton Johannesburg
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 import VAT.
Current requirements for claiming import VAT
The VAT Act currently provides that a vendor can only claim import VAT in respect of goods imported to South Africa, when the goods have been invoiced or paid, whichever is the earlier, during that tax period.
The documentary evidence required to claim import VAT 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 recent change in VAT legislation will affect businesses importing goods to South Africa as it even further limits the period when import VAT can be claimed.
From 1 April 2014, import VAT can only be claimed during the same tax period when the goods were imported and the same period when VAT is paid to Customs. It means that when vendors using the services of a clearing agent that only pays the import VAT to Customs in the next tax period via its deferment scheme, they can only claim the import VAT 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 import VAT. 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.
We recommend that vendors ensure that after 1 April 2014, they only claim the import VAT in the tax period when the VAT has been paid to Customs and that they obtain at least the SAD500 form, the Customs release notification and proof that the clearing agent has paid the VAT to Customs.