Proposed amendments to the Value-Added Tax Act of 1991 were announced by the Minister of Finance during the budget speech.
As anticipated, the Minister of Finance did not announce an increase in the standard 14 per cent rate of VAT in the latest budget speech. The following amendments have been proposed, however:
- Section 11(1)(e) of the Value-Added Tax Act 89 of 1991 is to be amended to remove the existing uncertainty regarding whether a vendor buying a business as a going concern must be a registered vendor before the acquisition of the going concern. The Act requires that the supply must be made to a registered vendor. However, paragraph 4.3 of the accompanying Interpretation Note 57 makes allowance for a zero-rated supply of a going concern to an unregistered vendor provided he becomes a registered vendor retrospectively with effect from the date of concluding the sale agreement.
- Customs-related documentation is required for VAT purposes including, for example, export or removal documents and customs release notifications to support the zero rating of exported goods and a bill of entry to support an input tax deduction for the VAT paid on imported goods. The recent customs modernisation programme has eliminated the need for paper-based documents, however. The VAT legislation will now be aligned to recognise this shift.
- In accordance with section 20(1) of the Act, tax invoices must be issued for all taxable supplies within 21 days of the date of making the supply. The same requirement does not apply to tax invoices issued by an agent on behalf of a vendor and the issue of credit and debit notes. The 21-day rule will now be extended to also apply to tax invoices issued by agents as well as to the issue of credit and debit notes. Presumably, the 21-day period will run from the date of any one of the five events contemplated in section 21(1) of the Act.
- Importers or their appointed agents are required by section 16(2)(d) of the Act to obtain and retain proof of payment of the customs VAT before an input tax deduction can be claimed. Clarity is to be provided on which documentation is acceptable to SARS; particularly, we hope, where an agent pays the VAT to SARS via his deferment account.
- Under section 64 of the Act, any price charged by a vendor in respect of any taxable supply of goods or services is deemed to include VAT whether or not the vendor has included VAT in such price. Accordingly, if a vendor fails to register, he will still be liable to account to SARS for the VAT on such supplies. The question is whether such a person will be able to recover the VAT from the other contracting party. Section 67 of the Act allows a vendor supplier of goods or services to recover an amount of VAT on the supply in circumstances where VAT was imposed or increased after an agreement was concluded. The legislation will be amended to exclude suppliers who have failed to register as VAT vendors from being able to recover any such VAT.
- Goods and services supplied by a bargaining council to its members are exempt from VAT in terms of section 12(l) of the Act. This exemption will be extended to include the supply of administration services for which the bargaining council may receive a separate fee.
- Certain goods acquired for agricultural, pastoral or other farming purposes can be supplied to qualifying purchasers at the zero rate of VAT in accordance with section 11(1)(g) read with Part A of Schedule 2 to the Act. This provides a potential cash flow benefit for such purchasers because they do not have to claim a deduction for the VAT on their purchases. However, due to evidence of the abuse of this concession, the zero-rating provision is to be reviewed in consultation with relevant stakeholders for possible replacement with VAT being levied at the standard rate of 14 per cent.
- Owing to the exclusion of “money” from the definition of “goods” in section 1 of the Act, the supply of money by the South African Reserve Bank (SARB) is a non-supply for VAT purposes. The printing of money, however, is subject to VAT at the standard rate. This means that the VAT paid by the SARB on the charges for the printing of money cannot be deducted as an input tax deduction because such services will not be used by the SARB for the purposes of making taxable supplies. The VAT therefore becomes an added cost to the SARB. Consideration is to be given to zero-rating the supply of legal tender or money since this will facilitate the deduction of the VAT incurred on the printing charges.
- In accordance with section 7(3)(a) of the Act, VAT must be levied on any excise duty imposed on locally manufactured goods. VAT collections will therefore increase as a consequence of the usual increases in excise duties on goods such as beer, wine, whisky, rum, gin, vodka, liqueurs and tobacco-related products. This is because the value subject to VAT must include the increased duties.
- A notional input tax deduction is allowed in accordance with Part (b) of the definition of “input tax” in section 1 of the Act when a vendor acquires second-hand goods from a non-vendor for use in his business of making taxable supplies. This concession is intended to unlock part of the VAT previously paid on these goods as they re-enter the formal supply chain. Included in these second-hand goods is gold jewellery. The sale of certain gold coins is, however, zero-rated and there should thus not be a similar notional input tax deduction when these are sold by a non-vendor to a vendor. In practice, it seems that gold jewellery is being smelted together with gold coins and other illegally acquired raw gold to facilitate fraudulent notional input tax deductions. Government thus proposes that second-hand goods made from precious metals be excluded from obtaining the notional input tax deduction.
- The four-monthly Category F of small retailer (turnover of R1,5 million or less in a twelve-month period) vendors is to be eliminated. Instead, these vendors will be required to account for VAT on a bi-monthly period, that is, Category A or B as per section 27(1) of the Act.
- The manner in which interest is presently calculated on late VAT payments in terms of section 39 of the Act is to be reviewed and aligned with the provisions in the Tax Administration Act 28 of 2011 to achieve a more equitable outcome. At present, it seems that interest is imposed from the first day of the month following the due date and then for an entire month even though payment of the outstanding VAT may have been made part way during the month.
In addition to the above proposed changes, National Treasury will continue or undertake research in the following areas:
- Housing subsidies that fall under section 8(23) of the VAT Act are intended to be subject to VAT at the zero-rate in terms of section 11(2)(s) of the Act. Section 8(23) makes reference to subsidies paid under a national housing programme that is approved by the Minister of Finance by regulation after consultation with the Minister responsible for Human Settlements. According to the budget, this has created practical anomalies. Our understanding is that the housing programme may not have been approved in any regulation even though subsidies are, in practice, being treated as zero-rated. There are also concerns where the subsidies are used to fund houses that are then rented out. The standard rating of these subsidies will thus be considered with an equal increase in the value of the grant to compensate for the imposition of VAT thereon.
- There is to be a review of the VAT treatment of transport and educational services. These are mostly exempt from VAT under sections 12(g) and (h) at the moment. The research project might be to determine whether the present exemption requires clarification or an amendment to narrow its reach.
- Although not a VAT matter, government proposes to review the diesel refunds policy and administration system. At present, qualifying businesses can obtain a refund of portion of the fuel and road accident fund levies on diesel fuel acquired by them via their VAT returns. Anomalies have been identified in the present legislation necessitating a possible change.
Author: Peter Maxwell