VALUE-ADDED TAX (VAT)

1 VALUE-ADDED TAX (VAT)Introduction During the 1980s, South Africa imposed the General Sales Tax (GST) on goods and services. In 1986, the Margo Commission recommended that this system be replaced with a Comprehensive Business Tax, or alternatively, a VALUE-ADDED tax (VAT). VAT was introduced in September 1991 at a rate of 10%. Standard rate was increased to 14% during April 1993. Standard rate was increased to 15% during April of VAT (Sec 7)VAT is imposed on: The supplyby a vendorof goods / services in the course or furtherance of an enterprise carried on by him (s 7(1)(a)); The importation of goods into SA by any person (s 7(1)(b)); and The supply of imported services by any person (s 7(1)(c))Calculated @ 15%(prior to 1 April 2018 14%) on value of supply or the of VATS ection 7(1)VAT is levied on:SupplyImportGoods or servicesGoods or servicesWhat is a supply?

2 Section 1(1) supply includes performance in terms of a sale, rental agreement, instalment credit agreement and all other forms of supply, whether voluntary, compulsory or by operation of law, irrespective of where the supply is effected, and any derivative of supply shall be construed accordingly. Oxford English Dictionary: to furnish or to provide . Databank Systems v CIR (New Zealand High Court): also to furnish or to provide . The general meaning of the word supply connotes a positive act and land expropriation requires no positive action from the person whose land has been expropriated (therefore not a supply). However, the definition was since amended to include compulsory and by operation of law supplies. What is a supply?Section 1(1)VAT: types of suppliesStandard-rated suppliesZero-rated suppliesTaxable suppliesExempt suppliesSuppliess12s11 All other suppliesDeemed suppliesPut differentlyZero-rated suppliesSubject to VAT at 0%Exempt suppliesExempt from VATS tandard-rated suppliesSubject to VAT at 15%What is the difference?

3 Exempt supplies and zero-rated supplies both have effectively no VAT levied on them. So what is the difference between the two?Vendor Person registered for VAT (voluntary or compulsory) Person that is required to be registered (compulsory), even if not registeredOutput tax liability applies in regards to all taxable supplies made by a vendor; but only registered vendor can effectively claim input tax deduction. Input TaxIn relation to a vendor, means (section1 definition)a) taxcharged under s 7and payable in terms of that section by:i) a supplieron the supplyof goodsor servicesmade by that supplier to the vendor; orii) the vendor on the importation of goods by him; oriii) the vendor under the provisions of s 7(3);Input Taxb) an amount equal to the tax fraction(at the time the supply is deemed to have taken place) of the lesser of any consideration in moneygiven by the vendor for or the open market valueof the supply (not being a taxable supply) to him by way of a saleon or after the commencement dateby a resident of the Republicof any second-hand goodssituated in the Republic.

4 AndNB:Notional input tax on second hand goods, with reference to property, is no longer limited to transfer duty Taxc) an amount equal to the tax fraction of the consideration in moneydeemed by s 10(16)to be for the supply (not being a taxable supply) by a debtor to the vendor of goodsrepossessed under an instalment credit agreement: Provided that the tax fraction applicable under this paragraph shall be the tax fraction applicable at the time of supply of the goods to the debtor under such agreement as contemplated in s 9(3)(c),Input Taxwhere the goods or services concerned are acquired by the vendor wholly for the purpose of consumption, use or supply in the course of making taxable supplies or, where the goods or services are acquired by the vendor partly for such purpose, to the extent (as determined in accordance with the provisions of s 17) that the goodsor servicesconcerned are acquired by the vendor for such purposeInput Taxin relation to a vendor, means (section1 definition)-a) taxcharged under s 7and payable in terms of that section by-i) a supplieron the supplyof goodsor servicesmade by that supplier to the vendor.

5 Orii) the vendor on the importation of goods by him; oriii) the vendor under the provisions of s 7(3);Input Tax deduction (s 17(1))Apply to goods or services acquired or imported -allowed in the same ratio as the intended use in the course of making taxable supplies Provided: De Minimus rule: Wholly -95% or more Partly -less than 95% apportion input tax to be deducted. Method to apportion: General written ruling (BGR 16) or ruling change only in future tax period or from date Commissioner of input tax creditsTurnover-based method is the only method that you can use without a ruling from SARS:A= B x C/DA = The deductible input tax,B = Total amount of input tax,C = The value of all taxable supplies (plus deemed)D = The value of all supplies (taxable and exempt)NB: value exclude VATR ound amount off 2 decimal placesAllocation of input tax creditsOther apportionment methods (not an exhaustive list): varied-input-based method direct attribution method floor-space method transaction-based method; or employee-time method.

6 (Any method other than turnover based can only be used after approval by SARS).Input Tax denied (s 17(2)) Entertainment(s 17(2)(a)) Fees or subscriptions sporting, social or recreational club/association/society (s 17(2)(b)). Purchase, lease, hire or importation of a motor car (s 17(2)(c)) Scheme whereby provision is made for the payment of benefits by a benefit fund, a pension fund, a preservation fund, provident fund, provident preservation fund or retirement annuity fund (s 2(2)(vii) Financial services). Services acquired by way a medical or dental (s 17(2)(d)).Input Tax denied Motor CarPurchase, lease, hire or importation of a motor car (s 17(2)(c)) Motor car ( Def -s 1) Includes -Motor car, station wagon, minibus, double cab light delivery vehicle and any other motor vehicle of a kind normally used on public roads 3 or more wheels constructed / adapted wholly or mainly for carrying passengersExcluding vehicles for 1 person or > 16 persons; 3 500 kilograms or more (unladen mass); caravans and ambulances; special purpose vehicles (other than carrying people); game viewing vehicles constructed/converted for the carriage of 7 persons exclusively used for that purpose.

7 Or vehicles constructed/converted into hearses for the transport of deceased persons and used exclusively for that purposeInput Tax allowed Motor CarUnless (exceptions to motor car ): Car dealer or rental company -taxable allows demonstration or temporary use before sale deemed 100% taxable acquired by vendor for the purpose of awarding it as a prize. The person awarding the prize is deemed to have made a supply (s 8(13)) and if the prize constitutes either goods or services the input tax must be limited to the VAT incurred on the initial cost of acquiring the goods or services (s 16(3)(d)). If the motor car is in the ordinary course of an enterprise which continuously or regularly supplies motor cars as prizes to clients or customers (not employee s/office holders or connected persons). Input Tax Motor Car conversion Motor car game-viewing vehicle or hearseInput tax (s 18(9))Kind of supply: Deemed supply per s 8(14)(b)Time of supply Tax period of conversion (per s 18(9) and s9(10)) value of supply Tax fraction (15/115) Lesser of: adjusted cost; or OMV on day before conversion (per s 16(3) otherwise s 10(24) deem the value to be equal to OMV)Input Tax Motor Car conversionGame-viewing vehicle or hearse applied for a different purposeKind of supply Deemed supply per s 8(14A)Time of supply Tax period of different use (s 9(10)) value of supply OMV (s 10(24))Time of Supply (s 9) General Rule (except as otherwise provided) (s 9(1)):earlier of date of invoice (issued by the supplier or the recipient).

8 Or date of any payment of consideration is received Special rules apply to certain suppliesValue of Supply (s 10)General Rule (s 10(3)):Money consideration (if money) OROMV (if no money consideration)Special rules apply to certain supplies for example: Connected persons (S 10(4)) Cessation of an enterprise (S 10(5)) Foreign branches (S 10(5)) Instalment credit agreement (s 10(6)) Change of use (s 18(1); (2); (4) & (5)) (s 10(7); (9)) Commercial accommodation (s 10(10))Tax Invoice & Debit/Credit NotesTax Invoice (section 20) must be issued within 21 days of making a taxable supply, in the currency of the Republic, and shall contain the following particulars: The words tax invoice , VAT invoice , or invoice Name, address and VAT registration number of the supplier Name, address and VAT registration number of recipient Individual serialized number and date of issue Full and proper description of the goods or services supplied Quantity or volume of goods or services supplied value of supply, the tax charged (alternatively a statement that it includes tax and the rate of tax charged), and the consideration Tax Invoice & Debit/Credit NotesDebit and Credit Notes (section 21) similar to the Tax Invoice requirements, but must refer to the original supply (tax invoice).

9 Debit and Credit Notes do not relate to separate supplies, but is in regards to variation of the original supply (such as a return of goods sold, or a conditional discount granted).Tax Invoice & Debit/Credit NotesDraft TLAB 2018 proposed an amendment to allow for a tax invoice to be cancelled and reissued correcting a material proposed amendment requires that the supplier or the recipient, as the case may be, must obtain and retain information sufficient to identify the transaction to which the original tax invoice and the subsequent corrected tax invoice refers, and that the time of supply shall be determined in accordance with the date reflected on the original tax documentation Input tax deduction cannot be claimed unless the vendor has the original tax invoice (or prescribed supporting documents for notational input tax) at the time of claiming.

10 The vendor is liable for output tax at the standard rate if prescribed documentation is not retained to support a zero-rated or exempt Persons Defined in section 1 Time of supply (s 9(2)(a)):Connected Persons value of supply (s10(4)):Adjustment for Irrecoverable debts (s 22(1))Supply: A deduction in terms of s 16(3) = InputValue:Tax fraction (applicable on original sale) * amount irrecoverable (s 22(1) proviso)Time:Tax period it became irrecoverable Documentary proof has to be retained : (a) accounting records reflecting the balance of the outstanding debt and amount of VAT written off (b) proof that the VAT was charged and declared in a VAT return. Adjustment for Irrecoverable debts (s 22(1)(v))Account receivables transferred by vendor at face value on: Non-recourse basis no deduction if irrecoverable Recourse basis deduction by way of an input when transferred back to vendor on irrecoverable considerationAdjustment for Irrecoverable debts (s 22(1A))The other vendor (recipient) to whom the account receivables are transferred to at face value on a non-recourse basis by way of a taxable supply for a consideration in money mayWhen any amount of the face value (exclude finance charges & collection costs) are written of as irrecoverable by the recipientcan claim input tax ito s 16(3) as follows:= 15/115 * face value written off (limited to amount paid for debt by recipient)Adjustment for Irrecoverable debts (s 22(2))Kind.