Why Does South African Revenue Services Impose Vat On Goods Sold, Value-Added Tax is commonly known as VAT. VAT is an indirect tax on the consumption of goods and services in the economy. Revenue is raised for government by requiring certain businesses to register and to charge VAT on the taxable supplies of goods and services. These businesses become vendors that act as the agent for government in collecting the VAT.
VAT is charged at each stage of the production and distribution process and it is proportional to the price charged for the goods and services.
VAT increased from 14% to 15% from 1 April 2018. VAT is levied on the supply of most goods and services and on the importation of goods. The VAT on the importation of goods is collected by customs. There is a limited range of goods and services which are subject to VAT at the zero rate or are exempt from VAT.
Supply of Goods
Where tangible goods are supplied, there is an assumption that the goods will be consumed where they are physically located when they are supplied. The VAT Act therefore allows for the application of the zero rate for goods exported from South Africa. The supplying vendor must, however, be able to substantiate that he has exported the goods from South Africa. The supporting evidence which the supplying vendor must obtain in this regard is prescribed by VAT Interpretation Note 30 (“IN 30”) and is strictly applied.
One of the requirements of IN 30 is that the exporter must obtain proof of payment for the supply of the goods within a period of three months or an extended approved period. If the proof of payment is not obtained within this period then the exporter becomes liable for the VAT. Consequently, if the foreign debtor defaults the exporter will not only bear the financial burden of the non-payment but will also be liable for the VAT even though the goods were duly exported. Where the goods are supplied to a foreign purchaser in South Africa who acquires the goods to export them from South Africa, the supplier is required to charge VAT at the standard rate. However, in line with the destination principle of the VAT Act, the foreigner can claim the VAT paid as a refund via the VAT Refund Administrator when the goods are exported. This is, however, an onerous process for businesses and significant delays are often experienced with the refund payments which also exposes the foreign business to currency exchange risks.
A regulation published in terms of the VAT Act, Government Notice 2761 of 1998, provides the supplying vendor with an option to apply the rate of zero per cent if the goods are delivered to a harbour or airport for exportation by the foreign purchaser. In these circumstances the supplier assumes the obligation to obtain the required proof of export, and also bears the risk of the VAT if the required proof is not obtained within the prescribed time periods. The South African Revenue Service (SARS) is currently reviewing the regulation, and is proposing to expand the option for the supplier to apply the zero rate for goods exported by road and rail as well, but only under very limited circumstances.
Importation of Goods
VAT is payable on the importation of tangible goods into South Africa by the importer. The importer may claim the import VAT as a deduction if he is registered for VAT and acquires the goods for making taxable supplies, but SARS requires that the importer must be the owner of the imported goods. SARS’ view is that the import VAT does not qualify as a deduction if the importer does not own the goods even if they are used to make taxable supplies. SARS considers the word “acquire” in the definition of input tax in the VAT Act to mean acquiring ownership of the goods.
Where the importer is a non-resident and not VAT registered, the importer cannot claim the import VAT and the purchaser may suffer the additional cost. The non-resident supplier will include the non-deductible import VAT in the selling price, which VAT is not deductible by the purchaser. To avoid the cascading effect this may cause, section 54(2A) of the VAT Act allows an import agent to claim the import VAT as a deduction, and section 8(20) then requires the agent to levy VAT on the delivery of the goods to the South African recipient. The purchaser may then claim the VAT based on the agent’s tax invoice. The VAT implications and the VAT status of cross-border supplies of goods and services should be carefully considered to avoid any non-deductible VAT cost and to ensure compliance with the VAT Act. The introduction of “place of supply” rules into the VAT Act will certainly assist to provide more clarity regarding the VAT status of cross-border supplies, particularly cross-border services.