From The Forum SA
Value added tax, or VAT, is a tax levied on most goods and services provided in South Africa. VAT is paid on the supply of goods or services, or the importation of goods and services.
The current standard rate of VAT is 14%.
Any person making taxable supplies in excess of R1 000 000.00 in any 12 month consecutive period must register as a VAT vendor. Any person may choose to register voluntarily provided that the minimum threshold of R50 000.00 annual turnover (increase in threshold effective from 1st March 2010) has been exceeded over the past 12 months.
Voluntary VAT registration
Any supplier making taxable supplies in excess of R50 000 per annum, provable over the past 12 months, may apply for a Voluntary VAT Registration
Compulsory VAT registration
Any supplier will be liable to register for VAT if the income earned from selling goods or fees earned from services supplied is more than R1 million in any consecutive period of 12 months, or is reasonably expected to exceed that amount.
The value of taxable supplies (turnover) is calculated on an ongoing basis. When closing off your books for the month, you need to keep a running total of your turnover for the past 12 months. If this total has exceeded R1 million in any particular month, you must register from the first day of the next month. You also need to consider the next 12 months, because if it is likely that you will exceed the limit, you must register immediately or at least within 21 days of becoming aware that you will be liable to register.
Zero rated supplies
Zero rated supplies include the following (not all zero rated supplies are listed below):
Certain basic foodstuffs
Certain basic foodstuffs are zero-rated, provided it is not supplied for immediate consumption (that is, as a meal or refreshment) or added to a standard-rated supply.
• brown bread • dried mealies and mealie rice • brown bread flour (excluding wheaten bran) • samp • hens eggs (that is, not from ostriches, ducks etc) • fresh fruit and vegetables • dried beans • lentils • maize meal • rice • pilchards in tins or cans • vegetable cooking oil (excluding olive oil) • milk, cultured milk, milk powder and dairy powder blend • edible legumes and pulses of leguminous plants (that is, peas, beans, peanuts etc)
Fuel levy goods
Examples include fuels used in motor cars, trucks, buses, ships, fishing boats, railway locomotives, farming and production machinery. Petroleum oils and crude oil which are refined for the production of fuel levy goods are also zero-rated; however, aviation kerosene, motor oil and oil lubricants are subject to the standard rate.
The sale of a business or part of a business which is capable of separate operation as a going concern qualifies for the zero rate if all of the following requirements are met at the time of entering into the agreement:
• Both parties must be VAT vendors (if not yet registered at the time of concluding the contract, the purchaser can backdate the registration liability date to the date of the contract).
• It must be clearly evident, and stated in the wording of the written agreement that –
the enterprise is sold as a going concern;
the business is, or will be an income-earning activity on the date of transfer;
the whole business or a part of it which is capable of separate operation is disposed of to the purchaser, including all the assets necessary for carrying on the enterprise or part thereof; and
the consideration includes VAT at the rate of 0%.
Where any of the above requirements are not met, the supply of the enterprise will be subject to VAT at the standard rate of 14%.
Some examples of where an income-activity is not disposed of are:
• The sale of a bakery business without the ovens.
• The sale and leaseback of a commercial building.
• The transfer of the bare dominium of an asset.
• The disposal of a business yet to commence.
• The disposal of a dormant business.
The supply of certain goods acquired and used for agricultural, pastoral or farming purposes may be zero-rated in certain circumstances. Some examples are animal feed, animal remedies, fertilizer, pesticide and plants and seeds in a form used for cultivation.
Exports and services physically performed outside the Republic
The direct export of goods may be zero-rated. In certain instances, the indirect export of goods may also qualify for the zero rate.
The supply of services physically rendered or performed outside the RSA qualifies for the zero rate.
Municipal property rates
With effect from 1 July 2006, any municipal property rates charged by a municipality are subject to the zero rate. However, the municipal rates charge must be separate and distinct from other charges levied for goods or services by that municipality. Therefore, where a municipality charges a “flat rate” which includes a charge for municipal rates, plus other charges for water, electricity, refuse removal, or other standard-rated goods or services supplied, the entire charge is subject to the standard rate.
Exempt supplies are supplies of goods or services where VAT is not chargeable at either the standard rate or the zero rate and will not form part of taxable turnover. If a person makes only exempt supplies, that person cannot register as a vendor or charge VAT on those supplies. Accordingly, any VAT incurred to make exempt supplies may not be deducted as input tax.
Some examples of exempt supplies include –
• financial services (such as, interest earned for the provision of credit, life insurance, the services of benefit funds such as medical schemes, provident, pension and retirement annuity funds);
• donated goods or services sold by non-profit bodies (such as, religious and welfare organisations);
• residential accommodation in a dwelling (but not holiday accommodation);
• passenger transport in South Africa by taxi, bus, or train;
• educational services provided by recognised educational institutions such as, primary and secondary schools, technical colleges, or universities which have been approved as public benefit organisations (PBOs) in terms of section 30(3) of the Income Tax Act, 1962, or an organisation which has been approved by the Commissioner as being exempt under section 10(1)(cA)(i) of that Act; and
• childcare services provided at crèches and after-school care centres.
Some examples of financial services which will normally be exempt are –
• the exchange of currency – for example, the rand value given for dollars is exempt, but any fee charged for the exchange service will be standard-rated;
• equity or participatory securities – for example, the sale of an interest in a close corporation, the creation and selling of company shares; and the sale of a share in a unit portfolio of a unit trust scheme;
• the provision of credit under an agreement – for example, the amount payable (that is, interest) for the provision of a home loan or an overdraft on a cheque account; and the finance charges on an instalment credit agreement;
• premiums payable on long term insurance policies – for example, life policies, sinking fund policies or disability policies; and
• the buying or selling of derivatives – for example, options, futures and interest-rate swaps.
From 1 April 1995 all fees, commissions, merchant’s discount and similar fee-based charges relating to financial services, became subject to VAT. Banks and other suppliers of financial services must apportion their input tax where goods or services acquired cannot be directly and wholly attributed to either taxable or exempt supplies.
Government departments are generally not liable to register for VAT, unless they are specifically notified by the Minister of Finance (the Minister) to do so. This means that, as final consumers, the VAT incurred on capital and operating expenses is regarded as a cost to the department.
Handling of SDL payments and grants received
As Sector Education Training Authorities (SETAs) were required to deregister as VAT vendors in 2005, SETA grants are no longer regarded as being inclusive of VAT at the standard rate. The law was amended to introduce a provision to zero rate the receipt of SETA grants with effect from 1 April 2005. It follows that vendors will no longer be allowed to deduct input tax on any SDL payments made from April 2005 onwards.
The term “grant” replaced the term “transfer payment”. To qualify as a grant, the payment must not be in respect of an actual supply of goods by the recipient to the public authority making the payment. In this regard, reference is made to the prescribed procurement procedures applied by public authorities and municipalities (previously known as local authorities). The term “procurement” normally refers to supplies paid for under the budget headings “Current payments” or “Payments for capital assets”. However, it should be noted that this “procurement test” is not the only manner in which a payment may be excluded from qualifying as a “grant”.
More information can be found in the SARS VAT Vendor Guide, VAT–404.