[Question] Buying from a supplier who is NOT VAT Registered - which Tax Code?

[michellepace]

Hi there.

QUESTION 1: If I'm buying from a supplier who is not VAT registered. If I am thinking about my Tax Report at the end of the month, which of the below Tax Codes is "the most correct" to use when making a PO?

• Tax Type 0
• Zero Rated (0%)
• Exempt Rated (0%)
  
• Standard Rated (15%) ..obviously not

QUESTION 2: Is there ever a time I should use Type 0?

Zero-Rated VAT in South Africa
- 19 basic food items, like milk and brown bread
- Petrol and diesel
- Paraffin
- Certain government grants
- Sale of a going concern (property or business that is still trading)
- Export of goods
- International transport of goods and passengers (Interestingly, this includes the cost of trucking goods from JNB to DUR if they are say enroute to Germany)
- Certain services supplied to non-residents
- Services physically rendered outside South Africa

VAT Exempt Items in South Africa
- Residential rental accommodation
- Public road and rail transport
- Educational services provided by an approved educational institute
- Non-fee related financial services, like interest

Thanks again
Michelle

[Alec Candiotes]

HI Michelle.

Question 1:
You must use Tax Type 0 for Non-VAT registered suppliers. Zero rated and Exempt VAT is actually VAT according to the VAT Act. It is merely VAT at 0% or an item that is not deemed a VATable supply. So both actually only apply to supplier that are VAT registered.

Question 2:
I hope my answer above has answered this one. But just to clarify, you use it if you purchase from non-VAT registered suppliers or if you are invoicing to customers and you are not VAT registered.

Kindest regards,
Alec Candiotes CA (SA), MCom Taxation

[michellepace]

Super thanks Alec, that's perfectly clear.

One last question if you wouldn't mind: is a payment to a Pension Fund and Medical Aids zero rated, 00, or Exempt?

[Andromeda]

They are exempt Michelle

[Alec Candiotes]

It is a pleasure Michelle. I agree with Andromeda that it is exempt. But always confirm this by reviewing the invoice from the supplier. It will reflect how VAT was treated.

For instance if you look at a bank statement you will note a * next to cost that VAT has been raised on (for instance bank charges). Interest again will not have the * next to it as it is an exempt supply.

So my suggestion is to always look at the suppliers invoice to confirm VAT treatment.

Hope this helps.

Alec Candiotes CA (SA), MCom Taxation