[Question] Vat on Bidders

[Molatelo Mohwasa]

Good day,

I have been reading the guide for vendors (404) and could not find the answer to this question:

“If the department receives tenders from bidders and it is found that the highest scoring bidder (lowest in terms of price) has not added VAT simply because he has not registered because of not qualifying at the time of tendering, how should the department score this tenderer with the others who have added VAT because they are registered. Say, the lowest tender amount is 1.2 million for a period of 12 months?"

- Should the department add the 14% on his bid to be able to compare apples with apples and because the total taxable supplies exceed 1 million for the coming 12months? What will the implication be on the rest of the bidders?
- Should the department take off VAT on all other bidders to match them with this bidder in order to compare apples with apples? What will the implication be?
- What impact will the department have if it awards him the tender excluding VAT and he later registers and charges Output Vat?
- What will the implication be for the other bidders if the department considers this bidder without VAT yet he charges VAT later in the year after registering?

I do not really see this question being answered save to say that the departments are exempt from registering for VAT except where the Minister of Finance has ordered so.

Regards,

Molatelo

[Dave A]

With the VAT threshold being R1 million, your tenderer is obliged to register for VAT the moment he/she/it gets the tender, surely.

I'd suggest you either have to add the 14% that the tenderer has neglected to account for in the tender to compare apples with apples and/or consider the tender submission as incomplete and proceed accordingly.

I'd also suggest that the tenderer's capacity to deliver should be looked at quite closely - but I'm sure you do that anyway?

[BusFact]

The department should compare prices exclusive of VAT prices in all cases. The VAT is not part of the cost, its merely tax collection on behalf of SARS. I presume the dept is VAT registered.

As Dave said, on a tender that size I would be very nervous about awarding it to someone who doesn't have a track record of sufficient value to have registered for VAT.

The tenderer would most likely have to register and charge VAT once awarded the tender. As said above, this should be irrelevant as the tender would have been awarded based on the exclusive prices.

[Molatelo Mohwasa]

Thanks Dave. I also think adding 14% would be the best than deducting it from the others.

I like this Forum thing already, if one is able to get answers so quick. I must just go through some of the things on here to pretty understand how each field works. You see, i am a old-school kinda guy and don't use these twitters and Facebooks. I guess i am missing out if these social networks can bring the world to its knees when one looks at the Arab/North African country ongoing battles.

[Molatelo Mohwasa]

Thanks BusFact.

I am just not sure whether we can remove all VAT on the others because I believe doing so will compromise the Output vat they charge on supplies, I don't know. But I also acknowledge your statement that VAT is not part of the cost and therefore should be removed. This is becoming very difficult now. But thanks guys for the advice.

[Martinco]

The department should compare prices exclusive of VAT prices in all cases. The VAT is not part of the cost, its merely tax collection on behalf of SARS. I presume the dept is VAT registered.

As Dave said, on a tender that size I would be very nervous about awarding it to someone who doesn't have a track record of sufficient value to have registered for VAT.

The tenderer would most likely have to register and charge VAT once awarded the tender. As said above, this should be irrelevant as the tender would have been awarded based on the exclusive prices.

I tend to agree with BusFact. VAT should not form part of the tender price. VAT belongs to the government and can not be seen as a cost .

[Justloadit]

Generally quotations done from business to business are shown or quoted as VAT exclusive with a statement stating this, the recipient of the quote if required adds the VAT. Any VAT registered company,does not see an input VAT as an expense, since it get canceled out when there is an output VAT, adding the VAT for the profit portion.

The VAT legislation only states that VAT must be included in the price when it is advertised or the supply is to the public.

[BusFact]

I am just not sure whether we can remove all VAT on the others because I believe doing so will compromise the Output vat they charge on supplies, I don't know. But I also acknowledge your statement that VAT is not part of the cost and therefore should be removed. This is becoming very difficult now. But thanks guys for the advice.

You don't "remove" it. You just ignore it for now and look at the prices without VAT for each tenderer when deciding who to award the tender to. Once the tender is awarded, the supplier will add VAT to the quoted price. That does not make it more expensive as that money is not yours or theirs. It belongs to SARS and in most cases will be canceled out by the VAT charged by the department to its "customers".

[Dave A]

I presume the dept is VAT registered.

Quite possibly not. To quote the OP:

I do not really see this question being answered save to say that the departments are exempt from registering for VAT except where the Minister of Finance has ordered so.

Which poses an interesting situation when it comes to evaluating tenders for supply - certainly different to the situation where the procuring entity is registered for VAT.

This came up with my time at AgriSETA (which is exempt from registering as a VAT vendor) and the understanding of best practice at the time was to look at the total cost to the department in evaluating bids in the VAT vs no-VAT situation. The underlying point-of-view was maximizing the purchasing power of your budget.

[BusFact]

Oh crikey. Dave brings up a valid point there. That might change things quite a bit. If the amount of the tender is large so that the winning tenderer will have to register for VAT, then simply evaluate them all on either an exclusive or inclusive basis. Just make sure you do the same for all.

If the amounts are smaller so that the winner doesn't have to register for VAT, then it gets a bit more complicated.

I find it very strange that Government policy would give an advantage to unregistered VAT vendors and so effectively penalise their tax collectors and payers (registered VAT vendors).

[Molatelo Mohwasa]

I think it makes more sense that the tender price from the bidder who did not add VAT be considered with VAT when evaluating who the highest scoring bidder is in all bidding suppliers. This is even more so because, this bidder who has not charged VAT would have to register in anyway should s/he/it be the successful obviously because his anticipated (income) tender amount is above the 1 million threshold.

I just feel that if you don't consider VAT on this unregistered bidder and he wins the tender on the basis of his price being lower than all others, it would be unfair especially if later he registers and charge VAt on his invoices. This would then mean that the final amount we would be paying him would be more than what he tendered because of him charging VAT whilst the Department cannot claim such VAT.

I will therefore go with the adding of VAT.

[Dave A]

I find it very strange that Government policy would give an advantage to unregistered VAT vendors and so effectively penalise their tax collectors and payers (registered VAT vendors).

Easily justified as a leg-up for the little guys
Although that wasn't the real reason why the exemption was put in place, it certainly was seen as a positive indirect consequence that fell in line with broader policy to help micro and emerging businesses.