VAT Connect Issue 10 (March 2020)

Recently the following Acts containing amendments to the VAT Act were published. These documents can be accessed on the SARS website by clicking on the links below.

These Acts were promulgated on 15 January 2020 as per Government Gazettes 42951 and 42952 respectively. A brief summary of some of the VAT amendments will be provided in the next issue of the VAT Connect. In this issue, we will only discuss the amendment to section 72. (See the article “Decisions under section 72” below.)

The Explanatory Memoranda and response document on the amendments for 2019 were also published under the following links:

The dedicated email address that was available to deal specifically with questions on the amended electronic services rules, which came into effect from 1 April 2019, has now been closed as enquiries in this regard have reduced substantially. Guidance on this topic in the form of Frequently Asked Questions (FAQs) is still available on the SARS website.

In VAT Connect Issue 9 (February 2019) developments concerning electronic services were addressed. As part of this exercise, the FAQs on Supplies of Electronic Services was updated on 6 July 2019. Binding General Ruling (BGR) 51 “Cancellation of Registration of a Foreign Electronic Services Supplier” was issued, allowing foreign electronic services suppliers that will have taxable supplies of a value not exceeding R1 million in a 12-month period, to have their VAT registration cancelled. Applications for deregistration must be directed to [email protected] with the following details:

  • Legal name of the entity.
  • VAT registration number of the entity.
  • The suggested date for the cancellation of registration to be effected.
  • A declaration on a letterhead stating that the value of taxable supplies did not exceed the R1 million threshold in any consecutive period of 12 months.
  • Financial records of the entity, certified by an accountant or auditor, confirming that the value of taxable supplies made in any consecutive 12-month period has not exceeded the R1 million threshold.

See VAT-ELEC-02-G02 – Foreign Suppliers of Electronic Services – External Guide for further information regarding the deregistration of foreign electronic services suppliers.
Any further enquiries relating to electronic services should be directed to the SARS contact centres. The SARS National Contact Centre operates weekdays between 8am and 5pm at 0800 00 7277 (0800 00 SARS). International callers can dial +27 11 602 2093 (operating between 8:00am and 4:00pm, SA time). Please ensure that a full description of the facts and circumstances is provided to SARS in order to properly consider the question.

There has recently been an increase in requests to SARS to make an arrangement or decision under section 72 to allow certain vendors to use the payments basis of accounting for VAT even though they do not meet the below requirements as set out in section 15. These requests mainly appear to be from vendors doing business with government entities, municipalities or state owned enterprises. While these vendors have invoiced their customers, they are usually not paid timeously resulting in cash flow problems in paying the VAT due to SARS.

Section 15 provides that a vendor must account for VAT on the invoice basis, unless SARS has granted the vendor approval to be on the payments basis (or cash basis) of accounting. The payments basis of accounting allows a vendor to account for VAT based on actual payments made and received in respect of taxable supplies during the tax period concerned.

Section 15 only allows the following categories of vendors to account for VAT on the payments basis:

  • Public authorities and municipalities.

  • Certain municipal entities that supply electricity, gas or water or refuse removal.

  • Water boards and institutions that have powers similar to such boards listed in Part B of Schedule 3 to the Public Finance Management Act 1 of 1999.

  • Associations not for gain.

  • Electronic services suppliers.

  • The South African Broadcasting Corporation Limited.

  • Natural persons or unincorporated bodies of persons (of which all the members are natural persons), who have made taxable supplies not exceeding R2.5 million in the past 12 months and will not likely exceed R2.5 million in the next 12 months.

SARS may only allow a vendor to account for VAT on the payments basis if −

  • a written application is made in that regard by the vendor; and

  • the vendor concerned qualifies for the payments basis under the law.

SARS cannot act outside the law by allowing vendors to account for VAT on the payments basis if they do not meet the requirements as set out above. In addition, section 72 cannot be applied to resolve such matters. (See also the article “Decisions under section 72” below.)

Background to amendments and withdrawals

Section 72 previously allowed the Commissioner the discretion to make arrangements and decisions to overcome difficulties, anomalies or incongruities that vendors may face in applying any provision of the VAT Act as a result of the manner in which a vendor or class of vendors conducts their enterprise. Over the past few years, challenges arose regarding the application of the mandatory wording of the other provisions of the VAT Act versus the discretionary wording of the provisions of section 72. A review of the wording and applicability of section 72 was therefore undertaken.

Following the review, recent amendments to the VAT Act brought about changes to the wording and effect of section 72. The amendments came into effect on 21 July 2019 and were intended, among others, to −

  • narrow the extent of the Commissioner’s discretion in making a decision under that provision;

  • clarify the circumstances under which the provision can be invoked; and

  • align the wording more generally with the policy intent of the VAT Act as a whole, as well as the intention behind any specific provisions in the VAT Act which might be applicable in the circumstances.

Transitional rules were also introduced to deal with vendors that have an existing arrangement or decision issued under section 72 before 21 July 2019, which expires on or after that date. In certain cases, these decisions or arrangements can be reconfirmed.

In this article, we briefly discuss the requirements for any new decisions made under section 72 as well as the transitional rules for reconfirmations.

New requirements when applying for a decision under section 72

Any vendor making an application for a decision under this section on or after 21 July 2019 must continue to follow the process applicable for VAT Rulings (see VAT Rulings Process: Reference Guide) as was done in the past.

Applications should contain the following:

  • A clear description of the difficulties, anomalies or incongruities that have arisen or that may arise when applying the VAT Act. This means that the difficulty arises in connection with the application of the VAT Act itself. For example, a request will not be accepted if it is intended to merely be an arrangement to resolve a past non-compliance with VAT laws, or to address issues that arise in the business because of a lack of capacity.

  • An indication of how the difficulties, anomalies or incongruities that have arisen or that may arise, will apply equally to other vendors or a class of vendors that may face the same or similar business circumstances.

  • Specify the relevant provisions in the VAT Act that causes the difficulties, anomalies or incongruities and the effect that is created when applying that law.

  • An explanation to support the view that the decision (if granted) will not reduce or increase the vendor’s liability for VAT.

  • An explanation to show that the decision (if granted) will not be contrary to the intention of a specific provision of the VAT Act or the policy construct of the VAT Act as whole.

New applications will be tested against the new wording of section 72 and will be applied strictly. Only those situations that give rise to genuine legislative difficulties, or that demonstrate clearly that anomalies or incongruities arise in applying a specific provision or the intended legislative purpose of the law in general will be accommodated.

Applications that do not meet the above requirements will not be accepted.

Transitional rules and reconfirmations

As the changes to the wording of section 72 only apply to new applications made on or after 21 July 2019, any arrangement or decision made by the Commissioner before that date remains valid until the stated expiry date of that decision or 31 December 2021, whichever is the earliest.

As part of the transitional rules, a vendor may apply for a reconfirmation of any arrangement or decision issued before 21 July 2019 under the old wording of section 72 if it ceases to be effective between 21 July 2019 and 31 December 2021. Such reconfirmation applications must be received by the Commissioner no later than two months before the expiry date of that decision or arrangement. However, the Commissioner may accept an application that is not within the two-month timeframe in exceptional circumstances. Any such reconfirmation applications will be considered based on the old wording of the law, but the expiry date cannot be later than 31 December 2021.

All arrangements or decisions made under the old wording of section 72 that do not have a stated expiry date, or the stated expiry date is after 31 December 2021, will expire on 31 December 2021 (without exception). This expiry applies whether the decision or arrangement was contained in a BGR, binding private ruling or binding class ruling.


The law now provides that fees may be charged in respect of any application for a decision under section 72. However, this has not yet been implemented. SARS will communicate the prescribed fees and the date from which such fees may be charged in a public notice.

Under section 17(1), a vendor that acquires goods or services partly for making taxable supplies and partly for non-taxable purposes (also referred to as mixed expenses) is only allowed to deduct input tax to the extent that the acquisition was for making taxable supplies. The deductible portion of input tax is calculated by using an apportionment method, approved by the Commissioner. The Commissioner has approved a standard turnover-based method as set out in BGR 16 “Standard Apportionment Method” to be used by all vendors that incur mixed expenses, unless that vendor has a ruling that sets out a pre-approved alternative method of apportionment.

A vendor that considers the method prescribed in BGR 16 not to be fair and reasonable or inappropriate in the circumstances must apply to SARS to use an alternative method. An objective test in determining the fairness, reasonability and appropriateness must be applied by both SARS and the vendor in arriving at a decision as to whether BGR 16 should apply in the circumstances.

An alternative method of apportionment cannot be approved retrospectively, except that it may apply from the beginning of the year of assessment during which the application was made. (See tax court judgement in case VAT 2063 delivered on 15 November 2019.) Therefore, whilst waiting for the outcome of any ruling application made in that regard, that vendor must continue to deduct input tax using the method in BGR 16.

A vendor that wants to use an alternative method of apportionment must apply using the existing VAT ruling application process, as per the VAT Rulings Process: Reference Guide.

In order to facilitate the smooth processing of a VAT ruling application to use an alternative method of apportionment, the following information should be included in the application:

  • A complete description of all the business activities, including whether or not income was received from such activities. 
  • Details of specific transactions that may impact SARS’s decision-making process (for instance, where interest is earned from investment or lending activities, the interest rates applicable or alternatives to be used if necessary in specific circumstances).
  • A list of all income streams, including the value thereof, and whether or not such income results from various business activities carried on by the business. Also indicate whether those income streams are treated as taxable, exempt or out-of-scope for VAT purposes.
  • Any possible changes to the business activities or income streams in the past or near future that may have an impact on the apportionment ratio.
  • Annual Financial Statements for the past three years.
  • A list of all expenses (including the values thereof) that are –
    • directly attributed (i.e. being applied wholly) to the making of taxable supplies;
    • directly attributed (i.e. being applied wholly) to the making of exempt supplies or for other non-taxable purposes (including income received that does not result from a supply made);
    • subject to the requested apportionment method, i.e. mixed expenses.
  • A detailed explanation as to why –
    • apportionment is required, i.e. why expenses are regarded as being for mixed purposes;
    • the standard turnover-based method in BGR 16 is considered not to be fair and reasonable in the circumstances, or why it is inappropriate;
    • the proposed alternative method or methods that are considered to be more fair and reasonable or appropriate taking into account the specific circumstances the enterprise.
  • A clear indication as to the preferred apportionment method and a detailed analysis of every inclusion or exclusion in that method.
  • The outcomes and analysis of at least two other apportionment methods considered (other than the one in BGR 16) or an explanation as to why any other methods of apportionment commonly used by vendors cannot be applied.
  • Detailed calculations of the apportionment ratio for three consecutive years (from the latest information available) for the standard turnover-based method and the two alternative apportionment methods that have been considered. The calculation must clearly indicate how the numbers or values used in the calculations are determined.
  • A statement in the ruling application as to whether input tax has been deducted in past tax periods using any method other than the one prescribed in BGR 16, and if so, from when that method was applied.
  • A copy of any previous ruling issued within the past five years permitting the vendor to use an alternative method of apportionment.

It is important that all the information referred to above is submitted as part of an application to avoid unnecessary delays or the application not being accepted.

Since the last issue of VAT Connect, the following VAT documents have been published on the SARS website (See the “Legal Counsel” page):

Binding General Rulings (BGRs)

• BGR 49 “The Supply and Importation of Sanitary Towels (Pads)” – issued 15 March 2019
• BGR 51 “Cancellation of Registration of a Foreign Electronic Services Supplier” – issued 4 June 2019

• VAT 404 – Guide for Vendors – issued 12 December 2019


VAT Connect is an information guide and not a binding general ruling for purposes of the Value-Added Tax Act, 1991 (the VAT Act). For general enquiries regarding VAT call the SARS Contact Centre on 0800 00 7277. Should there be any aspect relating to VAT on which a specific VAT ruling is required, you may apply for a ruling by completing form VAT301 and sending it together with all the necessary information to SARS by facsimile on +27 86 540 9390 or by e-mail to [email protected]. Refer also to Quick Reference Guide on VAT Ruling Application Procedure for more details on how to apply for a ruling.

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