The following documents proposing legislative amendments to the VAT Act were published on 31 July 2020 for comment by 31 August 2020. You can access these documents on the SARS website by clicking on the links below:
- 2020 Draft Taxation Laws Amendment Bill
- 2020 Draft Explanatory Memorandum on the 2020 Draft Taxation Laws Amendment Bill
- 2020 Draft Tax Administration Laws Amendment Bill
- 2020 Draft Memorandum on the Objects of the 2020 Tax Administration Laws Amendment Bill
- 2020 Draft Regulations Prescribing Electronic Service
A draft Response Document on Disaster Management Tax Relief Bill, 2020 and the Disaster Management Tax Relief Administration Bill, 2020 has also recently been published. The document includes a summary of the key written comments received on the COVID-19 Tax Bills as well as other key issues raised during the public hearings held by both the Standing Committee on Finance (SCoF) and Select Committee on Finance (SeCoF) on 22 July 2020. You can access the document by clicking on the link below:
National Treasury has issued the following draft documents in connection with legislative measures to deal with the COVID-19 pandemic:
- Disaster Management Tax Relief Administration Bill, 2020
- Memorandum of Objects of the Disaster Management Tax Relief Administration Bill, 2020
SARS has also published more information relating to COVID-19 in order to clarify the draft laws and to help businesses with financial sustainability in order to pay their employees and suppliers. The information can found on this link – Corona Virus.
The measures announced and proposed in the Disaster Management Tax Relief Administration (DMTRA) Bill relating to VAT are discussed below.
Fast tracking of VAT Refunds
The DMTRA Bill introduced a mechanism to assist businesses that were entitled to a VAT refund between the April 2020 tax period to July 2020 tax period. The mechanism meant that vendors that submit one return for every two calendar months (Category A and B) were allowed to submit their returns monthly for a period covering four tax periods until the July 2020 tax period (submitted in August 2020). This was done automatically when a vendor elected to submit a return monthly. To make it easier for a vendor to elect monthly filing, there was no requirement for the vendor to make an application to SARS to have the Category A or B changed to Category C (the monthly filing category).
All the output tax that was attributable to supplies made during the month had to be declared in the correct month in line with time of supply rules.
Vendors that were registered under either Category A or B and were fully compliant with all the required taxes that submit returns monthly in terms of the four-month dispensation are required to revert to the normal rules for submitting returns according to their registration category, that is, either Category A or B. For more detailed information on the fast tracking of VAT Refunds, see the Frequently Asked Questions (FAQs) for VAT vendors on Tax Relief.
Exports – Extension of timeframe for exports of goods affected by COVID-19 pandemic
Vendors that sell movable goods (goods) to recipients in an export country at the zero rate are required to –
- export the goods; and
- obtain the relevant documentary proof of export,
within a prescribed period (90 days) in Regulation R.136 in Government Gazette 37580 of 5 May 2014 (the Export Regulations) and the Interpretation Note 30 (Issue 3) dated 5 May 2014 (IN 30).
A qualifying purchaser (typically a non-resident), that acquires goods in South Africa in order to export them is normally entitled to a refund of the VAT paid in South Africa. The qualifying purchaser must be in South Africa at the time the goods are purchased and must export the goods from South Africa through a designated commercial port. The qualifying purchaser must submit an application for a refund to the VAT Refund Administrator (VRA) within the 90-day period prescribed in the Export Regulation.
SARS may also extend the prescribed periods in the Export Regulation if the vendor or the qualifying purchaser cannot export the goods in time because of circumstances beyond their control. These circumstances include a natural or human-made disaster or serious illness of the vendor, qualifying purchaser, or the person duly authorised to represent the qualifying purchaser.
Due to the COVID-19 pandemic and the associated lockdown rules, qualifying purchasers and vendors may have difficulty in meeting the prescribed export periods.
SARS therefore issued Binding General Ruling 52 “Timeframe for the Export of Goods by Vendors and Qualifying Purchasers Affected by the Global COVID-19 Pandemic” dated 26 March 2020, extending those time periods under the Export Regulations and in IN 30 by an additional three months.
Imports – Exemption from VAT under item 412.11 for certain essential goods
Regulation R. 398 in Government Gazette 43148 of 25 March 2020 issued by the Department of Cooperative Governance and Traditional Affairs dealt with a number of measures introduced by government pertaining to the COVID-19 pandemic and associated lockdown. The regulation included a list of certain essential goods that were allowed to be distributed (that is sold, obtained, transported etc) during the lockdown period. Those essential goods were also exempt from VAT on importation if they were imported for the relief of distress of all persons in South Africa as a consequence of the COVID-19 pandemic.
The relief was provided under item 412.11, which provided for an exemption of VAT on importation under section 13(3) read with paragraph 8 of Schedule 1 to the VAT Act.
In order for a person to be afforded an exemption from VAT on importation of essential goods under item 412.11, the International Trade Administration Commission (ITAC) issued a VAT Certificate, which came into effect on 8 April 2020 that listed those essential goods that were exempt from VAT on importation. No individual applications were required to be submitted to SARS or ITAC in this regard.
Any essential goods imported free of VAT with the use of the VAT Certificate are, however, subject to VAT at the standard or zero rate (as the case may be) when supplied locally.
On 3 June 2020, Notice 305 of 2020 was issued by ITAC to inform the public that the VAT Certificate issued by ITAC would expire on 5 June 2020. As a result of the expiry of the VAT Certificate, any importation of the goods listed in the VAT Certificate after 5 June 2020 will no longer be exempt from VAT on importation under item 412.11.
For further updates and more information regarding the exemption from VAT on importation under item 412.11, refer to the ITAC website.
Various amendments affecting the VAT Act were made in terms of the Taxation Laws Amendment Act 34 of 2019 and the Tax Administration Laws Amendment Act 33 of 2019, which were published on 15 January 2020 in Government Gazettes 42951 and 42952 respectively. The amendments came into effect on 1 April 2020 unless otherwise stated:
A brief summary of some of the more important VAT amendments is provided below:
- Foreign Donor Funded Projects (FDFPs) – The provisions relating to the tax treatment of FDFPs has been changed significantly by the introduction of the definition of “implementing agent” as well as amending certain definitions in section 1(1) and section 50. Further details of the amendment dealing with FDFPs are discussed under the heading “Refining the VAT treatment of FDFPs”.
- Transfer of ownership of reinsurance policies – The provision of reinsurance in respect of a long-term insurance policy is exempt from VAT under section 12(a) read with section 2(1)(j). The scope of the exemption was extended with an inclusion of the transfer of ownership of any long-term insurance reinsurance policy to another reinsurer.
- Refining the VAT corporate reorganisation rules – A new proviso to section 8(25) was introduced to afford the roll-over relief in respect of the transfer of fixed property, only in instances where the supplier and the recipient have agreed in writing that, immediately after the sale, the supplier will lease the fixed property back after it has been transferred, to the recipient.
- Zero-rating of sanitary towels (pads) – The zero-rating of sanitary towels (pads) was introduced with effect from 1 April 2019, under section 11(1)(w) read with Part C of Schedule 2. The importation of sanitary towels (pads) is exempt from VAT under section 13(3) read with paragraph 7(d) of Schedule 1.
- Deregistration of certain foreign electronic services supplier – With effect from 1 April 2019, the registration threshold for which a foreign electronic services supplier is obliged to register for VAT, was increased from R50 000 to R1 million. The provisions relating to deregistration were amended accordingly. Binding General Ruling 51 “Cancellation of Registration of a Foreign Electronic Services Supplier” was however issued clarifying that those foreign electronic services suppliers that fell below the new threshold could have their VAT registrations cancelled. Section 24(1) has since been amended accordingly. See also VAT Connect Issue 10 (March 2020) for more information.
- Tax invoices issued by foreign suppliers of electronic services – Section 20(5B) was introduced in 2014 to give the Minister of Finance powers to issue a regulation that prescribe the particulars that must be contained in a tax invoice issued by foreign suppliers of electronic services. In the absence of such Regulation, SARS issued Binding General Ruling 28 “Electronic Services” (BGR 28) to provide clarity. As a result, the law was amended to give the powers to the Commissioner to issue a notice in the Gazette. The notice is in the process of being issued and foreign suppliers of electronic services may rely on BGR 28 until the notice is published.
Various provisions in the VAT Act were recently amended to clarify the VAT treatment of FDFPs.
The definition of “enterprise” was amended to include reference to the activities of an implementing agency in respect of the FDFP activities rather than to regard the FDFP as a separate person conducting the activities, as was the case before the amendment.
The definition “implementing agency” was also inserted. An implementing agency can include the government of the Republic, any institution or body established and appointed by a foreign government as contemplated in section 10(1)(bA)(ii) of the Income Tax Act 58 of 1962 to perform its functions under the Official Development Assistance Agreement (ODAA) or any person who has entered into a contract with either of these parties to implement, operate, administer or manage an FDFP.
As a consequence of these amendments, an FDFP is no longer included in the definition of “person” whilst the new definition of an FDFP requires approval of that project by the Minister of Finance.
In order to ensure that the implementing agency is separately identified relating to the activities of each FDFP, section 50(1) was amended to require the project to be registered as a separate entity from the main enterprise activities of the implementing agency. Section 50(2A) was introduced to require the vendor to register its activities in respect of each foreign donor funded project as a separate branch of that vendor.
Refer to the VAT Reference Guide for Foreign Donor Funded Projects for more details in this regard.
The term “imported services” refers to a situation where the supply of services is made by a person who is not a resident of the Republic (or who carries on business outside the Republic) to a recipient who is a resident of the Republic. The services concerned are only regarded as taxable to the extent that such services are for use or consumption in the Republic for non-taxable purposes.
The declaration and payment of any VAT on imported services must be done as follows:
- If the recipient is registered as a vendor in the Republic, the VAT must be declared on the VAT 201 return (block 12) and paid together with any other VAT that is payable by that vendor in the normal manner.
- If the recipient is not registered as a vendor in the Republic, the VAT liability must be declared on the VAT215 record. The payment thereof must be done on eFiling or through a prescribed method for exceptional cases such as where the Basic Accounting System (BAS) is used for processing payments. Once the payment has been processed, the payment confirmation receipt number from eFiling must be captured on the VAT215 record, which must be retained by the recipient for a period of five years. Where payment is not received, SARS may issue an assessment for the VAT payable on the imported services acquired.
Refer to the Manage Imported Services – External Guide for more details in this regard.
Recipients of imported services should confirm whether the non-resident supplier is registered for VAT in the case of any “electronic services” supplied, because in such a case, the supplier should be charging VAT instead of the recipient declaring VAT on imported services.
Refer to the Frequently Asked Questions: Supplies of Electronic Services for more details in this regard.
In order to check whether the non-resident supplier is correctly charging VAT or should be charging VAT, the recipient may use the SARS VAT Vendor Search function to verify the VAT status of the supplier. Suspicious activity can be reported online via the SARS Report a Suspicious Activity page.
Section 8(15) is a deeming provision that applies to a single supply of goods or services comprising of parts that would have attracted a different rate of tax if these parts had been supplied separately.
In the Supreme Court of Appeal (SCA) judgment of Diageo South Africa (Pty) Ltd v Commissioner for the South African Revenue Service (330/2019)  ZASCA 34 (3 April 2020), the SCA found that section 8(15) provided the legislative framework for the Commissioner to separate the component parts of a single supply made by a vendor and charge the appropriate rate of VAT in respect of each part.
In order to apply the deeming provisions of section 8(15), the SCA found that firstly there must a single supply of two or more types of goods or services or a combination thereof. Secondly, a single consideration must be payable for this supply and lastly, the circumstances of the supply must be such that if the supply of goods or services had been charged for separately, part of the supply would have been standard-rated and part zero-rated.
In this particular matter, the vendor provided advertising and promotional goods and services to various non-resident entities for which it charged a single fee and levied VAT at the zero rate. (These are sometimes referred to in contracts as “marketing services”.) The Commissioner assessed the vendor for output VAT on the goods component of the supply in respect of promotional goods that were supplied locally within the Republic.
With regard to the single supply made by the vendor, the SCA found that the supply consisted of goods and services that were sufficiently distinct and separately identifiable from each other. As such, each part of the supply concerned should be deemed to be a separate supply. Since the separate parts of the single supply would be taxable at different rates if separate considerations had been payable, the SCA found that section 8(15) had the effect of notionally separating the supply and allowing the Commissioner to tax each part at the appropriate rate.
In applying section 8(15) the SCA, however, emphasised that the deeming provisions cannot be used by the Commissioner to create an artificial or insensible result or to produce a commercially unrealistic outcome.
Since the last issue of VAT Connect, the following VAT documents have been published on the SARS website (Refer to the “Legal Counsel” page):
Binding General Rulings (BGRs)
- BGR 52 “Timeframe for the Export of Goods by Vendors and Qualifying Purchasers Affected by the Global COVID-19 Pandemic” – issued 26 March 2020
- BGR 55 “Sale of Dwelling by Fixed Property Developers following Change in Use Adjustment under Section 18(1) or 18B(3)” – issued 10 September 2020
- VAT Rulings Process Reference Guide (Issue 2) – issued 9 April 2020
- VAT Reference Guide for Foreign Donor Funded Projects – issued 14 April 2020
- Draft Interpretation Note – Value-Added Tax Consequences of Points-Based Loyalty Programmes – comments were due 30 June 2020