The VAT legislation affords special dispensations to a vendor that carries on agricultural, pastoral or other farming activities (farming enterprise).
Zero rating and Exemption upon Importation of certain Goods
The first dispensation allows a vendor that carries on a farming enterprise to acquire certain goods, at the zero rate or import certain goods where the VAT upon importation is exempt. These goods must however be used or consumed in the course of conducting a farming enterprise. The intention of this dispensation is to assist a vendor that carries on a farming enterprise with their cash flows.
Some of the goods that may be acquired under this dispensation are –
- Animal feed;
- Animal remedy;
- Plants and seeds used for cultivation.
Part A of Schedule 2 to the VAT Act sets out a complete list of the goods.
What are the requirements for acquiring goods at the zero rate?
The following requirements must be met in order for a vendor that carries on a farming enterprise to acquire the goods, listed in Part A of Schedule 2 to the VAT Act, at the zero rate:
- SARS must be satisfied that the vendor carries on a farming enterprise and has issued an authorisation on the vendor’s Notice of registration, indicating that the goods may be supplied to the vendor at the zero rate;
- The vendor that carries on a farming enterprise must be in possession of a valid Notice of registration and the aforementioned authorisation;
- A tax invoice is issued for the supply of such good is issued in accordance with section 20(4) of the VAT Act;
- The goods supplied must be specified in Part A of Schedule 2 to the VAT Act and must not be prohibited goods.
SARS may cancel such authorisation if the vendor is in default of the obligation to submit VAT returns or pay VAT, or has ceased the farming enterprise, or has utilised the Notice of registration (with the authorisation) for any other purpose.
The second dispensation allows a vendor that carries on a farming enterprise to register under the Category D (six monthly) tax period. This is to assist the vendor with cash flows due to the cyclic nature of farming.
A vendor that intends to be placed under the Category D tax period must meet the following criteria:
- The enterprise must consist solely of agricultural, pastoral or farming activities.
- The total turnover from all farming activities must not exceed R1,5 million per consecutive period of 12 months.
Where the value of taxable supplies exceeds R1,5 million in any consecutive period of 12 months, the Commissioner will allocate either a Category A or B tax period to the vendor (two-monthly tax period).
Where the value of taxable supplies exceeds or is likely to exceed R30 million in any consecutive period of 12 months, the vendor will be obliged to fall within the Category C tax period.
For information on Diesel refunds for farming, click here.
Top Tip: The total amount received from the supply of zero-rated goods (and services) must be disclosed in field 2 on the VAT return.
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