The VAT Act provides 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 exempt from VAT. 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;
- Fertilizer;
- Pesticide; and
- 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 a farming enterprise to acquire goods at the zero rate?
The following requirements must be met:
- SARS must be satisfied that the vendor carries on a farming enterprise;
- SARS 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 afore-mentioned authorisation;
- A valid tax invoice must be issued for the supply of such goods in accordance with section 20(4) of the VAT Act;
- The goods supplied must be listed in Part A of Schedule 2 to the VAT Act; and
- The goods must not be prohibited goods.
When can SARS cancel the authorisation for a farming enterprise to acquire goods at the zero rate?
SARS may cancel the authorisation under the following circumstances:
- the vendor is in default of the obligation to submit VAT returns or pay VAT;
- the vendor has ceased the farming enterprise; or
- the vendor has utilised the Notice of Registration (with the authorisation) for any other purpose.
When can goods be imported exempt from VAT?
Paragraph 7 to Schedule 1 of the VAT Act provides for the goods, that qualify to be acquired at the zero rate by the farming enterprise, to be imported exempt from VAT. This is on condition that the requirements under Part A of Schedule 2 to the VAT Act have been met.
Tax periods
The second dispensation allows a vendor that carries on a farming enterprise to register under the Category D (6 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; and
- 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 (2 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 (monthly tax period).
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.
If supporting documents are required when completing an ITR14 for companies that participated in farming activities, complete the Farming Schedule (IT48).
