Timing Your Deduction…
28 February 2011
Posted by: Author: Lise Classen
Timing Your Deduction…
SARS has recently been challenging vendors on the timing of the deduction claimed in their VAT returns for VAT payable on the importation of goods (customs VAT). Vendors that are on monthly VAT cycles have to file their VAT returns by the 25th of the month following the end of the VAT period, or by the last business day of that month where they use e-filing.
This is because there is an obligation on SARS to make are fund within 21 business days of receiving a VAT return, after which interest will start accruing to the vendor.
Vendors normally use their clearing agents to clear imported goods for home consumption,including goods initially entered into a bond store.The clearing agents clear the shipments, and invoice the vendors for the recovery of the customs VAT and their costs once the bill of entry and the customs release notification have been received from SARS.
Most clearing agents have a deferred payment arrangement with SARS Customs, and this allows them to make payment of the customs VAT by a specified date in the month following the month of importation / clearing from a bond store—usually somewhere between the 7th and the 14th of that month.
In which VAT return would the vendor be entitled to claim an input tax deduction for the customs VAT? Should the vendor claim the customs VAT in the VAT return relating to the tax period during which the importation took place,or should vendors only claim the customs VAT in the subsequent VAT return relating to the tax period in which the clearing agent makes the deferred customs VAT payment to SARS?
Some SARS offices hold the view that the customs VAT may only be deducted in the VAT return relating to the VAT period in which the customs VAT is actually paid to SARS.
The VAT Act allows a vendor to reduce its output tax by any input tax paid on the importation of goods into South Africa, at the earlier of invoice date or payment date. It is also a requirement that the vendor, or their agent, must be in possession of a bill of entry, or other document prescribed in terms of the Customs and Excise Act,together with a receipt for the payment of tax relating to the importation, at the time that the VAT return in respect of that importation is furnished to SARS.
The VAT Act is clear, and states that the vendor merely needs to be in possession of a receipt to prove that the customs VAT has been paid over to SARS at the time of submitting its VAT return.It is not a requirement for the VAT to also have been paid by the end of the tax period in which the importation took place.
A VAT return for a specific month will include all supplies made and received during the month, including any imported goods.In order to expedite any refund of VAT, vendors may choose to file their VAT returns prior to the 25th of the month following the end of the tax period.In order to avoid problems with the timing of the deduction claimed for any customs VAT, vendors must ensure that they only submit their VAT returns after payment of the customs VAT has been made to SARS, where payment occurs in the month following the month of importation.
For example, if a vendor imports goods in August 2010 and the clearing agent pays the customs VAT on such importation to SARS on the 12th of September 2010, the vendor will be entitled to submit its August 2010 VAT return on the13th of September 2010, having included the customs VAT relating to the August 2010 importation in this VAT return.The vendor would then have satisfied the legal requirements, as follows:
• The vendor or their agent(clearing agent) would be in possession of the bill of entry, or other documentation as required by SARS, reflecting the importation to be in August
• The vendor or their agent(clearing agent) would be in possession of a receipt to prove that the customs VAT had been paid to SARS at the time of filing the August 2010 VAT return.
Based on these principles, it is recommended that, when claiming a deduction for any customs VAT, vendors obtain written proof from their clearing agents as to the date of payment of the customs VAT to SARS in order not to fall foul of the requirement that the customs VAT should have been paid to SARS by the time of submission of the relevant VAT return.
Source: By Lise Classen (Tax breaks)