SA plans simpler VAT refunds in region
20 June 2013
Posted by: Author: Linda Ensor
Author: Linda Ensor (Businessday, bdlive.co.za)
South Africa is planning to enter into value-added tax (VAT) agreements for the first time in its history with neighbouring states — Swaziland and Lesotho — to fast-track and harmonise the system of VAT refunds.
Instead of foreign purchasers being refunded the VAT paid on their goods at the border post, the tax would be paid to the foreign tax authority of the purchaser’s country so that a reconciliation could be made for the VAT imposed on the importation of the goods.
In the past few years, South Africa’s VAT refunds to Lesotho residents and businesses that bought goods in South Africa have amounted to more than R400m a year.
It is envisaged that the proposed system will help minimise the erosion of the tax base, which occurs through round-tripping, tax evasion and the underdeclaration of values, Parliament’s standing committee on finance heard during a preliminary hearing on the agreements.
It will also reduce the administrative burden on the tax authorities, which would not have to make thousands of VAT refunds each month. Payments to the tax authorities would be made less frequently but the turnaround time of refunds is expected to be much faster.
South African Revenue Service (SARS ) senior manager for VAT policy Prenesh Ramphal said Swaziland and Lesotho had requested the agreements, which would be supplemented by a memorandum of understanding between the tax commissioners of the signatory states.
He said in reply to a question by Democratic Alliance (DA) finance spokesman Tim Harris that the draft agreements would not represent a dilution of the pooling arrangement of the Southern African Customs Union, which dealt only with customs duties. Parties to the agreements would establish a refund system for VAT. Mr Ramphal said the fact that Lesotho and Swaziland had a VAT system similar to South Africa’s, applied a rate of 14% and inhabited a common monetary area, would aid implementation of the system.
Where an importer of goods has paid a lesser amount of VAT in the export state than the tax liability in the import state, the deficit will be recovered from the importer by the tax authority in the import state on the basis of the value of the underlying transaction.
The finance committee ratified the agreement between South Africa and Mauritius for the avoidance of double taxation and the prevention of income tax evasion. The agreement aims to close loopholes that had made Mauritius a more attractive location for business.
Treasury director of international tax Charles Makola insisted during his briefing on the agreement that South Africa had no intention of joining the "race to the bottom" by trying to match Mauritius’s effective income tax rate of 3%. He said South Africa, with its sophisticated financial system, had natural advantages over Mauritius, as CEOs would prefer to live in South Africa, however beautiful the island was.