Beware Indirect Exports From Swaziland
27 September 2013
Posted by: Author: BDO
With the Introduction of VAT in Swaziland on the 1st of April 2012, it was expected that there would be a few teething problems and anomalies that would arise from the implementation of the new tax legislation.
The Swazi VAT Act aims to levy tax on the consumption of goods and services in Swaziland as well as on the importation of goods and services into Swaziland.
As is the case with the South African VAT legislation, the Swazi VAT Act provides for both direct and indirect exports as is the case with the South African VAT legislation. Direct exports relates to an export of goods where the local Swazi supplier makes a supply of goods to its customer at an address in another country. In this case the Swazi supplier has full control of the export from Swaziland. Under these circumstances, the Swaziland VAT Act provides that the supply of the goods may be zero rated.
Indirect exports relates to the exports where foreign buyer removes or arranges for the removal of goods purchased in Swaziland to a destination in a foreign country. The Swazi supplier therefore does not have full control of the export of the goods from Swaziland and in terms of the Swazi VAT legislation has to charge VAT at the standard rate of 14%.
Now at first glance this may not seem to pose a problem because most VAT jurisdictions would provide some relief to foreign buyers which would be in line with the underlying VAT principal of only taxing the consumption of goods and services in a particular jurisdiction.
In the case of the South African VAT legislation, the foreign buyer is entitled to claim VAT paid on indirect exports from the VAT refund Administrator which is situated at certain border post and ports. In so doing the VAT charged by a South African supplier would not become a cost to the foreign buyer where the goods were to be consumed in a foreign country.
However it would appear that the Swazi VAT Act does not provide similar mechanism/relief in the case of indirect exports. As a result VAT charged by the Swazi supplier cannot be recovered by the foreign buyer despite the foreign buyer being able to provide that the goods have left Swaziland and not being consumed in Swaziland. The VAT charged by the Swazi supplier becomes a cost to the foreign buyer and ultimately the final consumer.
It is understood that the South African, Swaziland and Lesotho Revenue Authorities are currently looking at entering into international VAT Agreements between the respective countries with a view to ensuring that that period that foreign buyers have to wait for their VAT refunds is reduced. In essence VAT charged on indirect exports will be paid over to the foreign revenue authority and the foreign buyer will then refund the foreign buyer.
We hope that the current anomaly in the Swazi VAT legislation in respect of indirect exports will be addressed by these international VAT Agreements.
This article was first published on BDO.co.za