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Whether construction carried out by a vendor for a PBO will be subject to VAT

21 November 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I need to determine whether or not a client of mine who carried out a road construction for a public benefit organisation, will be exempt from VAT of subject to vat at the zero rate for the value of the construction activities carried out for the PBO.

I have this case on hand now as I received the VAT schedule from my client, and invoices relating to the road construction were without VAT charges.

I decided to check with you before I submit the VAT returns on behalf of my client.

A: There is no indication that the services rendered (road construction) were supplied outside the RSA and there is therefore no reason why it should fall within the ambit of section 11(2) of the Value Added Tax Act.  It would therefore not qualify to be zero rated.  The supply is also not exempt from the tax – refer to section 12 of the VAT Act.  

The rate of zero per cent applies in respect of the service rendered and not due to the nature of the recipient.  In other words the fact that the recipient is a public benefit organisation (approved or not) is irrelevant as far as levying the tax at the rate of zero per cent applies or the section 12 exemption.  

The consideration is therefore inclusive of the output tax.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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