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Should VAT be levied on the local transportation of passengers?

02 March 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I have a client that does medical trials for pharmaceutical companies. The companies are based overseas but SA VAT vendors. My client is paid a trial fee and for transporting patients. The company has advised my client that the clinical trial fee will include VAT but no VAT will be levied on the transportation of patients.

My client charges a total fee to the company for trials and patient transport. The company has advised that my client should make out 2 invoices, one for the trial + vat and another for transporting patients (no VAT).Please advise if this is correct.

A: Section 12(g) of the VAT Act exempts the supply of services for the local transportation of passengers by road for a fare in the course of a transportation business. SARS PN 7 sets out some guidance in this respect. Where cross border transport is being conducting the supply is zero rated in terms of section 11(2)(a) of the VAT Act.

However we are of the view that a risk does exist in the current instance that where the transport is merely incidental to another service being rendered and the fare is merely cost recovery as part of the main services consideration, as we assume is currently done, SARS may question whether a transport business is being conducted as required in section 12(g) of the VAT Act. Therefore is a bona fide business for profit being conducted for the transport of passengers.

http://www.sars.gov.za/AllDocs/LegalDoclib/Notes/LAPD-IntR-PrN-2012-30%20-%20VAT%20Practice%20Note%207%20of%201991.pdf

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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