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Are there any issues with VAT payments made by a clearing agent on behalf of a principal?

17 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I have a client, which is a private company, operating as clearing agents on imported goods for customers. They do not arrange for any overseas transport or ancillary services. When the goods arrive to a port in RSA, they arrange for the goods to be cleared at customs and in return they charge the customers a fee for clearing the goods.

They charge VAT at standard rate of the fee they charge to their customers for clearing services in RSA.

As part of their operations and agreement with their customers, on clearing the goods, the company will disburse VAT on imports and customs duty on the goods so imported by the customers to SARS. Thereafter the company will recover VAT and customs duty paid from the customer.

The tax invoice of the company clearly stipulates the VAT chargeable items and non-VAT items in compliance with S8 (15) of the VAT act.

According to the company’s customised computer programme, these disbursements are termed zero rating services and is accordingly disclosed as zero rated supplies on the VAT 201 return.

In my opinion, on the strength of the CSARS v British airways case, the disbursement made on behalf of customers is a non-supply as it does not fall within the ambit of s 7 and 8 of the VAT act. It is also neither a zero rating nor exempt supplies as it does not fall within the ambit of s11 and 12 of the VAT Act.

Is my reasoning correct?

A: The principle, in the CSARS v British Airways case, was formulated by Judge Nugent as follows: 

"A further tax does not accrue when the vendor of another service (British Airways) does no more than bring to account and recover the charge that it was required to pay for the supply of that service by the company (whether it is supplied to the passengers themselves, or to the airline for the benefit of its passengers).  The moneys that are recovered by British Airways are not a consideration for the supply by it of airport services simply because it does not supply them at all.” 

This principle is in line with the Value-Added Tax Act – refer to section 54(2).  It states that "...where any vendor makes a taxable supply of goods or services to an agent who is acting on behalf of another person who is the principal for the purposes of that supply, that supply shall be deemed to be made to that principal and not to such agent...”

and specifically applicable to your scenario, in section 54(2A):

"...where any goods are imported into the Republic by an agent who is acting on behalf of another person who is the principal for the purposes of that importation, that importation shall be deemed to be made by that principal and not by such agent...” 

We accept that output tax is levied at the standard rate because the customers are residents of the RSA.  We agree that any disbursements recovered from their principles do not qualify for the rate of zero per cent. 

We agree with your view that these recoveries should be not be reflected as zero rated supplies as they are non-supplies.  

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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