FAQ - 25 May 2016
24 May 2016
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Can VAT be charged on a payment?
deemed input VAT be claimed by the purchaser (VAT vendor) without any amount
already being paid?
A: In terms of the definition of input tax
in section 1(1) of the Value-Added Tax Act ‘an amount equal to the tax fraction
(at the time the supply is deemed to have taken place) of the lesser of any
consideration in money given by the vendor for or the open market value of the
supply (not being a taxable supply) to him by way of a sale by a resident of
the Republic (RSA) … of any second-hand goods situated in the RSA’ will be
input tax. According to the definition "second-hand goods” means
goods which were previously owned and used and we submit that in this instance
the fixed property is in fact second hand goods as defined. (Note: It is
therefore not the transfer duty that qualifies to be deducted.)
tax (or portion) can only be deducted to the extent that payment has been made
– see section 16(3)(a)(ii)(bb).
deduction can then be made ‘where the goods or services concerned are acquired
by the vendor wholly for the purpose of consumption, use or supply in the
course of making taxable supplies or, where the goods or services are acquired
by the vendor partly for such purpose, to the extent (as determined in
accordance with the provisions of section 17) that the goods or services
concerned are acquired by the vendor for such purpose’.
of section 17(1) the input tax must be an amount which bears to the full amount
of such tax or amount, as the case may be, the same ratio (as determined by the
Commissioner in accordance with a ruling as contemplated in section 41A or 41B)
as the intended use of such goods or services in the course of making taxable
supplies bears to the total intended use of such goods or services. SARS
issued a binding general ruling (number 16) that prescribes the turnover-based
method of apportionment.
recipient of second-hand goods must obtain and maintain a declaration by the
supplier stating whether the supply is a taxable supply or not, and must
further maintain sufficient records to enable specific particulars to be
ascertained as is stipulated in section 20(8) of the VAT Act.
2. Is there VAT on foreign sales?
client is a local Travel agency, focused exclusively on sales of tour packages
to Americans to travel here. They get billed before they arrive here in ZAR,
their various reservations made with local airlines, hotels, suppliers. If
there are any additional costs incurred while they are here, they are invoiced
for that too. Is VAT due
on these sales?
A: For purposes of the guidance that follows
we accept that the client is in receipt of commission only for the services
rendered to non-residents. This only applies to the extent that the
non-residents are not in the RSA at the time the services are rendered - for
instance, if the non-resident changes a booking whilst in the RSA.
current practice generally prevailing in this regard is set out in
Interpretation Note 42 - the supply of goods and/or services by the travel and
respect to what you refer to as the "additional costs incurred while they are
here” the treatment, from a Value-Added Tax perspective, will depend on whether
or not your client acts as the agent for the foreign tourist. Judge
Nugent, in the British Airways plc case, explained it as follows:
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.”
client is the principal (unlikely) then they would have to account for output
tax, but will be entitled to an input tax deduction. If not, the output
tax, at the standard rate, would have been charged by the other supplier and it
is in a sense a non-supply by your client.
Interpretation note referred to above SARS explains it as follows:
travel and tourism industry, many of the goods and services supplied by service
providers are made available through local entrepreneurs. That is, such local
entrepreneurs act as agents under common law in representing principals (i.e.
the service providers) that supply the goods and services. Notwithstanding
this, local entrepreneurs may also act as principals, for example, the purchase
and resale of tour packages.
the unique relationship between an agent and the principal, special provisions
have been introduced in the VAT Act, to deal with the VAT consequences arising
from such relationships. In order to correctly apply the VAT legislation to the
concept of agents, it is necessary to identify and understand the concept of an
agent, as treated in common law.
is a contract whereby one person (the agent) is authorised and usually required
by another (the principal) to contract or to negotiate a contract with a third
person, on the latter’s behalf.” If the service is rendered to the local
suppliers of the tourism services, the tax would also be at the standard
rate. In VAT case 969, Judge Le Grange referred to the "difficulty, as in
the present instance, arises, however, where goods and services are contractually
supplied to a person who is outside the Republic, but physically rendered to a
person who is in the Republic at the time the services are rendered for the
benefit of both the person outside the Republic and the person inside the
Republic.” The taxpayer is a registered vendor and operates a business
involving the supply of services to Foreign Tour Operators. The Judge
confirmed that the vendor could not apply the rate of zero percent.
Disclaimer: Nothing in these queries and answers 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 answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.