Rethinking VAT and customs duties
07 May 2012
Posted by: SAIT Technical
by Wian de Bruyn (Grant Thornton e-taxline 25 April 2012)
Improvement in cash flow and margins for cross-border traders – take a fresh look at VAT and Customs
Three key objectives of businesses during the current, tough economic cycle should be; to remain competitive, to protect profit margins and to preserve or enhance cash flows. To this end, any importer of goods should ensure that it fully utilises all the relevant provisions and schemes made available by the South African Revenue Service (SARS) from a Value Added Tax (VAT) and customs duty perspective, as these may have a direct positive impact on profit margins and cash flow..
SARS has introduced a specific rebate provision that deals with imported goods which are free of customs duty and which are used in the manufacturing, finishing, equipping or packing of goods exclusively for export purposes. This rebate provision, effective from 11 November 2011, provides for a significant cash flow benefit as the VAT is no longer payable on importation. This is, however, subject to the condition that value must be added to the goods and then exported within 12 months outside the Botswana, Lesotho, Namibia and Swaziland (BLNS) countries.
Previously, importers had to pay the import VAT and could only then claim the input in the next tax return. In certain instances SARS denied input tax deductions as the importer is not always the owner of the goods being imported. To benefit from this rebate, importers do not require an International Trade Administration Commission of South Africa (ITAC) permit, but must register with SARS under the rebate provision.
Schedule 1 of the VAT Act provides for a number of VAT exemptions on goods imported under a specific rebate item in terms of the Customs and Excise Act. It should be noted that in some instances these exemptions outlined in the VAT Act contain additional requirements, limitations or relaxations which differ from the Customs and Excise Act. Please contact us to establish whether any of your imported goods qualify.
Improved cash flow and cost savings
Importers can also benefit from reduced clearing agent fees as well as improved cash flows by registering their own deferment scheme, in addition, importers that are clearing goods for home consumption can defer their customs duty and VAT obligation for up to 37 days.
The International Trade and Administration Commission of South Africa (ITAC) is the Government body that takes decisions on tariff policy. The objective of ITAC is to "promote domestic production, job retention and creation and also international competitiveness”. It takes between six and ten months for a standard tariff investigation to be finalised. The process starts with an initial investigation, followed by publication in the Government Gazette for comments. If approved by ITAC, a recommendation is made to the Minister of Trade and Industry who, in turn will then make a recommendation to the Minister of Finance for implementation by SARS.
In an effort to improve margins, importers could consider tariff lobbying with ITAC. In these instances, importers have the options to apply for a reduction of a specific customs duty, the creation of an additional tariff subheading on the product in question that is free of customs duty or at a reduced rate, or the creation of a specific industrial rebate provision for that unique manufacturing activity.
Importers should carefully consider which of these tariff options are best suited to their situation, in order to avoid a rejection of the application by ITAC, as result of an uninformed decision.
The first step importers need to take is verifying their current trade status and activities. Businesses should then consider all available provisions, options and investment incentives available from government to determine which ones are applicable to enhance their cash flow and competitiveness in the local economy.