Politics to be exempt from adding value
16 July 2012
Posted by: SAIT Technical
By Matthew Lester (TaxTalk)
The VAT Act tries to catch every conceivable transaction as a VAT-leviable supply of goods and services. If there is any relief from VAT, it must be contained in a specific exemption or zero rating.
The definition of "services” for VAT purposes includes "anything done or to be done or the making available of any facility or advantage”. And the definition of "enterprise” clearly states that a profit motive is irrelevant in determining whether a supply of goods and services is subject to VAT.
This results in club subscriptions and Lotto tickets being subject to VAT. And tuition fees would be subject to VAT were it not for a specific exemption. "Value added” really has little to do with the charging provisions in the act.
A donation to a political party has very little to do with philanthropy. The donor is expecting something to be done or the making available of a facility or advantage. So, clearly, political parties should be registered for VAT.
Now imagine if political parties were required to include all their fundraising receipts as VAT-leviable supplies. There would be little input-tax relief as most of the funds raised are spent on salaries, Botox, clothing, entertainment and motor vehicles. Only the legal fees, aircraft charter, business-class air tickets and cellphone accounts would qualify for deduction.
So, without a specific exemption, political parties could lose up to 12% of their fundraising to the SA Revenue Service.
I chuckled when I read the recent proposed amendment to the VAT Act to exempt donations to political parties from VAT.
Is the proposed amendment necessary? After all, when last did a political party get anything done or make available a facility or advantage to anyone other than its own members?
Actually I am surprised they were not zero-rated as this would allow some of their VAT input credits to be reclaimed even though no VAT was collected.
The effective date of the amendment is the date of promulgation of this year's Taxation Laws Amendment Act (expected in December).
One must doubt that there will be any opposition to the amendment in parliament. But does this mean that all donations to political parties before this date are VAT-leviable? I doubt it!