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Proposed changes to the issuing of debit and credit notes

17 July 2012   (0 Comments)
Posted by: SAIT Technical
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By Carmen Moss-Holdstock (DLA Cliffe Dekker Hofmeyr Tax Alert 13 July 2012)

An amendment has been proposed in terms of the Taxation Laws Amendment Bill 2012 (TLAB) relating to the issuing of debit and credit notes under s21(1) of the Value-Added Tax Act, No 89 of 1991 (Act). The Explanatory Memorandum (EM) to the TLAB sets out the rationale for the proposed changes.

Background
 
Under s16(2) of the Act, a vendor can only claim an input deduction if he is in possession of a tax invoice or debit note or credit note. It is important to appreciate the distinction between the terms 'tax invoice' and 'invoice' as defined in s1 of the Act. A 'tax invoice' is a document that needs to meet the requirements of s20(4) and s20(5) of the Act in order for the vendor to claim an input deduction. An 'invoice' on the other hand is a 'document notifying an obligation to make payment' and the issuing of which may affect the timing of supply.

Under s16(2) of the Act, a vendor can only claim an input deduction if he is in possession of a tax invoice or debit note or credit note. It is important to appreciate the distinction between the terms 'tax invoice' and 'invoice' as defined in s1 of the Act. A 'tax invoice' is a document that needs to meet the requirements of s20(4) and s20(5) of the Act in order for the vendor to claim an input deduction. An 'invoice' on the other hand is a 'document notifying an obligation to make payment' and the issuing of which may affect the timing of supply.

In terms of s20(1) of the Act, a registered vendor must within 21 days of the date of supply issue a tax invoice which complies with the requirements under s20(4) and s20(5) of the Act. It is unlawful to issue more than one tax invoice for each taxable supply.

Where a vendor has accounted for an incorrect output tax, he can issue a debit or credit note in order to make an adjustment in calculating the tax payable by him where the supply was either cancelled, or where there was a fundamental variation or alteration in the nature of the supply, or due to an alteration of an agreement or where the goods or services supplied are returned.

The issue

The problem arises when a vendor has either issued a tax invoice for an incorrect amount or has omitted certain information on the tax invoice as required by s20(4) and s20(5) of the Act. The vendor is unable to simply re-issue a tax invoice reflecting the correct amount by way of a debit or credit note under s21(1) of the Act, or to correct any information omitted on the tax invoice in order to comply with s20(4) and s20(5) of the Act. Vendors may have incorrectly issued debit and credit notes that may not technically have been in line with the Act.

The problem arises when a vendor has either issued a tax invoice for an incorrect amount or has omitted certain information on the tax invoice as required by s20(4) and s20(5) of the Act. The vendor is unable to simply re-issue a tax invoice reflecting the correct amount by way of a debit or credit note under s21(1) of the Act, or to correct any information omitted on the tax invoice in order to comply with s20(4) and s20(5) of the Act. Vendors may have incorrectly issued debit and credit notes that may not technically have been in line with the Act.

The proposal

The Commissioner for SARS has issued a proposal under the draft EM to eliminate the anomalies arising from issuing credit or debit notes under the circumstances not contemplated under s21 of the Act, and to allow for the correction of incorrect tax invoices. These corrections will cover credit notes (for incorrect overcharges) and debit notes (for incorrect undercharges) and to correct information omitted on the tax invoice so as to comply with the requirements under s20(4) and s20(5) of the Act. Two new circumstances are contemplated that permit a vendor to issue debit or credit notes:

The Commissioner for SARS has issued a proposal under the draft EM to eliminate the anomalies arising from issuing credit or debit notes under the circumstances not contemplated under s21 of the Act, and to allow for the correction of incorrect tax invoices. These corrections will cover credit notes (for incorrect overcharges) and debit notes (for incorrect undercharges) and to correct information omitted on the tax invoice so as to comply with the requirements under s20(4) and s20(5) of the Act. Two new circumstances are contemplated that permit a vendor to issue debit or credit notes:
  • Where an error has occurred in the consideration as reflected on the tax invoice.
  • There is an omission of one or more of the particulars required to be present on a tax invoice.

These two amendments will make it easier for vendors to correct simple errors on tax invoices.


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