Minister Enoch Godongwana delivered his Budget Speech on Wednesday, 21 February 2024. As part of the process the Ministry publishes their so-called Annexure C proposals. A number of Value‐Added Tax (VAT) proposal or considerations are contained in Annexure C. These are outlined below.
VAT on pre-cut and prepared fruit and vegetables
It is proposed that the VAT Act be amended to clarify that pre‐cut or prepared fruit and vegetables do not qualify for VAT zero rating.
VAT treatment of rental stock paid in terms of the National Housing Programme
VAT amendments that came into effect from 1 April 2017 created confusion on the VAT treatment of rental stock under the National Housing Programme. It is proposed that the VAT Act be amended to clarify the VAT treatment.
VAT relief for non‐resident lessors of parts of ships, aircraft or rolling stock required to deregister
Foreign lessors of parts of ships, aircraft or rolling stock previously had to register for VAT. In 2023 “parts directly in connection thereto” were included in the VAT Act which required foreign lessors to deregister for VAT. This amendment had the unintended consequence that such vendors had an output tax liability on deregistration. It is proposed that the VAT Act be amended to provide relief.
VAT treatment of the Mudaraba Islamic financing arrangement
The deeming provisions of the VAT Act does not address the VAT treatment of “Mudaraba” financing arrangements. Due to disparity caused with the Income Tax Act and uncertainty of the VAT treatment, it is proposed that the VAT Act be amended.
VAT treatment of supply of services to non‐resident subsidiaries of companies based in South Africa
The definition of “resident of the Republic” in the VAT Act refers to the definition of “resident” in the Income Tax Act. The VAT Act envisages a resident as someone conducting an “enterprise” in South Africa. Non‐resident subsidiaries of companies based in South Africa may qualify under the definition of “resident” in the Income Tax Act (where effectively managed in South Africa) and, as a result, in the VAT Act. This could result in services supplied by the resident to the non‐resident subsidiary being subject to the standard rate. As the services will be effectively consumed outside the country, it is proposed that the VAT Act be amended to exclude non-resident subsidiaries from the definition of “resident of the Republic”.
VAT and foreign donor funded projects
The VAT Act requires a VAT defined foreign donor funded project to be registered separately for VAT as a branch of the implementing agency. This creates an increased administrative burden for recipients of foreign donor funding. It is proposed that the foreign donor funded project regime be reviewed to ease the administrative burden on the implementing agents.
VAT and Electronic Services
It is proposed to update the VAT on Electronic Services Regulations and the relevant sections of the VAT Act to keep up with changes in the digital economy and ease the administrative burden. It is proposed that the scope of the regulations be limited to only include non-resident vendors supplying electronic services to non-vendors and end-consumers, effectively B2C. This will remove many such suppliers from the VAT net.
VAT and domestic reverse charging of valuable metal
With effect from 1 July 2022, regulations were introduced to curb VAT fraud schemes in relation to gold and gold containing goods. The regulations exclude from the definition of “valuable metal” the gold produced by “holders”, as defined under the Mineral and Petroleum Resources Development Act, or a person contracted to such “holder”. These schemes and malpractices have now shifted to the primary gold sector. It is proposed that the regulations be revised to curb these schemes.
VAT accounting in the gambling industry
Section 72 of the VAT Act was amended in 2019 and affected arrangements or decisions made on or before 21 July 2019. The impact of these decisions was reviewed to determine whether they should be discontinued or incorporated in the VAT Act. The section 72 amendment affected the gambling industry and table games of chance, which relied on a section 72 arrangement with SARS to account for VAT. It is proposed that this ruling be incorporated into the VAT Act.
Prescription period for input tax claims
It is proposed that the tax period in which past unclaimed input tax credits may be claimed be amended in the VAT Act to ease the administrative burden on SARS and taxpayers. It is also proposed that the VAT Act be amended to clarify that such deductions be made in the original period in which the entitlement to that deduction arose.
VAT claw‐back on irrecoverable debts recovered
The VAT Act currently entitles a recipient of an account receivable at face value on a non‐recourse basis to a deduction of the tax amounts written off as irrecoverable. It is proposed that the VAT Act be amended to provide for any claw‐back of these deductions on amounts subsequently recovered.
VAT and supplies by educational institutions to third parties
It is proposed that the VAT Act be amended to clarify the policy intention relating to supplies provided by educational institutions to third parties.