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Summary Tax 399 (TAX399) - VAT
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Summary Tax 399 (TAX399) - VAT
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VAT (Forms a big part of test 3)Introduction & VAT in perspective:
Rules and regulations are found in a separate VAT Act
VAT levied on taxable supplies (TS) by a vendor
o Taxable Supplies = at standard rate (14%) or zero-rated (0% - still a VAT or taxable supply implication)
o Non-Taxable Supply = exempt supplies
Indirect tax on transactions (not directly levied by SARS) and a direct cost to the final customer
o Levied on consumption of goods and services in RSA
Different terms include and exclude VAT:
o Value = amount excluding VAT
o Consideration = amount including VAT (being, Value + VAT)
o Open market value = should include VAT
The following diagram illustrates the implications of VAT:
Output tax levied by supplier & valid invoice?
2 exceptions:
Indemnity payments in terms of an insurance contract
Fringe benefits
Output vat = sale: Input vat = purchase (beneficial and must have valid
Dr. Bank or Debtors tax invoice to be able to claim from SARS):
Cr. Sales Dr. Purchases
Cr. VAT (liability) Dr. VAT (asset)
Cr. Bank or creditor
The timing payable or receivable (which is equal to the net vat payable or refundable to SARS) takes place at the end of the VAT period
and not after the end of each transaction.
Look at example 32.4 on page 1012
Calculation of VAT:
The accounting basis and time of supply (s 15)
Invoice basis – General rule Payment basis (exception)
Account for VAT on earlier of: Accounted for VAT when:
Invoice date; or - payments are made (purchases)
Receipt of any payment - payments are received (sales)
Compulsory for a company (including a Apply with SARS
CC) A vendor may account for VAT on the payments basis if the requirements in s
Special rule for fixed property (extent of 15(2) are met
NB- Exception: If the consideration ≥ R100 000, then the invoice basis must
payment – refer to 32.24). The supplier will
be used.
be required to account for output tax as and
when payment of purchase price is
received.
If the vendor changes from the payments basis to the invoice basis, then the amount payable or refundable will be the output tax due on
his outstanding debtors’ balance less the input tax receivable on his creditors’ balances.
Do example 32.1 [based on timing], 32.2 [>100 000 = invoice basis = exception] and 32.3 on page 1008 [revise later on – must have
dealt with all types of suppliers but deals with the adjustment made from payment basis to invoice basis]
Tax periods (s 27 – possible theory question) – must complete and submit Vat return every:
Category VAT period Description
A (General rule) 2 months Ending at the end of January, March, etc.
B (General rule) 2 months Ending at the end of February, April, etc.
C 1 month Taxable Supplies > 30m. or applied with SARS or offender
D 6 months Only for farmers on last day of Feb and August.
E 12 months If directed as such by SARS (specific application)
F 4 months Taxable supplies ≤ 1,5m. and applied with SARS
A and B = Taxable supply does not exceed R30m or farmers with taxable supplies that exceed R1.5m
, Tax returns & payments (s 28)
o A VAT return must be submitted to SARS < 25 days after end of VAT tax period
o Amount payable or refundable must be paid on the day that the Vat return is submitted (e-filing and debit orders have
separate rules – more for background information)
o SARS’s e-filing system has made it a lot easier
Penalties & interest (s 39):
o If Vat is not paid on time = 10% penalty of the tax + interest at prescribed rate (s39 (1) (a) (ii)). Interest is calculated from
the first day of the month following the month in which the payment is due.
Refunds (s 44):
o If the input tax for the period > output tax = SARS should refund vendor
o Must however claim input within 5 years (3 years in the case of an assessment in SARS) after receipt of valid invoice
NB!! There is also an obligation to maintain and safeguard all VAT documentation for a period of 5 years.
NB!! The basis of output tax (s7 (1) (a)):
Exclude following sub-sections:
s 12:(d),(e),(k)
Do example 32.5 on page 1013 (VAT output = 14/114 or R0 if zero rated supply)
Output: Supply of goods or services (s7 (1) (a)):
For a transaction in RSA to attract Vat there should be:
o A Supply
o Of goods or services
o By a vendor
o In the course of furtherance of an enterprise
NB!! Important definitions are therefore (s1):
o Supply (s1) and deemed supplies (s 8 & a 18(3)):
Supply: includes performance in terms of a sale whether voluntary, compulsory or by operation of law,
irrespective of whether the supply is effected
o Goods or Services:
Goods means corporeal movable things, fixed property, any real right in fixed property and electricity
excluding:
Money (which includes Kruger Rand’s)
Any right under a mortgage bond or fixed property
Any stamp which has a money value and has been sold for the payment of any tax or duty (not a
postage but rather a revenue stamp)
Services includes the granting or surrendering of any right or the making available of any facility or advantage
o A Vat vendor:
Registered under the Vat act.
Is responsible for output VAT and may claim input VAT
Compulsory registration:
o Actual or expected value of taxable supplies for 12 months (no reference to tax years, therefore SARS will look at any
consecutive 12 months) > R1m. NB- however, there is a proviso for 3 exclusions from this R1m that do not have to
register for tax purposes and include (s 23(1)):
Permanent reduction in the size or scale of the enterprise OR
Replacement of a plant or any other asset used in any enterprise OR
Abnormal circumstances of a temporary nature
o Branches or divisions of vendor may register separately if (s 50(1)-(2)):
It maintains its own independent accounting system
Can be separately identified by reference to the nature of the activities carried on or the location of the branch
or division
Voluntary registration (s23 (3) – (7))
o Why would a person register voluntarily?
To claim input tax (especially in case of zero-rated supplies). Therefore, if output = 0, then the input tax would
lead to a benefit
o Actual or expected value of taxable supplies for 12 months > R50 000 (s 23(3))
, o Commercial accommodation value of taxable supplies for 12 months > R60 000 (‘enterprise’ in s1 proviso (ix))
Output tax: Enterprise (s7 (1) (a) - another NB definition in s1):
Carried on continuously or regularly by a person
o Including all supplies (also capital goods) in carrying on an enterprise
o Excluding once-off private sales (not in carrying on an enterprise)
Goods or services are supplied for a consideration whether for profit or not
o Involves ‘consideration’ (in cash or otherwise)
o Transactions with connected persons have separate rules (s 10(4))
o Excluding donations received by a non-profit organisation
Specifically included and excluded as ‘enterprise’
o NB! Proviso’s to ‘enterprise’ in s 1:
The branch or main business outside the republic shall be carried on separately from the vendor if:
The branch can be identified separately
It has an independent system of accounting
Rendering of services by an employee shall not be deemed to be the carrying on of an enterprise.
The above does not apply to any employment accepted in carrying on any enterprise carried on by
him independently
Recreational pursuit or hobby
Exempt supplies
o Independent branches of vendor outside RSA:
The supplies would not be treated as part of the supplies of a RSA vendor.
NB (will be in test and exam)! VAT levied (also if not a VAT vendor): Importation of goods (s 7(1) (b) & 13)
S7 (1) (b) just informs us that it is a transaction on which Vat is levied (it is an additional cost for the importer of the goods and
services).
Paid in addition to purchase price to avoid unfair competition (RSA suppliers at disadvantage as foreign suppliers do not levy
VAT)
There are three different categories:
Import Time of importation Calculation of VAT on importation
Entry into RSA via designated [Customs value (given) + import
port charges] x 14% (NB, not 14/114)
From BLNS (Botswana, Lesotho,
(s 13(1)(iii)) (s 13(2)(b))
Namibia and Swaziland) countries
(custom union members)
Pay less tax (concession which is given
to promote free trade)
Date entered OR once cleared [[Customs value x 110%] + import
for consumption in RSA charges] x 14% (NB, not 14/114) (s
(s13(1) (i)). 13(2)(a))
The additional 10% is proof that the
BLNS countries pay less tax
From
Do example 32.9 on page 1021 (the
other countries
additional 10% must only be applied to
custom value and not import duties. (a)
– can’t claim from SARS because it is
not regarded as a taxable supply.
(b) – can claim input tax because it is a
taxable supply.
Once cleared for consumption Greater of:
in RSA - Calculation in terms of s13(2)(a)
(Already in RSA in customs - Consideration of ‘in-bond’ supply (s
13(2A))
warehouse). Therefore, only X 14%
‘In-bond’ sale claim VAT when it has been
Do example 32.10 on page 1023
cleared for consumption.
(value increased to 300 000, therefore
must base calculation on greater of date
it was imported or date it cleared
consumption).
NB (will be in test and exam)! VAT levied (also if not a VAT vendor): Imported services (s 7(1) (c) & 14):
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