Summary
Summary TAXN7311 - LU14 VAT
- Course
- Taxation (TAXN7311)
- Institution
- Varsity College
VAT - VALUE ADDED TAX
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LU14 - VATINTRODUCTION
Value added tax (VAT) was introduced on 29 September 1991. VAT is levied at a rate of 15% (pre 31 March 2018 the rate was
14%) on the value of all standard-rated taxable supplies of goods or services in the Republic made by a vendor in the course or
furtherance of an enterprise carried on by him. The Value-Added Tax Act (No. 89 of 1991) contains all rules relating to the
determination of VAT. Any sections referred to in this learning unit refer to sections within this Act.
VAT is an indirect tax as SARS does not collect this tax directly from the consumer. The vendor collects from the consumer on
behalf of SARS and pays this amount less any allowable deductions for input VAT over to SARS on a periodic basis.
VAT payable to SARS is calculated by the vendor using the following formula:
NOTE: If outputs exceed inputs then VAT will be payable to SARS and if inputs exceed outputs then a refund will be due by SARS.
The Act covers both taxable and exempt supplies. Taxable supplies include supplies at the standard rate of VAT – i.e. 15% – as
well as zero-rated supplies – i.e. 0%. Exempt supplies are not VAT-able. In brief, input VAT can be claimed on all goods and
services used in the making of taxable supplies (whether standard-rated or zero-rated) unless specifically prohibited, and no
input VAT can be claimed on goods and services used in the making of exempt supplies.
If a VAT vendor purchases from a vendor he is able to claim an input tax deduction. However, where the purchaser is a non-VAT
vendor no claim may be made and the chain of VAT claims ends with him.
The vendor reports to SARS at the end of every tax period on a VAT201 return, where the input tax incurred for the tax period is
offset against the output tax collected for the tax period and the balance is paid to SARS (by no later than the 25th day after the
end of the tax period concerned where the VAT vendor completes a manual return or the last business day of the month after
the end of the tax period concerned where the vendor completes his VAT return on SARS eFiling).
DEFINITIONS
Supply – for VAT purposes this is a performance in terms of a sale, rental agreement, instalment credit agreement and all other
forms of supply, whether voluntary, compulsory or by operation of law, irrespective of where the supply is affected.
Supply does not include anything done for no consideration unless the anti-avoidance provisions apply.
Goods – corporeal movable things, fixed property and any real right in such things or fixed property.
The definition specifically excludes money, any right under a mortgage bond or pledge, and any revenue stamp.
Services – anything done or to be done, including the granting, assignment, cession or surrender of any right or the making
available of any facility or advantage. In addition, S8 (covered later in the chapter) deems certain events to be the supply of a
service.
Note that if a supply is not a supply of goods and is also not specifically excluded in the definition of ‘goods’ it will constitute a
‘service’ for VAT purposes. Therefore intangible assets such as shares, patents and trademarks would not fall within the
definition of goods as these are not ‘corporeal’; they would, however, be included in ‘services’ for VAT purposes.
Vendor – in terms of the VAT Act a vendor is defined as ‘any person who is or is required to be registered under this Act’. Person
includes natural persons (individuals) as well as judicial persons – i.e. companies, CCs, trusts etc.
,Enterprise – any activity carried on continuously or regularly in the Republic of South Africa, or partly in the Republic, whether or
not for profit in the course or furtherance of which goods or services are supplied for a consideration.
The following are specifically excluded from the above definition:
Services rendered by an employee to an employer
Private or recreational pursuits or hobbies
VAT-exempt activities (per S12 – covered later in this chapter)
Consideration – includes any payment made or to be made (including any deposit on any returnable container and tax), whether
in money or otherwise, or any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement
of, the supply of any goods or services, whether by that person or by any other person, but does not include any payment made
by any person as a donation to any association not for gain.
Consideration is therefore the full amount (including VAT) that will be charged on goods and services sold. In order to determine
the VAT portion of the consideration (referred to as the ‘tax fraction’ in the Act) it will be necessary to multiply the consideration
by 14/114 (where the supply is a standard-rated supply).
SEE EXAMPLE 14.1
CONNECTED PERSONS
The definition of connected persons in the VAT Act is wider than that in the Income Tax Act and includes the following:
REGISTRATION FOR VAT
A person may either be required under the Act to register as a VAT vendor (compulsory registration) or may register voluntarily
(providing certain requirements are met). In order to establish who must or can register as a VAT vendor, it is necessary for us to
look at the VAT Act. S23 of the VAT Act covers the requirements of registration. A person who carries on an enterprise is
required to register as a VAT vendor either:
At the end of the month where the taxable supplies have exceeded R 1 million in the previous 12-month period; or
At the start of the current month where there is a reasonable expectation that the taxable supplies will exceed R 1
million in the following 12-month period.
In establishing turnover for registration purposes a person can ignore the following in terms of S23:
Proceeds received as a result of any cessation or any substantial and permanent reduction in the size and scale of a
person’s business;
The replacement of any plant or capital asset used in a person’s enterprise; and
Abnormal circumstances of a temporary nature.
Prior to 1 March 2009 the threshold was R 300 000.
Note that the 12-month period referred to is not a calendar or tax year and SARS will refer to any period of 12 months e.g. 1
May 2018 to 30 April 2019. In order to register as a VAT vendor a person must complete a VAT 101 form. This must be done
within 21 days of the date that a person becomes liable to register in terms of the Act. All required documentation include:
cancelled cheque or letter from banker, confirming account details;
, copies of three months’ bank statements;
copy of ID of vendor or representative vendor;
copy of Company/CC registration documents (where applicable);
proof of physical business address and proof of representative vendor’s residential address; and
proof of turnover in excess of the minimum threshold of R 50 000 e.g. invoices.
These documents must accompany the form in order for the application to be approved by SARS. SARS has now also taken the
step of requesting an interview with the vendor or representative vendor to ensure that the registration is valid and to prevent
the situation where persons fraudulently register in order to claim input VAT without declaring any output VAT. The vendor or
representative vendor may be represented by a tax practitioner at the interview provided that the tax practitioner has a signed
letter of authority from the vendor/representative vendor.
A person may also voluntarily register as a VAT vendor as long as his turnover in a 12-month period exceeds R 50 000 or is likely
to exceed R 50 000. This minimum turnover limit is raised to R 60 000 where the person carries on an enterprise providing
commercial accommodation prior to the 1st April 2016. After 1st April 2016 the threshold is R 120 000. It may be in a person’s
best interests to voluntarily register for VAT as this will enable him to claim back input VAT from SARS on his expenses and
purchases. He will, however, need to consider the effect of this registration on his customers/clients as he will have to charge
VAT on his turnover thus increasing his prices. However, this effect may be nullified where his customers are VAT registered and
therefore able to claim back the VAT he charges as an input.
For VAT purposes a partnership can be a VAT vendor and register as such even though it is not a separate tax-paying entity. This
registration will be independent of the partners who make up the partnership since, even though the partners may change, the
partnership will continue to operate as the same vendor with the same VAT registration number.
Where a person is VAT-registered any enterprise carried on by him will fall within this registration and he will be deemed to be a
vendor for all activities carried on by him. As an example, an individual who carries on an architecture practice in his own name
and who is a VAT vendor will also be required to charge VAT on fees that he charges in a separate business carried on by him
providing interior decorating advice.
S50A of the Act prevents a person splitting his enterprise between two or more entities in order to keep his turnover at a low
enough level to avoid compulsory VAT registration. This section allows the Commissioner to deem that the registered entities be
one for VAT purposes. In order for this section to apply the Commissioner must be satisfied that the entities:
are in substance part of one larger entity; and
have been split mainly in order to avoid VAT registration.
SARS is required to indicate which entities should be registered as a single entity (referred to as ‘members’) and all VAT
transactions relating to these entities will be recorded under the single entity going forward.
SEPARATE REGISTRATION OF BRANCHES OR DIVISIONS
S50 allows for the separate registration of separate enterprises, branches or divisions with the proviso that where one
enterprise, branch or division is registered all must be registered. The requirements of S50 are as follows:
The vendor must apply to SARS in writing for any such separate enterprise, branch or division to be separately
registered.
Each enterprise, branch or division must maintain a separate system of accounting.
Each enterprise, branch or division must be able to be separately identified by reference to the nature or its
activities or its location.
Once the commissioner has approved the registration, the separate enterprise, branch or division is treated as a separate
vendor with a unique VAT registration number and is deemed to carry on activities independent from the main vendor.
Therefore VAT must be accounted for on any supplies between the separate vendors.
CANCELLATION OF VAT REGISTRATION
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