It is proposed that the activities of political parties and bargaining councils be specifically exempted from VAT, confirming the position that contributions to political parties and administration fees levied by bargaining councils will not attract VAT.
Zero rated supplies
A possible zero rating in respect of the Square Kilometre Array (SKA) will be considered if South Africa wins the bid to house the world’s largest radio telescope.
The provision of credit is a financial service and is exempt from VAT unless such supply would otherwise have qualified for a zero rating, as is the case where credit is provided to a non-resident. It is proposed to eliminate this zero rating in order to level the playing fields between local and foreign borrowers.
Although neither local nor foreign borrowers will have VAT levied on interest charges, the local lender would have been entitled to deduct input VAT incurred on expenditure relating to foreign and not local loans. In other words, loans to non-residents would have been entirely free of VAT, whereas loans to residents would not. This is, however, consistent with a destination-based VAT system where goods and services are taxed in the country of consumption and VAT is removed from exported goods or services. The removal of the zero rating will mean that input VAT on expenditure relating to loans to non-residents will no longer be deductible.
Cross Border Transactions
Qualifying indirect exports (where the purchaser is responsible for removing the goods from the Republic) are zero rated. One of the requirements for zero rating to apply in this context, is that the goods are initially delivered to a designated harbour or airport, thereby effectively excluding road transport. It is proposed that this exclusion be reviewed.
Provision is currently made for the exemption of VAT in respect of temporary imports. The requirements are, however, restrictive and it is proposed that the VAT treatment of such imports be reviewed in order to promote local processing and beneficiaries.
The situation can arise where a foreigner, who is a vendor for South African VAT purposes, sells goods which are then imported into South Africa by the purchaser. The result is that VAT is levied on the sale and the purchaser is also obliged to account for VAT on importation. It is proposed that such transactions be reviewed in order to avoid the duplication of VAT charges.
Movable goods removed from a customs controlled area in an industrial development zone which are not returned within 30 days, attract output VAT as well as import VAT. It is proposed that this double charge be eliminated.
These amendments are to be welcomed. In principle, there is no difference between goods exported by road or by any other means for the purpose of zero rating exports. The requirements surrounding the exemption of temporary imports are, in many circumstances, not commercially realistic and needed to be reviewed. It is also interesting that recognition has been given to the position that foreign persons who regularly sell goods which are imported by the purchasers into South Africa may have been required to register as vendors.
Debit or credit notes may only be issued in prescribed circumstances, which do not include correcting incorrect tax invoices. It is proposed that amendments will be introduced in order to allow for this, thereby avoiding the need to cancel the original tax invoice and re-issue another tax invoice for the correct amount.
When a trader reaches the compulsory threshold of R1 million and is obliged to register as a vendor, there is some doubt as to exactly when such person is obliged to start charging VAT on its supplies. It is proposed that the liability date for VAT be clarified in order to streamline the transition from being a non-vendor to a vendor.
A further sharia-compliant amendment has been proposed in respect of instalment credit agreements.