BEL 300

LEARNING AREA 1: VAT

PART 1: THE BASICS

1. WHAT IS VAT & HOW DOES IT WORK

 VAT
- Value-Added Tax
- Indirect Tax (Taxed on something else; not on a person)
- Charged on usage
- VAT actually a consumer tax – consumer ultimately pays
-

 How does it work?

- Based on a subtractive or credit input method
- Allows the vendor to deduct the tax incurred (input) from the tax collected (output) on the supplies
made by the enterprise

2. MECHANICS

INPUT VAT OUTPUT VAT

(expenses) (turnover / sales)
VAT that vendor has incurred iro G + S supplied VAT that a vendor charges on G + S supplied by
to him him
(CLAIM) (RAISE)

claimed on PURCHASES / EXPENSES added to SALES

Output −Input=VAT Payable ¿∨(refundable by SARS)

3. OUTPUT VAT: TYPES OF SUPPLIES

TAXABLE SUPPLIES EXEMPT SUPPLIES (step 1)

1. Standard rate (step 3) s12 gives list
- No section
- Includes deemed supplies

2. Zero rate (step 2) NO VAT

- S11
 4. VENDOR

4.1 DEFINTION
 = Person REGISTERED or REQUIRED TO register for VAT

 Person includes:
- Public authority
- Local authority (municipality)
- CO
- CC
- Body of persons (eg: partnership or married ICOP)
- Deceased and insolvent estate
- Trust fund

4.2 REGISTRATION – Section 23

VOLUNTARY COMPULSARY
TS > R50 000 and < R1 000 000 during a 12 Taxable supplies > R1 000 000
month period - Prior 12 month period – end of
month (looking back with actual
figures); OR
- Next 12month period – beg of month
(anticipated)

REQUIREMENTS OF REGISTRATION- Section 23 of the Vat Act

 Taxable Supply value must EXCLUDE VAT

 PERSON CARRIES ON SERPARATE BUSINESSES  IF JOINT TS > R1M: MUST register

 Onus on PERSON to register within 21 days on VAT 101e FORM

4.3. SEPARATE REGISTRATION – Section 50 of the VAT Act

 Sole trader has businesses in different branches

 MAY REG SEPARATELY IF –

o Separately identified iro location & activities, AND
o Independent acct records
4.4 SEPARATE PERSONS DEEMED TO BE SINGLE VAT PERSON

 2 companies carrying on the same enterprise

 SARS satisfied that the main reason (or 1 of main reasons) for the split is to avoid registration

 DEEMED TO BE THE SAME PERSON : IF TS > R1M

= obliged to register

5. TAX PERIOD
6. WHEN CAN INPUT VAT BE CLAIMED?

 Only be claimed if vendor has a VALID TAX INVOICE

 If input not specifically denied

 EXCEPTION:
 Acquisition of 2nd hand goods from a non-vendor: NOTIONAL INPUT

7. VALID TAX INVOICE

(1) SUPPLY < R50 (2) SUPPLY btw R50 – R5 000 (3) SUPPLY > R5 000
(incl. VAT) (Incl. VAT) (Incl. VAT)
Tax invoice optional – supplier  Tax invoice‟
 all the information for (2) AND
must issue within 21 days if  Name, address, VAT reg.
purchaser requires  name, address + VAT
number of supplier
REGISRATION number of
 Date
RECEIPIENT
 Serialized number
 quantity and volume of goods
 Description of goods (indicate
if 2nd hand) or services
supplied

 Value of supply + amount of

tax (VAT) charged +
consideration for supply OR

 Consideration and statement

MUST issue
that VAT is included at 15% (or
invoice within
21 days of amount of VAT)
supply being
made
8. ACCOUNTING BASIS

INVOICE BASIS PAYMENTS BASIS

 Account for VAT on earlier of invoice or payment  Account for VAT on payment IF:

 NB: ANY SUPPLY OF R100 000 (incl VAT) or more (1) Association not for gain / public authority
(excluding FIXED property) = use this basis
OR

(2) Natural person AND TS < R2.5mil (12months)

9. TIME AND VALUE OF SUPPLY

 TIME OF SUPPLY: Section 20(1)

o Earlier of:
 Time invoice is issued
 Time that payment of consideration is received by supplier

 VALUE OF SUPPLY:
o If consideration is in the form of money = the money = value of supply
LESS VAT
o If consideration NOT money = open market value @ time of supply

10. ADMIN PROCEDURES

 Completed VAT 201 + PMT to SARS on / before

o 25th of the month (manually submitted) OR
o END of month (efiling – submission & payment)

Following end of tax period

 IF NOT on a business day – business day before the 25th / last day

 LATE PAYMENT OF VAT

o Penalty: 10% of the tax due

o Interest @ prescribed rate calculated from 1 st day of the month following the month in which PMT
was due
 Commissioner can prescribe the time at which PMT must be made – if not in time it will be deemed that
pmt was made on the NEXT BUSINESS DAY

REMEMBER!!!!!

1. IF REG VAT VENDOR: VAT WILL NOT form part of cost of exp / asset:
Because = it is claimed back

2. IF NOT reg as vendor: VAT WILL form part of cost of exp / asset:
Because = its not claimed back
 PART 2: VAT LEVIED

S7(1): VAT LEVIED

15% OR 0% (UNLESS EXEMPT!)

Section
Section7(1)(a) SUPPLY of 1. SUPPLY

GOODS & SERVICES  Includes: sale; rental agreement; instalment credit

agreement
 + all other forms of supply
by a VENDOR  Whether voluntary, compulsory or ex lege
 Irrespective of where the supply is effect
IN COURSE OR
FURTHERANCE OF AN 2. GOODS
ENTERPRISE  Corporeal movable things
 Fixed property
 Any real right
 Electricity (goods and not services)

 EXCLUDES:
o Money (which includes bills of exchange,
postal orders, promissory notes)

o R under mortgage bond / pledge

o Revenue stamps (except where acquired by

stamp collectors)

3. SERVICES
 Anything done or to be done
 Including: granting, cession or surrender of a right
 Making available of a facility or advantage

 IF something is not a supply of goods (& not

specifically exempt = it will be a supply of services

 INCLUDES: supply of TM’s; patents; GW; know-how

 PMTs

4. VENDOR
 Registered or required to register for VAT

5. IN THE COURSE OR FURTHERANCE OF AN

ENTERPRISE

“ENTERPRISE”
 Any activity or enterprise
 Carried on in SA or PARTLY in SA
 On a regular or continuous basis
 By any person
 In the course / furtherance of which G + S are
supplied
 For a consideration
 Whether / not for profit

SPECIFIC INCLUSIONS:
 Anything in connection with commencement or
termination of an enterprise

 Activities of a welfare organisation / foreign

funded project (usually no consideration)

SPECIFIC EXCLUSIONS:

Activity to extent it involves making of exempt

supplies
Hobbies of natural persons
Services by an E’E for ‘remuneration’
Supplies made outside SA by any branch / main
business provided that:
o Branch / main business is permanently located
at premises outside SA
o Separately identified
o Independent accounting system
Supply of commercial accommodation where TS in
 period of 12mnths will NOT exceed R60 000
LOCAL AUTHORITIES: SPECIAL RULES
 WILL BE DEEMED to carry on an enterprise where
the following are supplied:
 Electricity, water, gas, environmental
levies, drainage, sewerage & garbage
services

7(1)(b) IMPORTATION of GOODS  VAT WILL BE RAISED ON IMPORTATION (whether

vendor or not)

1. NON-CUSTOMS UNION MEMBER COUNTRIES

[customs duty value + 10% of customs duty value

+ customs duty] x 15%

2. CUSTOMS UNION MEMBER COUNTRIES

BLNS
[ Customs duty value] x 15%

3. “IN BOND” SUPPLY OF GOODS

 Goods imported but stored at customs warehouse

(not yet declared for use in SA)

 VALUE = GREATEST OF

[Customs duty value + [Consideration for “in

10% of customs duty bond” supply] x 15%
value + customs duty] x
15%

ex 32.10

7(1)(c) IMPORTATION of SERVICES DEFINITION:

 Supply of services
o By supplier who is non-resident / carries on
business outside SA
o To a recipient who is a resident of SA
o To the extent that services are used in SA for
 purposes of making non-taxable supplies
VAT IS PAYABLE BY RECIPIENT OF IMPORTED SERVICES
IMPORTED BY:
o A non-vendor; or
o A vendor for a purpose other than making TS

 To extent that used in SA

VALUE OF SUPPLY = GREATER OF:

o Consideration for supply
o Open market value of supply

ADMIN & FORMS:

o NON-VENDOR: recipient declares importation
(VAT 215) within 30 days earlier of payment /
invoice date

o VENDOR: include in next VAT 201 return

IMPORTED SERVICES = NO VAT

Supply which was already subject to VAT

Would be exempt / zero-rated services if they had

been supplied from here

Educational services provided by foreign

institutions to SA students

Rendering of services by an E’E to his E’R (foreign

director falls outside the ambit of providing
imported services)

Supply where invoice < R100 (from 10 Jan ’12)

eg: 32.11
 PART 3: ZERO RATED SUPPLIES Section 11

SECTION
EXPORTED GOODS s11(1)(a)(i) & 1. DIRECT EXPORT
(ii) goods exported are regarded as direct exports and would
therefore qualify as zero-rated. Supply of:

 Moveable goods
 Consigned / delivered in export country
 And documentary proof: set out in Interpretation note 30

Direct export by the vendor:

 Copy of every zero-rated invoice
 Recipient’s order / contract btw recipient & vendor
 Copy of export documentation
 Proof that goods have been received by recipient
 Proof of payment

Goods are conveyed by cartage contractor

 Proof of transport costs
 Proof that cartage contractor took possession from
vendor
 Copy of freight transit (rail), bill of lading (ship), waybill
(air) or proof of receipt by postal services

 3 MONTHS to get all export documentation together,

else taxed @ 15%:
- Earlier of payment of any consideration
- Or invoice

 Cartage contractor (conditions)

 2nd hand goods where notional input VAT was claimed  NOT
zero rated
VAT LEVIED = notional input previously claimed

supply of vouchers entitling purchaser to a service (eg: phone

recharge voucher, pre-paid card or ticket to watch a rugby
match is NOT regarded as a supply of movable goods)
 2. INDIRECT EXPORT

 Export incentive scheme

 Delivery in SA
 Standard rate (15%)
 VAT refund to recipient of goods (Eg: non-resident)

 Exports by sea / air – vendor may at own discretion & risk zero
rate
 BUT still not % on 2nd hand goods where notional input VAT
was claimed
VAT LEVIED = notional input previously claimed

e.g.: 32.13

EXPORT SERVICES 11(1)(2) 1. TRANSPORTATION

 Rendering of transport service to passengers or goods = 0%, if
transported from:
 Place outside SA to another place outside SA
 Place in SA to place in an export country, or
 Place in an export country to a place in SA

SA AUS
Insurance of
passenger also
0%
UK

 Example:
- Tickets bought from SAA for a flight from AUS – ROME,
JHB – ROME, ROME – JHB
- If flight from AUS-ROME has to land in JHB + CPT, the
JHB-CPT leg will also be zero-rated as it forms part of
the AUS-ROME ticket

2. ANCILLARY SERVICES TO EXPORTED GOODS:

 Where foods are exported = additional services are supplied =

these are 0%
 Transport; insurance
 3. SERVICES RENDERED OUTSIDE SA
 Physically rendered outside SA = 0%
[even if to a resident of SA; it must just be physically outside SA]

4. SERVICES RENDERED TO NON-RESIDENTS

 Services not physically outside SA
 Only 0% = if rendered directly to non-resident at time services
are rendered

 Example:
- IF SA tour operator sells tour to a foreign tour operator:
services are supplied to non-resident
- BUT of actual tourists benefit from service in SA: supply
CANNOT be 0%

- ACCT service rendered to local branch of non-resident CO

will NOT be 0%

- Supply of TAX opinion to a foreign CO will be 0% if services

rendered while foreign CO had no presence in SA

SALE OF GOING s11(e) REQUIREMENTS: parties agree in writing that:

CONCERN s8(7) (1) Income earning activity @ time of transfer
(2) All assets necessary for carrying on the enterprise are
disposed of
(3) At time of contract agree that consideration is inclusive of
VAT at 0%
(4) Both parties are registered vendors for VAT purposes

SALE OF ENTERPRISE / PART OF ENTERPRISE AS A GOING

CONCERN

100% Taxable use More than 50% Less than 50%

(≥ 95%) taxable use taxable use
Seller levies output Honours Honours
VAT of 0% on full
transaction
Purchaser pay
input VAT of Rnil –
no input tax credit
OTHER 1. Supply of goods & services for agricultural or farming use

2. Supply of gold coins – Kruger rands – issued by Reserve

Bank

3. Certain basic food stuffs

4. Fuel levy goods (petrol + diesel), petroleum and crude oil

PART 4: EXEMPT SUPPLIES section 12

FINANCIAL SERVICES s12(a) EXAMPLES OF FINANCIAL SERVICES:

•exchange of currency
•transfer of ownership of a share / member’s interest
•issue of debt security or provision of credit
•issue, payment, collection or transfer of
ownership of a cheque or letter of credit
•providing an interest bearing loan
•premiums and proceeds of long term insurance
policies
•provision or transfer of ownership in
superannuation scheme (pension, provident,
retirement annuity, medical aid)
•buying of derivatives and options

DO NOT INCLUDE:
All fee-based financial services
Underwriting issue of a share / member’s
interest
Consideration payable on renewal or variation of
financial agreements relating to debt security
Rental agreement payments
Merchant’s discount (Charge made to a
merchant for accepting a credit or debit card)
Supply of a cheque book

THE ZERO-RATING OF FINANCIAL SERVICES (WHEN

PERFORMED OUTSIDE SA OR TO A NON-RESIDENT NOT
PHYSICALLY IN SA) TAKES PRECENDENCE OVER
EXEMPTION

eg: 32.19
DONATED GOODS & 12(b)  supply of donated goods or services by an
association not for gain, or
SERVICES
 supply of goods made or manufactured from
material of which 80% of the value was
donated

eg 32.20
RESIDENTIAL s12(c)  Supply of a dwelling under an agreement
for the letting or hiring thereof is exempt
ACCOMODATION
 dwelling = place used predominantly as residence or
abode of natural person, including fixtures and
fittings belonging thereto

 BUT excludes supply of commercial accommodation

(e.g. hotel)

 Exemption still applies to employers who supply

accommodation to employees
 where the employee is entitled to occupy the
accommodation as a benefit of his employment;
or
 employer operates hostel or boarding
establishment mainly for employees (not for a
profit)

EXCLUDES:
 COMMERCIAL ACCOMODATION
 Lodging together with domestic G + S

 Supplied at an all-inclusive charge

 By an enterprise supplying commercial

accommodation:

For an unbroken period > 28 days

Attract VAT on 60% of the value of the

supply

Domestic G + S goods and services provided in any

enterprise
supplying commercial
accommodation, incl:
 Cleaning and maintenance
 Electricity, gas, air conditioning
 Telephone, television, radio
 Furniture and other fittings
 Meals, Laundry, Nursing
services
all-inclusive
charge
supplying a Lodging or board and lodging,
commercial together with domestic G + S, in any
accommodation house, flat, apartment, room, hotel,
inn, guesthouse, boarding house etc.
  Regularly or systematically
supplied

 Total annual supply > R60 000

(or is likely to exceed) – (refer
to def of “enterprise”)

 Lodging or board and lodging

in a home for the aged,
children or physical/ mentally
handicapped persons

 Lodging or board and lodging

in a hospice

OTHER 1. Letting of leasehold land to be used for purpose

of erecting a dwelling

2. Sale or letting of land situated outside SA

3. Transport of fare-paying passengers and their

personal effects by road or rail

Transportation of game viewing passengers not

included = std rated supply

4. Supply of educational services by a school, public

higher education institution or institution in SA
which is a PBO

5. Supply by a school, university, technicon or

college solely or mainly for the benefit of its
learners – consideration = school fees, tuition
fees or payment for board and lodging

6. Membership contributions to employee

organisations

7. Childcare services by a crèche or after-school

care centre
8.
DEEMED SUPPLY S8(2)  A person ceasing to be a vendor and deregistered
as a vendor,
Pg 451  Any goods which form part of his enterprise
except that denied under s17(2) e.g. Motor
 Vehicle
 Will be deemed to be supplied by him
immediately before ceased to be a vendor,
 Will have to pay OUTPUT VAT on lesser of the
COST and MV of all assets held in his enterprise
on that date.
 The Market Value is treated as Including VAT.

INSURANCE CLAIMS S8(8)  A vendor receives an insurance payout in terms

of short-term insurance policy
 Pay out deemed to be for services rendered by
the insured to the insurer,
 To the extent that it relates to a loss incurred in
the course of carrying on am enterprise
 The payout is deemed to be a consideration
received for services rendered
 The insured is required to account for OUTPU
VAT. Inclusive total
FRINGE BENEFIT S18(3)  Act provides where an employer has granted a
fringe benefit to an employee
 Output VAT will be payable by the employer on
the value of the fringe benefit
 No VAT payable if:
 1. The fringe benefit is a tax-free in the
employee’s hands
 2. The fringe benefit is an exempt or zero-rated
supply or,
 3. The employer has been denied an input claim
on the goods supplied e.g accommodation,
entertainment and food.
 Where an employee’s tax is calculated monthly
on a fringe benefit, the VAT will be accounted for
in the VAT period in which the matter falls.
 In all other instances, the Vat will be accounted
for as though the time of supply is at the end of
FEB of each year
 S10(13) prescribes how fringe benefit should be
valued for VAT,
 It provides that consideration of supply is
deemed to be cash equivalent of the fringe
benefit received by employee
 In the case of the use of motor vehicles different
rules apply,
 The consideration is deemed to be the amount
determined in a manner of prescribed by the
minister in the Gazzette for the category of
motor vehicle used…..
 Where no vat input was claimable on the car, the
 value of consideration is deemed to be 0.3% per
month of the determined value of the car
 Where a VAT input can be claimed on the motor
vehicle, the value of consideration is deemed to
be 0.6% per month of the determined value of
the car.
 Where employee is required to bear
maintenance costs of the car, the consideration
is reduced by lesser of R85 per month or the
deemed consideration.