Apportionment –financial and non-financial sectors
Various taxpayers earning interest, dividends and foreign exchange gains in excess of 5% of their total turnover need to apportion their input tax credits incurred on expenses.
The current default turnover based method of input tax apportionment appears to be inequitable at times and as a result it is proposed that this method and the apportionment principles be re-evaluated. Over the last number of years, SARS were reluctant to agree to the approval of other apportionment methods.
We would welcome a re-evaluation should it provide clear guidelines in calculating the apportionment percentages as well as the principles to be applied to the direct attribution of expenses. The process for the approval of apportionment methods have been a source of frustration for many taxpayers leaving them in an uncertain financial position, in many cases in excess of 5 years.
Input tax on passenger motor vehicles is generally denied. However, input tax on vehicles without the ability to carry passengers such as delivery bikes is recoverable. Similarly, the input tax credit on the purchase of racing cars is currently recoverable even though these vehicles are generally used for recreational purposes. There is a proposed change to the definition of “motor car” to include racing cars or carts that will in future prohibit the recovery of input tax credits.
Tax invoices issued in foreign currency
A tax invoice that is subject to the standard rate must be issued in the currency of the Republic. Where two parties have concluded a contract in a foreign currency, SARS seems willing that the parties may convert the currency at a spot rate agreed between them. If they are not able to agree a conversion rate, the spot rate at the time of supply must be used. It seems that SARS may be changing their view as a general binding ruling that was issued in 2012 forced taxpayers to convert at the spot rate on the day of the supply. Should the ruling be withdrawn, it will be welcomed by many taxpayers concluding contracts in a foreign currency.
Streamlining registration and filing for businesses
The VAT registration process will be simplified going forward ensuring a decrease in the compliance burden for taxpayers, but at the same time safeguarding SARS against fraud. In our experience in dealing with SARS, they have continued to complicate the process. Any real change to enhance the VAT registration process will be welcomed. We would hope that the process would ultimately be simplified.
VAT registration of foreign businesses selling digital goods
It has been proposed that foreign businesses that sell digital goods such as e-books, music, and other digital goods and services in South Africa should be required to register for VAT.
This is in line with current European Union directives whereby sales on electronically delivered services are taxable at the customer’s location.
VAT, which is a consumption tax, is generally payable in the location where the goods and services are consumed. Accordingly, exports are zero-rated and imports are subject to VAT. However, given that digital goods are easily accessible and may be consumed anywhere, this enshrined principle cannot be simply applied in respect of imported services or e-commerce. Unlike the export and import of physical goods, no border post or post office can perform the function as collecting agent.
The effect of this is that in certain circumstances, local consumers have been able to buy imported digital goods or services without paying VAT.
This proposal is suggested in order to curtail this loss of revenue. However, it will be interesting to note how the Legislature intends on drafting the relevant amendments within the framework of the current VAT treatment of imported services.
A further consideration is how the current practical requirements for a VAT registration, which presupposes the physical presence of a representative vendor, South African bank account, and physical location within South Africa, will be amended to provide for the VAT registration of foreign businesses.
Although the actual implementation of the proposed change is uncertain, given that the e-commerce market within South Africa has grown phenomenally within the last three years, and that the current VAT legislation does not provide certainty regarding the sale of digital products, this proposed change is welcomed.
Temporary letting of residential fixed property
Currently, developers that use the temporary relief provisions for the letting of residential fixed property are required to furnish SARS with a declaration containing certain information within 30 days of the supply. The effect of compliance with this provision is that the supply of such services are deemed to not have a VAT consequence, and prevents the triggering of any change of use adjustments.
We welcome the proposed change that vendors retain the information as part of their normal recordkeeping (without being required to file a declaration with SARS for each individual transaction), as this would be more practical and appropriate.
The supply of services by a sectional title association to its members in the course of the management of the sectional title body corporate is exempt from VAT. Currently, the Home owners associations do not qualify for this exemption and are required to charge VAT at the standard rate on the services provided to members.
It is proposed that a similar exemption be applied for Home-owners association. This amendment is welcomed as it would relief these associations of the VAT compliance burden associated with the current legislation.