SOUTH AFRICA - Recent amendments, court cases and other changes in VAT for 2019
Various amendments included in the Taxation Laws Amendment Bill (TLAB) and the Tax Administration Amendment Act (TAA) were promulgated in January 2019. Some of the notable Value Added Tax (VAT) changes were to Section 20, which relates to issuing tax invoices and the insertion of the definition of ‘face value’ with respect to irrecoverable debts.
Various changes have also been made with regard to zero rated items. For example, the 2018 mid-term budget speech included a proposal for the zero-rating of sanitary products. Some other zero-rated items were announced in the Binding General Ruling 49 (BGR49) on 25 March 2019.
Other 2018 amendments with VAT consequences included the updated legislation pertaining to Electronic Services. The amendments focus on the consolidated regulations for the purpose of the definition of ‘electronic services’.
And finally, we report on a recent court case that looked at the correct VAT treatment of the supply of student accommodation.
Material error on tax invoices
An amendment to Section 20, which came into effect on 17 January 2019, provides much-needed certainty regarding the re-issue of invoices with material errors. Now, where a tax invoice issued by a supplier contains errors with respect to the particulars required under the VAT Act, the supplier must issue a corrected tax invoice. The corrected invoice must be issued within 21 days from the date the error was identified or from the date the supplier received a request for correction. (A corrected invoice need not be issued if the supplier has issued a credit or debit note with respect to the error.)
The amendment clarifies that such corrections will not constitute a contravention of the prohibition against issuing more than one tax invoice for the same supply. As well, the amendment makes it clear that the correction will not affect the time of supply for VAT purposes (Section 9 of the VAT Act).
Suppliers should obtain and retain information sufficient to identify the transaction to which the original tax invoice and the corrected invoice refers.
Though this might seem like an insignificant amendment, it is a very welcome one because it creates certainty for suppliers regarding the correcting of tax invoices already issued and provides a remedy to supply recipients.
Defining ‘face value’ with respect to irrecoverable debt
Section 22 of the VAT Act was amended to include a definition of ‘face value’ with respect to irrecoverable debts. When a VAT registered vendor has provided goods or services on credit, the vendor is permitted to claim a deduction for VAT on taxable supplies of goods or services that have been written off.
If the debt becomes irrecoverable and the vendor cedes or sells its written off debt to another vendor (for example, a bank or collection agent) on a non-recourse basis, the sale thereof is exempt from VAT. (The amount the vendor receives must be less than the amount that was originally owing to the vendor.) On such a sale, the vendor cannot make any adjustments to its previous VAT deduction.
The face value of a debt transferred is defined as the net value of the account receivable at the time of transfer, after tax adjustments have been made for debit and/or credit notes and taking into account the input tax already claimed on the debt amount already written off.
This amendment addresses an anomaly the government identified that used to result in the double deduction of VAT. This was the case when some vendors (for example, collecting agents or banks) that bought book debts under such arrangements attempted to claim a further deduction if they subsequently wrote off all or part of the irrecoverable debt previously written off.
Credit notes in the context of an acquisition of a going concern
A new amendment clarifies the VAT implications of returned goods in situations where someone purchases an enterprise as a going concern.
Where a purchaser of an enterprise accepts the return of goods previously supplied to customers, the purchaser is allowed to issue credit notes with respect to such previously supplied goods.
This amendment eases the compliance burden for purchasing vendors and clarifies that VAT will not be a cost to the purchaser.
Inclusion of joint ventures
Under South African law, joint ventures are generally recognized as legal persons. But, the concept of a joint venture was not defined in the VAT Act. Thanks to changes included in the TLAB, joint ventures are now included under Section 51 of the VAT Act. This change provides much-needed legal certainty. Now all members of an unincorporated joint venture that is registered as a VAT vendor can be held jointly and severally liable for VAT liabilities.
Consolidated regulations pertaining to electronic services
Updates to the regulations substantially widen the scope of services that qualify as electronic services. The changes mean that, subject to a few exceptions, all services supplied for consideration that are provided by means of an electronic agent, electronic communication, or via the internet subject, are electronic services and are subject to VAT at the standard rate.
Furthermore, the updated regulations do not make a distinction between business-to-business (B2B) and business-to-consumer (B2C) supplies. As a result, B2B supplies are taxed at the standard rate. This treatment is a major concern to many, given that the majority of electronic services transactions are B2B.
Residential vs commercial accommodation
The Supreme Court of Appeal recently delivered an interesting judgement in a case pertaining to the VAT treatment of the supply of a student residence building to an educational institution.
The court concluded that the building, which was used for student accommodation, did not meet the first requirement of the definition of ‘commercial accommodation’. As a result, the taxpayer was liable to account for output tax on the entire supply.
If you are engaged in the provision of rental units and you are uncertain about whether to treat the supply as a commercial accommodation or residential accommodation, our tax experts can help.