While the economic impact of the COVID-19 pandemic on South Africa is still unfolding, it’s likely to be far reaching. The effects are already being felt by businesses as a result of the extended national lockdown in effect until 1 May 2020. Some are able to continue functioning with remote workforces, but others need staff physically present to generate revenue, which can cause a lot of operational difficulties. Staff shortages and absenteeism, the closure of all land ports, and new restrictions on the movement of cargo by air, sea, and road will significantly impact the logistics chain.
The South African Revenue Service (SARS) made an announcement on 27 March 2020 providing some financial relief during the COVID-19 pandemic. In this article we summarize those related to indirect taxes.
Due to the measures put in place under the Disaster Management Act, 2002, during the COVID-19 pandemic, “essential goods” are exempt from VAT and Customs Duty on importation.
This exemption relates to goods imported for the relief of distressed persons in cases of famine or other national disasters. Essential goods are generally defined as food, cleaning and hygiene products, medical, fuel (including coal and gas), and basic goods (airtime and electricity).
It might seem as though the majority of the day-to-day products consumers consume are listed as essential goods, but it doesn’t necessarily mean that consumers are now exempt from paying VAT on all these items. The exemption only applies to the importation of the essential items into South Africa; the local supply of essential goods is still subject to the normal VAT rules.
It is important to note that there are certain basic foodstuffs and agricultural products that are already exempt from VAT and Customs Duties on importation. The local supply of such goods is generally also zero rated for VAT purposes and would therefore not result in financial relief for the consumer.
So, the exemption from VAT and customs duty of “essential goods” on importation that was introduced as a result of the COVID-19 pandemic does not necessarily have a significant impact on the pockets of ordinary residents.
From a VAT perspective, vendors with goods currently in, or awaiting, transit that have already been declared to SARS as zero-rated exports may have had specific concerns surrounding their obligation to have their goods actually exported within the generally prescribed 90-day period.
SARS has recognised these challenges and issued Binding General Ruling No 52 (BGR 52) on 26 March 2020 to help relieve the burden on certain vendors affected by the global COVID-19 pandemic.
SARS acknowledges the significant impact of commercial delays and difficulties, lockdown-related disruption in services, and the growing number of infected cases caused by the COVID-19 virus.
BGR 52 extends the 90-day prescribed period to export goods (and periods relating to special circumstances) by an additional three months. By implication, the effective 180-day period to obtain the prescribed export documentation has also been extended by three months. This only applies to exports in respect of which the original timeframes for export have not already been exceeded. It is anticipated that SARS will withdraw BGR 52 as soon as a state of normalcy is reached. As a result, the relief should be viewed as temporary.