Recently proposed amendments and other changes in Value Added Tax for 2020
The National Treasury published the 2020 draft Taxation Laws Amendment Bill (TLAB), which covers specific provisions that require additional consultation and feedback from various stakeholders.
Some of the notable proposed Value Added Tax (VAT) amendments relate to the application of Discretionary Rulings (so-called “s72 rulings”) that the revenue authority (SARS) had issued. These rulings have mostly been withdrawn and the amount of rulings SARS will issue will decline significantly. To give effect to the current rulings, several changes to the legislation have been proposed. As well, some changes provide clarity on the treatment of certain provisions in the VAT Act.
Here’s an overview of the VAT amendments proposed to take effect 1 April 2021.
Registration of lessors of foreign-owned ships, aircraft, and other equipment
The applicability of South African VAT rests on whether an activity satisfies the definition of “enterprise”, as set out in the VAT law. A person will be required to register in South Africa if the person meets the requirements set out in the enterprise definition and meets the taxable supply threshold of R1 million.
There has been uncertainty with the application of the enterprise definition in various industries. One scenario that has proven tricky, for example, is when foreign-owned ships or aircraft and other equipment are leased for the use in the Republic (South Africa) and the lessor is based outside of the Republic and the lease agreement requires the lessee to import the goods into the Republic. In such a circumstance, the question is whether the lessor conducts an enterprise in the Republic or partly in the Republic. Previously, SARS issued rulings on a case-by-case basis to determine whether or not the lessor had a VAT registration liability in South Africa.
The proposed amendment essentially excludes foreign lessors from the enterprise definition. As a result, under the amended version of the definition, the lessor will not be a resident of the Republic and will not be a registered vendor.
We are not in favour of this amendment, as it contradicts the basic principles of the VAT legislation. We are of the view that it is just a mechanism to overcome practical issues with the registration of foreign vendors.
The sale of a going concern
The VAT Act currently provides relief for restructuring within corporate organisations. This is achieved by treating the supplier and the recipient of the goods or services as the same person, provided the relevant rollover relief provisions of the Income Tax Act are met. The VAT relief only applies if the transfer relates to the transfer of an enterprise or a part of the enterprise that is capable of operating separately.
One of the difficulties of the current provisions is that if all the organisations’ assets do not meet the requirements to qualify for the rollover relief, the rollover provisions do not apply. The unintended consequence is that the transaction will then not qualify for zero-rating. As a result, the supplier (seller) will have to account for VAT on the supply of the enterprise at the standard rate. This provision is being amended to allow the supply to be subject to VAT if the supplier and recipient agree in writing that the supply qualifies as a going concern.
SARS previously issued an s72 ruling to suppliers of long-term insurance policies, including superannuation schemes relating to the consolidated charge they levy for both the insurance cover and the fees or commissions charged.
The Commissioner issued Binding General Ruling 34 (BGR 34), which contained a method to calculate the cost of the supplies. As a result of an amendment in 2019 withdrawing these rulings, BGR 34 will not be applicable after 31 December 2020.The amendment regulates the different valuation rules that apply.
Zero-rating of telecommunication services
According to the International Telecommunications Regulations (ITR), South African vendors supplying roaming and other services to non-resident telecommunications suppliers are obliged to zero-rate the charges levied to their non-resident counterparts.
To adhere to the provisions of the ITR, an amendment has been proposed to the VAT Act that will enable vendors in the telecommunications industry to zero-rate supplies between resident and non-resident telecommunications service providers.
Accounting basis versus Invoice basis
The majority of foreign electronic service vendors are registered to account for VAT on the payments basis. However, intermediaries were not able to account for VAT on the same payment basis. This creates an inconsistency in the VAT treatment in respect of suppliers of the same services, namely, foreign electronic services.
The proposed amendment will permit vendors that are deemed suppliers for purposes of supplying foreign electronic services to apply to register for VAT on the payments basis. This means that these vendors will account for output tax only when payments are actually received and will only be entitled to input tax credits when payments are made.