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Value Added Tax Value Added

VIEWS: 42 PAGES: 33

									   Value Added Tax

 Introduction

 Accounting Bases

 Registration as a Vendor

 VAT Categories and
  Accounting periods

 Payment & records

 Supplies



                             1
          Introduction
VAT is an INDIRECT TAX

      What is an indirect tax?

• Charged on the value of all
  supplies made by a vendor.

• Governed by VAT Act
  -   Act No 89 of 1991

• What VAT means

  -   for consumers – consumption tax of
      14% on most goods & services

  -   for ‘registered vendors’ – the amount
      payable to (or refundable from) SARS
      * determined as the difference
        between ‘output tax’ and ‘input tax’

                                           2
           Introduction
Output Tax
   - VAT the vendor charges (collects)
     * on the supply of goods or services
     * in the course or furtherance of an
       ‘enterprise’ carried on
     * current std rate is 14%

Input Tax
   - VAT which the vendor has borne
     * on goods & services


Non-vendors
• No output tax charged, No input tax
  claimed




                                        3
      Accounting bases
• Two accounting methods for VAT
– s16, subject to s15
  -   Invoice basis
  -   Payments basis

• Invoice basis
  -   most common method
  -   output tax accounted for at earlier of :
      * issue of invoice; or
      * receipt of payment
  -   input tax accounted for at earlier of :
      * receipt of invoice; or
      * making payment

• Payments basis – s15
  -   output tax only accounted for when
      payment actually received
  -   input tax only claimed when payment
      actually made.
  -   only available to natural persons,
                                                4
      subject to several conditions
   Vendor registration –
           s23
• Compulsory registration
  -   any person carrying on
  -   one or more ‘enterprises’
  -   total value of taxable supplies exceeds
      (or likely to exceed) R1,000,000
      * for any 12-month period

• What is an Enterprise
  -   activity carried on
  -   continuously or regularly
  -   in the course or furtherance of which
  -   goods or services are supplied
  -   to any other person
  -   for consideration
  -   detailed definition in s1 .

  -   separate registrations possible for
      separate enterprises (e.g. divisions)

  -   single registrations possible for
      separate persons carrying on one
      enterprise, e.g. partnerships           5
  Vendor registration –
          s23
Specific exclusions from
  enterprise

  1. A hobby

  2. supply of services by an
  employee.

  3.Supply of comm. accom. -
    value of supply < R 60k for
    a period of 12 mnths.

4. certain supplies made by
   branches or main businesses
   outside SA.
                                 6
  Vendor registration –
          s23
Specific inclusions in the
definition of an enterprise

  1. Anything done on
  connection with the
  commencement or
  termination of an enterprise.

  2. Activities of welfare
  organisations and foreign
  donor funded projects.




                                  7
      Vendor Registration
• Voluntary registration
  -    taxable supplies less than R1,000,000
  -    total taxable supplies exceeded
       R20,000 in preceding 12 months
  -    purchase of going concern for which
       total taxable supplies exceeded
       R20,000 in the preceding 12 months
  -    activity carried on will only result in
       taxable supplies over a period of time
       * and taxable supplies likely to exceed
         R20,000 over a 12-month period

  -    Qualifying welfare organisations may
       register without a minimum
       requirement

• Registered vendors
  -    must charge output tax (on taxable
       supplies made)
  -    can claim input tax (on taxable
                                               8
       supplies received)
 Anti Avoidance - s50A
• Registration attached to a
  person
• if a person has more than one
  enterprise and is registered as a vendor
  for one.
                     Then
• Automatically vendor for the rest.

• Section 50 A gives the Commissioner
  the right to deem an enterprise that
  has been split up into separate entities
  for the purpose of avoiding to register
  as a vendor and so doing avoid VAT
  to be one enterprise.
                      When
• the Commissioner is satisfied all the
  different parts is part of one larger
  activity
                                             9
    Anti Avoidance - s50A
          Example
• Mrs X Carries on three different
  enterprises that only makes taxable
  supplies . All three enterprises
  operates on in her own name.
•   Value of the supplies:
•   Enterprise 1: R 360,000
•   Enterprise 2: R420, 000
•   Enterprise 3: R240, 000
             »     R 1020 000

• Determine whether MRS Z is
  obliged to register as a VAT
  vendor.


                                        10
  Anti Avoidance - s50A
        Example

• Paul is a plumber and carries on
  a business as a sole trader. Value
  of his taxable supplies for the
  past 12 months amounted to
  R550 000. He is also the sole
  member of a CC called Paul’s
  Plumbing Services cc. with
  taxable supplies to the value of
  R480 000 for the past 12
  months.
• You are required to determine
  whether Paul is obliged to
  register for VAT Purposes.


                                  11
   Vat Accounting Period

• s27
• VAT periods
  -   accounting period for calculating
      Output and Input tax
  -   5 different categories (A, B, C, D, E, F)
• Category A & B : 2-month periods
  -   taxable supplies up to R30m per year;
      (farmers : taxable supplies over R1m)
  -   Two separate categories (A & B) with
      alternate end-months
      * A = Dec-Jan, Feb-Mar, etc.
      * B = Jan-Feb, Mar-Apr, etc.
• Category C : 1-month periods
  -   taxable supplies over R30m per year
  -   or if specifically requested
• Category D : 6-month periods
  -   farmers : taxable supplies less than
      R1,5m ove a 12 month period.
  -   Last day Feb and Aug

                                             12
 Accounting Periods (2)
• Category E : 12-month periods
  -   companies & trusts only; and
  - enterprise consists solely of :
    * letting fixed property; or
    * renting movable property; or
    * administering of connected
  companies in relation to the vendor
  -   recipients of such supplies
      (customers) are registered vendors
      entitled to input tax
  -   Tax invoices & payments are effected
      annually
  -   Written application to C:SARS
  -   VAT-period same as income tax year
• Category F : 4-month periods
  - 3 tax periods per annum
  - end on last day of June, October,
    February
  - annual turnover exc VAT less than
    R1,5 million                      13
  - application in writing to SARS
        Payment & Records
• Payment of VAT to SARS (s 28)
    -  VAT return (plus payment) submitted
       * on or before the 25th of the month
       * after the end of tax period
    e.g. Jan-Feb period : Return due 25 Mar

•   Penalties and Interest
    10% of the tax; Interest at the prescribed
    rate.
• Records
    -All vendors must retain records to
    support Output & Input calculations at
    least 5 yrs from entry into records
    Tax invoice must contain certain
       information, e.g. the words ‘tax
    invoice’; supplier’s VAT registration
    number
as from March 2005 if tax invoice:
    > R1 000 must have address and name of
    recipient
    > R 3000 must also have VAT registration
    number of recipient
different minimum requirements for invoice
                                           14
under R20; between R20 & R500; and over
R500
              Supplies
What is a supply?
• Supply
  - performance in terms of sale, rental,
     agreement etc.
  - includes the supply of all goods and
     services in return for consideration

• Two types of supplies
    - Taxable supplies (2 sub-categories)
       * Standard rate (14%)
       * Zero rate (0%)
    - Exempt supplies
VAT charged upon taxable supply
    * if supplier is a registered
          vendor
-Input tax can only be claimed
    * by registered vendor
    * in course of making taxable supplies

• Special rules setting out
  - Deemed supplies (generally taxable)
  - Non-supplies
                                         15
      Zero-rated Supplies
• Subject to Vat at 0%
• Zero-rated supplies made
  -    input tax can be claimed on expenses
       related to zero-rated ‘sales’

• Exported good & services
  -    goods consigned or delivered to a
       recipient in an export country
       * Compliance requirements in PN2
         (e.g. copy of export documentation)
  -    services to a non-resident, who is
       outside SA at time of receiving service
       * subject to conditions and exceptions
  -    services ancillary to exported goods
       * e.g. transport




                                              16
 Zero-rated Supplies (2)
• Sale of enterprise as ‘going concern’
       Deemed supply of goods ito s8(7)
   - entire enterprise or part thereof
Requirements
   -   must be separate and independent
       income-earning entity
       * not only business structure / assets
   -   purchaser and seller must both be
       registered vendors
   -   written contract must specify ‘going
       concern’
       requirements set out in PN14/pg869

Calculation related to going concern sales

100% taxable usage - all or at least 95% -
    used taxable supplies – seller levies 0%
    on full transaction
 more than 50% taxable usage - all assets
    deemed to form part of going concern
    sale at 0%
less than 50% taxable usage - must split 17
    into taxable and non taxable usage
 Zero-rated Supplies (2)
• Goods for agricultural use
   -   per specified list, e.g. animal feed,
       fertiliser, seeds, etc.

• Fuel levy products (petrol, diesel, etc)

• Listed basic foodstuffs
   -   e.g. brown bread, fruit, vegetables,
       maize meal, etc.

• International transport
   -   Between SA & export countries, or
       between export countries

Refer pg 872-873 for more examples




                                               18
Zero-rated Supplies (2)
• Mark Model ( Vat Vendor) carries
  on business of a dairy . For the VAT
  period under review he received
  R300 000 (VAT incl) for the sale of
  milk.
• During the same period he incurred
  the following expenses (VAT incl):
            »
• Purchase of cow from
  vendor                    R114,000
• Fuel                      R 8,000
• Purchase of Pack
  Materials :               R 57,000
  You are required to calculate the
  VAT payable or refundable for the
  applicable VAT period.
                                     19
Zero-rated Supplies (2)
• Output VAT
• Sale of milk – zero rated    -

• Input Vat
• Purchase of cow (114000X14/114)
  14,000
• Fuel
      -
• Packing Materials           7,000
• Total Input VAT            21,000

• Amount to be refunded:
  (21,000)



                                   20
Zero-rated Supplies (2)
• A vendor sells tenanted fixed
  property for R1.7m. The
  building is partly let as
  residential flats (exempt
  supplies) and partly as
  commercial offices (taxable
  supplies) Assume that all the
  requirements are met and the
  sale qualifies as the sale of a
  going concern.
• You are required to determine
  how much of the selling price
  will be subject to zero rating in
  the following instances.
                                      21
   Zero-rated Supplies

(a) Residential Flats 60% vs
   commercial offices 40%

(b) Residential Flats 40% vs
  commercial offices 60%




                               22
   Zero-rated Supplies
(a) Residential Flats 60% vs
   commercial offices 40%
• Only R680,000 will be zero rated
   1.7m X 40%)

• (b) Residential Flats 40% vs
  commercial offices 60%
• The full selling price will be subject
  to zero rating.




                                       23
   Exempt Supplies s12
 Persons making exempt supplies
• deemed not carrying on
  enterprise
• Cannot register as Vat vendor
• cannot claim input tax
• apportionment where a vendor
  makes exempt as well as taxable
  supplies
• Financial services
  -   Only certain specified financial
      services e.g.
      * interest charged on debt;
      * sale/transfer of shares, members
         interest in cc
      * long-term insurance premiums;
      * pension fund contributions, RAF
        contributions, medical subscriptions
  -   excludes supplies which charge fees,
      etc. (i.e. not exempt, therefore subject
      to std rate), e.g.
      * bank’s service charges;             24
      * fees for amending loan contract; etc.
   Exempt Supplies s12

• Transport business
Passenger Transport : Road & Rail
e.g. taxis, buses, trains, etc.

• Supplies by associations not for
  gain
  - supply of goods received by
    donation
  - goods made/manufactured if <
    80% of materials were
    donations received

• Educational services
  - State, or any public institution,
    e.g. schools & universities
  - Crèches, after-school care, etc.

                                    25
         Residential
       Accommodation
• Exempt Supply
  -   Supply of a ‘dwelling’
  -   under a rental agreement
  -   But not ‘commercial accommodation’
  -   ‘Dwelling’ = place of residence or
      abode of natural persons
      (e.g. houses and flats, but not offices,
      factories, etc.)

• Commercial accommodation
  -   Hotels, guest houses, holiday
      accommodation, etc.
  -   Total annual receipts exceed R60 000
  -   No rental agreement
  -   Can include house or flat if no rental
      agreement
  -   Also includes homes for the aged,
      handicapped, etc. and hospice


                                             26
        Commercial
       Accommodation
• NB : Commercial accommodation
  = Std-rated supply

• Domestic goods & services
  supplied to guests/tenants
  -   e.g. meals, cleaning, electricity
  -   Can be charged for
      * separately; or
      * as part of all-inclusive charge

• Separate charge for domestic
  goods & services
  -   All charges (i.e. accommodation as
      well as other charges) fully subject to
      std-rate VAT

• All-inclusive charge
  - Supplying accommodation for 28
  days or less : Full charge subject to VAT
  - Accommodation for >29 days : Only
    60% of charge subject to VAT
                                            27
        Exempt Supplies
• The following items appeared on
  Ragdoll boutique’s bank statement
  for September.
                                           ‘R
•   Internet Banking fee                 73.92
•   Service Fee ( Bank Charges)         162.35
•   Transaction costs.                    83.9
•   Administration costs.                 14.00
•   Interest charged on overdraft.      116.42
•   Interest received on positive bal     83.2
•   Cheque book cost.                     18.20

Indicate which of the above amounts include
VAT and if so how much VAT is included.




                                                28
     Exempt Supplies
• The Needy Association , an
  Association not for Gain, received
  second hand clothes and glasses as
  donations from members of the
  public. The association sells the
  clothes to the public for R10 a piece
  and engraved the association’s name
  on the glasses prior to selling them at
  R5 per glass.

• Determine the VAT consequences:




                                       29
        Deemed Supplies
• S8,18,22 – deem certain events or
  transactions to be supplies.
Vendor must account for Vat on
  these
•   Ceasing to be a VAT vendor – s8(2)
    - cessation of trading; and/or

    -   VAT deregistration
    -   deemed supply of all goods held for
        which input was / could be claimed

    - Paid at the VAT fraction on the lesser
      of cost or MV ( cease to be vendor)
    -   special rules for deregistration due to
        supplies being reduced to below
        voluntary registration limit
        (R1,000,000) - 6 equal installments

    -   Deregistration to register as a micro-
        business – 6 months to pay
                                             30
        Deemed Supplies

• Indemnity payments –s8(8)
    -   e.g. payout from short-term insurance.
    -   if related to loss incurred in carrying
        on of the enterprise.
    -   not applicable to goods/services
        where input denied s 17(2)
        * stolen, destroyed, beyond repair;
        and
        * prohibited from input tax claims

    -   not related to taxable supplies made
        by the vendor.

•   Overpayments
    Period of 4 months – no refund then
    Deemed consideration for supply by
    vendor.



                                              31
   Deemed Supplies (2)
• Goods sold to settle debts of
  owner
   -   where goods belonging to 3rd party
       are sold to settle debt of such 3rd party
       (e.g. repairer of uncollected goods)

• VAT clawback
  - debt outstanding for more than
       twelve months after becomes
       payable then input tax claimed
       treated as output tax.

• Certain Fringe benefits – s18(3)
   -   Deemed to be supply by employer to
       employee.
   -    The net effect is to reverse    the
       VAT previously claimed by that
       employer.
   -   Vat calculated on the cash equivelant
       of the asset.
       For Motor vehicles prescribed rates
       Eg. page 856 & 857
   -   To be covered later                 32
      VAT Clawback &
          Imports

• VAT clawback
  - debt outstanding for more than
      twelve months after becomes
      payable then input tax claimed
      treated as output tax.

 Vat paid on import of goods s13
Calculated at the rate of 14% on :

   Customs duty value           xxxxxx
   Plus Customs duty            xxxxxx
   Plus 10% of said value
   (not BLNs)                   xxxxxx

VAT on imported services s 14
When SA resident – NOT VAT Vendor
OR will not be using the service in Vatable
enterprise.
                                          33

								
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