VAT's going on with zero-rating in South Africa ?
Thématique :
sud afrique
Steven Jones, Moneyweb, 3 November 2008
When should you be paying VAT, and when shouldn't you?
Each year at around Budget time, the Congress of South African Trade Unions (Cosatu) usually calls for so-called "zero-rating" to be extended to a greater number of commodities than is currently the case - mainly aimed at providing relief to the poor.
But what exactly is "zero-rating"?
When Value-Added Tax (VAT) replaced the old General Sales Tax (GST) way back in 1991, the drafters of the legislation decided to exempt certain goods and services from the levying of this tax. However, because of the way VAT is collected, the principle that applies is generally that if you don't collect VAT on a particular item, you can't claim any input taxes relating to the sale of such item.
In layman's terms, if you are a business that is selling goods on which VAT is chargeable, you would be entitled to claim input credits based on the VAT that was charged to you when you purchased such goods. In addition, you would also be able to claim the VAT paid on your shop rent, telephones, utility bills, and the like. The difference between what you collect and what you have paid out must be paid over to the South African Revenue Service (Sars), usually on a two-monthly basis (although larger businesses with turnover exceeding R30 million per annum pay their VAT monthly).
However, if the goods that you are selling are exempt from VAT, you will not be able to claim any input VAT relating to such goods. Fair enough - after all, you were not charged VAT on such goods in the first place. But this also means that you would not be able to claim any other input VAT that you may have paid either, such as on shop rent.
Drawing from experiences of VAT regimes overseas, our legislators decided to include a "zero-rate" category. Now on the face of it, there seems to be little difference between charging VAT at zero percent, and having an item completely exempt from VAT. The difference, however, is that the VAT vendor may claim input VAT credits on zero-rated items, whereas on exempt items, they can't.
Specific items are listed in the VAT legislation as being zero-rated, and include: brown bread, dried maize, dried beans, lentils, tinned pilchards or sardines, rice, fresh fruit and vegetables, vegetable oil, milk, eggs, and edible legumes.
From a consumer point of view, it is important to know which items are zero-rated for VAT purposes - especially since the items concerned are usually purchased together with standard-rated items (those on which VAT is charged at 14%). The unscrupulous storekeeper could end up charging 14% on items that are listed as zero-rated, pocketing an additional profit margin. (Naturally, such "additional" VAT is never paid over to Sars!)
However, life is not made particularly easy for the retailer that makes an honest mistake by charging VAT at the standard rate on items that should be zero-rated. Sars will not allow the retailer to claim the overpaid VAT back from Sars unless proof can be provided that such overpaid VAT will be refunded to the consumer who was originally charged the VAT in error.
There are also some confusing twists when it comes to zero-rating. For example, the VAT legislation states that the zero-rating applies when the goods concerned are sold individually, but not when they form part of a meal. This means that, for example, if you order a meal at a restaurant that includes fresh vegetables, you cannot claim that the portion of the bill that relates to the vegetables must be VAT-exempt.
However, if you purchase the same vegetables from a supermarket, the supply thereof will be zero-rated, and effectively you (as a consumer)are not paying VAT thereon.
Sars has also issued some rulings over the years. While the list is fairly extensive, and includes such examples as fresh paprika being zero-rated whereas dried paprika is charged at the standard rate, the general principles to be applied are as follows:
If standard-rated items are added to zero-rated items to make a new product (eg, flavourings added to zero-rated items), the resultant product is likely to be standard-rated.
If a process is applied to a zero-rated product other than to preserve the product in its natural state, such product may be standard-rated.
If the product is supplied as a ready-to-eat meal (even if the entire meal consists of zero-rated ingredients), such product will be standard-rated.
When should you be paying VAT, and when shouldn't you?
Each year at around Budget time, the Congress of South African Trade Unions (Cosatu) usually calls for so-called "zero-rating" to be extended to a greater number of commodities than is currently the case - mainly aimed at providing relief to the poor.
But what exactly is "zero-rating"?
When Value-Added Tax (VAT) replaced the old General Sales Tax (GST) way back in 1991, the drafters of the legislation decided to exempt certain goods and services from the levying of this tax. However, because of the way VAT is collected, the principle that applies is generally that if you don't collect VAT on a particular item, you can't claim any input taxes relating to the sale of such item.
In layman's terms, if you are a business that is selling goods on which VAT is chargeable, you would be entitled to claim input credits based on the VAT that was charged to you when you purchased such goods. In addition, you would also be able to claim the VAT paid on your shop rent, telephones, utility bills, and the like. The difference between what you collect and what you have paid out must be paid over to the South African Revenue Service (Sars), usually on a two-monthly basis (although larger businesses with turnover exceeding R30 million per annum pay their VAT monthly).
However, if the goods that you are selling are exempt from VAT, you will not be able to claim any input VAT relating to such goods. Fair enough - after all, you were not charged VAT on such goods in the first place. But this also means that you would not be able to claim any other input VAT that you may have paid either, such as on shop rent.
Drawing from experiences of VAT regimes overseas, our legislators decided to include a "zero-rate" category. Now on the face of it, there seems to be little difference between charging VAT at zero percent, and having an item completely exempt from VAT. The difference, however, is that the VAT vendor may claim input VAT credits on zero-rated items, whereas on exempt items, they can't.
Specific items are listed in the VAT legislation as being zero-rated, and include: brown bread, dried maize, dried beans, lentils, tinned pilchards or sardines, rice, fresh fruit and vegetables, vegetable oil, milk, eggs, and edible legumes.
From a consumer point of view, it is important to know which items are zero-rated for VAT purposes - especially since the items concerned are usually purchased together with standard-rated items (those on which VAT is charged at 14%). The unscrupulous storekeeper could end up charging 14% on items that are listed as zero-rated, pocketing an additional profit margin. (Naturally, such "additional" VAT is never paid over to Sars!)
However, life is not made particularly easy for the retailer that makes an honest mistake by charging VAT at the standard rate on items that should be zero-rated. Sars will not allow the retailer to claim the overpaid VAT back from Sars unless proof can be provided that such overpaid VAT will be refunded to the consumer who was originally charged the VAT in error.
There are also some confusing twists when it comes to zero-rating. For example, the VAT legislation states that the zero-rating applies when the goods concerned are sold individually, but not when they form part of a meal. This means that, for example, if you order a meal at a restaurant that includes fresh vegetables, you cannot claim that the portion of the bill that relates to the vegetables must be VAT-exempt.
However, if you purchase the same vegetables from a supermarket, the supply thereof will be zero-rated, and effectively you (as a consumer)are not paying VAT thereon.
Sars has also issued some rulings over the years. While the list is fairly extensive, and includes such examples as fresh paprika being zero-rated whereas dried paprika is charged at the standard rate, the general principles to be applied are as follows:
If standard-rated items are added to zero-rated items to make a new product (eg, flavourings added to zero-rated items), the resultant product is likely to be standard-rated.
If a process is applied to a zero-rated product other than to preserve the product in its natural state, such product may be standard-rated.
If the product is supplied as a ready-to-eat meal (even if the entire meal consists of zero-rated ingredients), such product will be standard-rated.
