Introduction to Value-Added Tax Learner Guide 2023 (PDF)

School of Taxation Introduction to Value-Added Tax Learner Guide SARS Academy Technical Training...

School of Taxation Introduction to Value-Added Tax Learner Guide SARS Academy Technical Training May 2023 Eighth Edition Learner Guide – Introduction to Value-Added Tax – 2021 © South African Revenue Service (SARS) 1  Contents Contents....................................................................................................................................... 2 Copyright...................................................................................................................................... 4 Learning Pathway........................................................................................................................ 5 Manual Overview.......................................................................................................................... 8 Icons............................................................................................................................................. 9 Overview: The Values of SARS................................................................................................. 13 1. Who we are........................................................................................................... 13 2. Our core values..................................................................................................... 14 Unit 1: Introduction.................................................................................................................... 22 1. What VAT entails.................................................................................................. 23 2. How VAT works..................................................................................................... 23 Unit 2: Definitions...................................................................................................................... 27 1. Business day......................................................................................................... 28 2. Consideration........................................................................................................ 28 3. Consideration in money......................................................................................... 29 4. Enterprise.............................................................................................................. 31 5. Exempt supply....................................................................................................... 32 6. Goods................................................................................................................... 33 7. Input tax................................................................................................................ 34 8. Month.................................................................................................................... 34 9. Output tax............................................................................................................. 35 10. Person.................................................................................................................. 35 11. Prescribed rate...................................................................................................... 36 12. Services................................................................................................................ 37 13. Supply................................................................................................................... 37 14. Taxable supply...................................................................................................... 38 15. Tax fraction........................................................................................................... 40 16. Tax invoice............................................................................................................ 41 17. Tax period............................................................................................................. 45 18. Value..................................................................................................................... 46 19. VAT registration number....................................................................................... 46 20. Vendor.................................................................................................................. 47 21. VAT liability........................................................................................................... 47 Unit 3: Registration.................................................................................................................... 51 1. VAT registration.................................................................................................... 52 2. Persons acting in a representative capacity.......................................................... 60 3. Diesel/bio-diesel refunds....................................................................................... 62 Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 2 Unit 4: Tax Periods.................................................................................................................... 66 1. Different tax periods.............................................................................................. 67 2. Requirements relating to each tax period.............................................................. 67 3. The 10-day rule..................................................................................................... 70 Unit 5: Accounting Basis........................................................................................................... 75 1. Invoice basis......................................................................................................... 76 2. Payments basis..................................................................................................... 77 3. Conversion............................................................................................................ 80 Unit 6: Calculation of Output Tax.............................................................................................. 83 1. Impositioning of VAT............................................................................................. 84 2. Time and value of supply...................................................................................... 85 3. Calculation of output tax........................................................................................ 88 Unit 7: Calculation of Input Tax................................................................................................ 94 1. Documentation...................................................................................................... 95 2. Permissible input tax deductions........................................................................... 97 3. Input tax on the invoice basis................................................................................ 98 4. Input tax on the payments basis.......................................................................... 100 Unit 8: Returns and Payment of VAT...................................................................................... 104 1. Submission dates and payment methods relating to VAT201 returns.................. 105 2. Completion of the VAT201 return........................................................................ 110 Unit 9: Penalty and Interest..................................................................................................... 142 1. Penalty and interest on late payment of tax on a VAT201................................... 143 2. Allocation of payments........................................................................................ 145 Unit 10: Refunds...................................................................................................................... 149 1. VAT refunds........................................................................................................ 150 Summary.................................................................................................................................. 157 Bibliography............................................................................................................................. 158 Annexure.................................................................................................................................. 159 1. VAT201 return..................................................................................................... 159 Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 3  Copyright Designed and printed by South African Revenue Service (SARS) Issue: 8.00 Publication Date: May 2023 Printed in Pretoria, South Africa © 2023 South African Revenue Service (SARS) www.sars.gov.za All rights reserved. This material remains the exclusive property of SARS. No part of the publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the Copyright owner. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 4  Learning Pathway In most instances you will be liable to pay VAT on your purchases and the services you receive. It is therefore important that you familiarise yourself with the VAT principles to be able to assist taxpayers with VAT related queries. The Introduction to Value-Added Tax module is the foundation to the development of your VAT knowledge in SARS. It is of the utmost importance to attend the VAT modules in the sequence as listed. Introduction to Value-Added Tax Value-Added Tax Administrative Matters Value-Added Tax Declaration Calculations Value-Added Tax: Output Tax Value-Added Tax: Input Tax VAT Zero-rated and Exempt Supplies VAT Importation of Goods and Services VAT on the Supply of a Going Concern VAT on Betting Transactions VAT on Short-term Insurance Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 5 VAT Change in Use Adjustments VAT on Credit Agreements VAT on Fringe Benefits VAT Ass Not for Gain and Welfare Org VAT on Farming Operations VAT for Agents and Auctioneers VAT Contract Prices and Change in VAT Rate VAT on Financial Services VAT for Public Authorities VAT for Municipalities Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 6 VAT for Share Block Companies VAT on Fixed Property Transactions VAT on Pooling Arrangements Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 7  Manual Overview The main purpose of the module is to introduce you to Value-Added Tax. It will cover amongst other the following: What VAT is; The registration requirements and implications; The basic calculation of VAT for a registered vendor on the invoice and payments basis; The completion of the VAT201 return; Penalty and interest on late payment of VAT; VAT refunds. Although we focus mainly on the VAT liability the applicable provisions in the Tax Administration Act, 2011 also apply. The Tax Administration Act, 2011 aims to simplify and consolidate, into one act, a more logical and systematic way of dealing with the tax administration law. It eliminates duplication, removes redundant requirements and aligns different requirements that currently exist in different tax acts. You cannot interpret a tax act without applying the Tax Administration Act, 2011. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 8  Icons Icons used in the learner guide are provided below to assist the learning process: Class activity Important Note Quotations Formative assessment activity Suggested reading activity Key learning points Legislation Example Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 9  Administration Learner’s personal details: Surname Cell Tel (W) Email Department Job Title Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 10  Glossary Definitions of abbreviations, acronyms and terms used in the learner guide are provided below to assist the learning process: Abbreviations and acronyms Abbreviation Definition Def. Definition EFT Electronic Fund Transfer E.g. For example Etc. Etcetera FDFP Foreign Donor Funded Project GST General Sales Tax ICA Instalment Credit Agreement I.e. That is to say; in other words IT Income Tax NSRI National Sea Rescue Institute PAN Payment Advice Notice Par. Paragraph PASA Payment Association of South Africa PAYE Pay As You Earn PFMA Public Finance Management Act RSA Republic of South Africa SA South Africa SABC South African Broadcasting Corporation Limited SARS South African Revenue Service VAT Value-Added Tax VDP Voluntary Disclosure Programme Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 11 Terminology Term Definition Beneficiation Procedure of reducing ores in the mining industry Banks Act Banks Act No. 94 of 1990, as amended Commissioner Commissioner of the South African Revenue Service Customs and Excise Act Customs and Excise Act No. 91 of 1964, as amended He Not gender related, refers to he/she Him Not gender related, refers to him/her His Not gender related, refers to his/hers Income Tax Act Income Tax Act No. 58 of 1962, as amended Minister Minister of Finance National Credit Act National Credit Act No. 34 of 2005, as amended Public Finance Management Act Public Finance Management Act No. 1 of 1999, as amended Republic Republic of South Africa Tax Administration Act Tax Administration Act No. 28 of 2011, as amended The total selling price of items of inventory sold or services rendered Turnover during a specific period. Also referred to as sales Value-Added Tax Act Value-Added Tax Act No. 89 of 1991, as amended Via By means of Vice versa The other way around; with the order reversed Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 12  Overview: The Values of SARS 1. Who we are Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 13 2. Our core values 2.1 The importance of the values of a workplace “An organization’s workplace values should be the guiding principles that are most important to the way people work. Employees use these deeply held principles to choose between the right and wrong of working, how they treat each other and their clients, and how they make important decisions.” “Your organization’s workplace values set the tone for your company’s culture and they identify what your organization, as a whole, cares about. It is important that your people’s values align with these. When this happens, people understand one another, everyone does the right things for the right reasons, and this common purpose and understanding helps people build great working relationships.” “When values are out of alignment, people work towards different goals, with different intentions and with different outcomes. This can damage work relationships, job productivity, job satisfaction and creative potential.” Source: The Importance of Workplace Values http://www.workwondersnow.com/2012/11/28/the-importance-of- workplace-values/ Retrieved: 2017.05.12 We will now focus on the core values of SARS (spelling FITHART): Fairness Integrity Trust Honesty Accountability Respect Transparency Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 14 2.2 Fairness Why is it important? Our fundamental purpose is to raise money to enable the government to create a fair and equitable society. All South Africans trust that we will be fair and consistent in fulfilling our mandate. Fairness lies at the heart of trust. Corruption feeds on distrust. When people have little faith in the fairness and equality practiced in an institution, they have little incentive to obey its laws. We have an obligation to be impartial in doing what we can to enhance Tax and Customs compliance. Our devotion to fairness and justice must be deeply ingrained in everything we do. To this end we need to be fair in our internal business dealings as well. We do not tolerate favouritism, racism or sexism. Our goal is to reward and acknowledge people fairly for their contributions. Ways to implement this value Treating our taxpayers and traders fairly by consistently applying the rules and processes. Applying the law in a friendly way when clients try to do the right thing but taking firm action when they wilfully try to beat the system. Taking action that is justifiable and defendable. Respecting the rights of all our stakeholders without prejudice. Making the right decisions by first considering all the information available and refraining from passing snap judgments. Acting swiftly against corruption within our ranks to protect the trust placed in us and willingness to name and shame those that are guilty. Actions that jeopardise this value Paying lip-service to compliance without any concern for how people are treated along the way. Random inconsistent application of rules and regulations. Abuse of power and nepotism. Being judgemental on the basis of others’ differences. Covering up acts of corruption in order to protect our reputation. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 15 2.3 Integrity Why it is important? Nothing that we do should tarnish the reputation of SARS or that of our own. To stay true to our beliefs, we need to practise honesty and to live in accordance with strong moral principles. We need to make a personal commitment to doing our work with integrity and behaving with honour. The biggest test for integrity is to know deep in our hearts that every action we take will stand up against scrutiny from anyone, whether it is our family members, the public or the media. Ways to implement this value Honesty and trust-worthiness. Seeking advice when in doubt about the choices we make and referring to the guidelines provided. Honouring our word and agreements. A belief in fairness and justice for ourselves and others. A refusal to buckle under pressure and to yield to the temptation to bribery and corruption. Seeking out and awarding due recognition to people with a track record of high integrity. Actions that jeopardise this value Cutting corners and yielding to the temptation to make an extra buck in the secure knowledge that they will not be discovered. Telling white lies believing they have no dire consequences. Turning a blind eye to our colleagues or clients who push or over-step the boundaries between what’s right and what’s wrong. Abusing SARS resources because of ease of access. Compromising our values to fit in with the crowd. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 16 2.4 Trust Why it is important? Trust is right at the foundation of the survival and success of any business. Trust is more important than ever, especially when it comes to relationships with clients, employees and all stakeholders in the organization. Without trust, the organization cannot effectively fulfil its mandate. Over time, business success is dependent upon a network of positive relationships. Ways to implement this value Your influence shows more in your actions than in your words. You get things done the right way, with ethics, integrity and positive interaction that builds relationships. You do what you say you can and will do, you do it well and you enable others along the way. You are open and honest about your intentions. You demonstrate respect. You create an enabling environment for transparency. You show loyalty. You clarify expectations. You keep commitments. Actions that jeopardise this value You serve yourself first and others only when it is convenient. You demonstrate inconsistency between what you say and how you behave. You choose not to tell the truth. You judge, blame and criticise others and your organization rather than offering solution. You betray confidence, gossip, and talk about others behind their back. You refuse to be held accountable by your colleagues and your organization. You refuse to follow through on decisions agreed upon at team meetings. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 17 2.5 Honesty Why it is important? Honesty is one of the most desirable values in employees. It allows employees to freely communicate their thoughts in truth. It builds trust in the organisation and confidence in leadership. It also builds reputation, promotes loyalty and ensures quick dispute resolution. Ways to implement this value Being consistent in the way you conduct yourself ethically. You act in the interests of all stakeholders. You do not gain undue advantage through dishonest or uncompetitive means. You do not bully or cheat contractors and suppliers. You practice what you preach. Refrain from knowingly associate with any reports, returns or other communication that contains information that is false or is misleading. You always act in good faith, with sincerity and with no malice or intention to defraud others or the organization. Actions that jeopardise this value You do not tell the truth to yourself and others. You do not promote open communication. You do not allow others to voice concerns, offer ideas and seek counsel. You suppress different ideas to yours. You do not stress the importance of addressing mistakes as soon as possible. You perpetuate unbecoming behaviour. You do not seek solutions to any display of negative or unethical behaviour. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 18 2.6 Accountability Why is it important? No significant achievement has ever come from indifference. Accountability involves taking full responsibility for what needs to be delivered. Life is not a dress rehearsal, and we need to make the most of every moment in order to make a difference. This entails taking personal ownership of the things that are within our control. Our legitimacy comes from its track record of transparency. Transparency ensures that we do the right openly and without biases. Ways to implement this value There is agreement between what should be done and what is actually done. Being on top of our game and proud to be acknowledged as a strong SARS team. Performing our work timeously, within budget and in accordance with superior quality standards every time. Taking responsibility for our actions and decisions without hesitation and being prepared to live with the consequences. Looking for solutions instead of playing the “victim”. Taking action against those people who refuse to be held accountable for neglect and deliberate wrongdoing. Actions that jeopardise this value Passing the buck and blaming others when things go wrong. Shrugging our shoulders and saying it’s not my job or my decision to make. Justifying why things are the way they are rather than doing something about it. Making feeble excuses for non-delivery. Giving up easily when things aren’t going our way. Making exceptions to the rules, the bigger picture is more important. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 19 2.7 Respect Why it is important? Treating colleagues and public with dignity and respect creates a powerful culture. Respect makes people want to stay on for years in the organization. We must take pride in everyone’s achievements and celebrate the good ideas and qualities that colleagues display. None of us is as good as all of us together. We should therefore not be driven by our own egos and should embrace the fact that everyone has a special place in this organization let alone the world. Celebrating our unique differences and similarities can only make us stronger. Ways to implement this value Treating others as we would want to be treated ourselves regardless of title or grade, colleague or taxpayer, colour or creed. Being able to say what needs to be said in a constructive manner without fear of being bullied or victimised. Valuing diversity – not just in terms of race but also in terms of age, gender, divergent thinking, etc. Avoiding back-biting and complaining, particularly if nothing can be done about it. Listening to and engaging with others with an open mind without judgement. Ensuring everyone respects the rules. Actions that jeopardise this value Being disrespectful believing that only talent and ability count. Sweet-talking your boss or your colleagues in order to win their favour. Bullying and victimisation in order to get the job done. Backbiting, rumour-mongering and gossiping. Being self-centred and headstrong, incapable of entertaining another viewpoint. Harassing people – whether sexual or otherwise. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 20 2.8 Transparency Why it is important? Transparency in an organization implies visibility into the functions of the organization for its stakeholders. This value strengthens organizational ability to stay true to its mandate while at the same time enhancing its image. Transparency helps to build interpersonal trust; the more transparent the work environment, the happier and more productive the employees are. Ways to implement this value Willingness to open oneself to positive and negative feedback and to address both publicly. You share what is appropriate; you engage and always keep it professional. Being willing to be open in a way that clients have come to expect. You accept and admit responsibilities for unethical conduct. You remain honest as your organisation adjusts and adapts. You involve all employees in organisational change processes. You derive a better understanding of taxpayer requirements. Actions that jeopardise this value You do not share information. You do not own up to your mistakes. You share information with employees only on a need-to-know basis. You share information that only benefits you. You do not foster an environment where the employees are engaged and productive. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 21  Unit 1: Introduction Learning Outcomes After completing “Introduction” the learner will be able to: 1. Describe the basic VAT principles. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 22 Value-Added Tax (VAT) is an indirect tax levied on transactions and not on persons. VAT is levied on the supply and importation of goods and services at a rate of 15% (as from 1 April 2018 and prior to 1 April 2018 14%) or in some instances a rate of 0% in terms of the Value-Added Tax Act, 1991. The commencement date of VAT is 30 September 1991. 1. What VAT entails VAT is levied on the supply of goods or services by registered vendors throughout the business cycle. It is a tax on the value added by each vendor in the production/distribution chain and is imposed each time a taxable supply of goods or services takes place. VAT is also levied on the importation of goods and the supply of imported services in the Republic. VAT is currently levied at the standard rate of 15% on most supplies and importations, but there is a limited range of goods or services which are either exempt, or which are subject to VAT at the zero rate. 2. How VAT works VAT is only charged on taxable supplies made by a vendor. Taxable supplies include supplies for which VAT is charged at either the standard or the zero rate, but does not include the following: Salaries and wages paid for services rendered by employees to employers; Hobbies or any private recreation pursuits; Occasional private sales of personal or domestic items; Exempt supplies. Persons who make taxable supplies in excess of R1-million in any 12-month consecutive period are liable for compulsory VAT registration. A person may also choose to register voluntary provided that the minimum threshold of R50 000 has been exceeded in the past 12-month period, or is likely to be exceeded as determined in any regulation made by the Minister. Persons who are liable to register, and those who have been registered voluntarily, are referred to as vendors and have to perform certain duties and take on certain responsibilities. The mechanics of the VAT system are based on a subtractive or credit input method which allows the vendor to deduct the tax incurred on enterprise expenses (input tax) from the tax collected on the supplies made (sales) by the enterprise (output tax). There are, however, some expenses upon which input tax is specifically denied. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 23 The vendor reports to SARS at the end of every tax period on a VAT201 return, where the input tax incurred for the tax period is offset against the output tax collected for the tax period and the balance is paid to SARS. It sometimes occurs that the result of the calculation for the tax period is a refund, instead of an amount payable to SARS. This happens, for example, where the vendor has incurred more VAT on start-up expenses than has been collected on any taxable supplies made during the tax period. Where an amount is due to SARS, it will be payable not later than the 25th day or for eFilers the last business day of the month following the end of the relevant tax period. Refunds to a vendor must be made by SARS within 21 business days of receiving the correctly completed VAT201 return. As VAT is also an invoice-based tax, vendors are generally required to account for VAT on the invoice (accrual) basis. However, the payments (cash) basis is allowed in some instances. Tax invoices for supplies made, bills of entry or other required customs documentation for goods imported or exported and the general maintenance of proper accounting records and documents are all very important aspects of how the whole VAT system operates. It also forms an audit trail used by SARS in order to verify that the vendor complied with the law. A tax invoice or bill of entry (or other required customs documentation) also serves as the documentary evidence of any VAT deducted by the vendor as input tax. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 24  Activity 1.1 Activity 1.1: Introduction Instructions: This is a group activity. Your facilitator will divide you into groups depending on the number of the learners for the remainder of the intervention. The activity will be in the format of a competition between the different groups. The answers to the questions must be completed on a flipchart sheet. Each team must appoint a representative responsible for marking the questions by allocating one mark to each answer. The marked flipchart sheets with the score must be retained as the winning team will be announced at the end of the intervention. 1. Complete the omitting words in the following paragraph: VAT is levied on the 1) ______ and 2) ______ of goods and services. VAT is levied at either the rate of 3) ______ or 4) ______. The vendor reports to SARS at the end of every 5) ______ on a 6) ______ return. The 7) ______ incurred is offset against the 8) ______ collected. VAT is an 9) ______ tax. The general maintenance of proper 10) ______ and 11) ______ as it forms part of an 12) ______ which SARS uses to verify that the vendor has 13) ______ with the law. Answers: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 25  Key Learning Points VAT is levied on the supply and importation of goods and services by registered vendors. Vendors submit a VAT201 return at the end of every tax period. The input tax incurred for the tax period is offset against the output tax collected for the tax period Vendors are generally required to account for VAT on the invoice (accrual) basis, but the payments (cash) basis is allowed in some instances. The general maintenance of proper accounting records and documents are very important as it forms an audit trail which SARS uses to verify that the vendor has complied with the law. Complete Activity 1 in Workbook Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 26  Unit 2: Definitions Learning Outcomes After completing “Definitions” the learner will be able to: 1. Explain each of the relevant VAT definitions. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 27 In order to interpret any act, the law interpreter has to determine the literal meaning of the words of the act. It often occurs that the legislator wishes to allocate a specific meaning to a specific word for the purposes of an act. Such meanings would help the interpreter in determining the intention of the legislator. It means that the legislator deviates from the ordinary and general meaning of a certain word for the purpose of a specific act. It has therefore become necessary, in virtually all acts, to allocate a section, usually section 1, for terms and definitions, wherein the precise meaning of specific words are defined. The various definitions applicable to the Value-Added Tax Act, 1991 are contained in section 1. As the Tax Administration Act, 2011 deals with the tax administration, certain definitions will be contained in there and not in the Value-Added Tax Act, 1991. 1. Business day A business day is any day which is not a Saturday, Sunday or public holiday. The period from 16 December to 15 January is non-business days for dispute resolution purposes only. Definition of “business day” in section 1 of the Tax Administration Act, 2011 2. Consideration Whenever the term consideration is used, it is important to know that this amount is inclusive of VAT. As consideration includes VAT, in order to calculate the VAT amount, you will have to apply the tax fraction (consideration × 15 ÷ 115). Example 2.1: Calculation of VAT on the consideration of a supply If the consideration amounts to R5 200, the VAT amount that is included in this amount will be calculated as follows: R5 200 × 15/115 = R678,26 Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 28 Before an amount is regarded to be consideration, the payment made should be in respect of the supply of either goods or services. If there is no supply of goods or services and an amount of money is received, it cannot be regarded to be consideration. Therefore, donations received are not subject to VAT. Example 2.2: Goods supplied for a consideration Senzo supplies goods to his client for which he receives an amount of R8 000. The R8 000 will be regarded as consideration, as he supplied goods and in consequence received R8 000. As the consideration for this supply of goods amounts to R8 000, the VAT amount included is the following: R8 000 × 15/115 = R1 043,48 Example 2.3: Goods supplied for no consideration Walter receives R6 000 from his father without supplying any goods or services to him. The R6 000 will not be consideration received by him, as he did not supply goods or services to his father. This R6 000 will therefore not be subject to VAT. Another important characteristic of this term is that a deposit (other than a deposit on a returnable container) is not regarded to be consideration. This means that a deposit will not be subject to VAT, unless it is applied to reduce the consideration. As there is no definition contained in the Value-Added Tax Act, 1991 one should apply the general meaning of the word. This would mean that a deposit is something which is given as a security or as an assurance for the supply of goods or services. The moment that a deposit reduces the liability of the purchaser, it becomes part of the payment and is therefore consideration. 3. Consideration in money Consideration in money refers to consideration expressed as an amount of money. Often the Value-Added Tax Act, 1991 refers to the consideration in money for a specific supply. This does not mean that this is exclusively an amount of money that would be subject to VAT. The definition makes provision Definition of “consideration in for a situation where the consideration can be otherwise than in money. In such money” in section 1(1) of the instances, the consideration, which is otherwise than in money must be Value-Added Tax Act, 1991 expressed as an amount of money. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 29 This rand value is normally the open market value of the goods or services supplied as consideration. Where a vendor supplies goods or services in exchange for money he will have to account for output tax in respect of the amount of money received. Section 10(3)(b) of the Value-Added Tax Act, 1991 Example 2.4: Consideration in money Peter sells goods for a consideration amounting to R1 150 and receives this amount in money from the purchaser. The consideration in money will amount to R1 150. Where goods or services is supplied by a vendor in exchange for other goods or services (barter transactions) he must account for output tax in respect of the open market value of the goods or services received, as it constitutes consideration for the supply. Example 2.5: Open market value Peter sells goods for a consideration amounting to R1 150. The purchaser pays Peter by giving him goods with an open market value amounting to R1 150. The consideration in money will amount to R1 150. Where goods or services are supplied by a vendor in exchange for both money and goods or services he must account for output tax in respect of the amount of money as well as the open market value of the goods or services received in exchange i.e. the total consideration received for the transaction. Example 2.6: Cash and open market value Peter sells goods for a consideration amounting to R1 150. The purchaser pays by giving him R1 000 in cash and goods with an open market value amounting to R150. The consideration in money will amount to the following: R1 000 + R150 = R1 150 Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 30 4. Enterprise An enterprise is a business in the broadest sense of the word. It does not only include ordinary businesses such as retailers, wholesalers and manufacturers, but also trades and professions like doctors, accountants and attorneys. It further includes the activities of non-profitable organisations such as welfare Definition of “enterprise” in organisations. section 1(1) of the Value-Added Tax Act, 1991 The reason why this definition is important is due to the fact that a person must conduct an enterprise for VAT purposes before he can be registered as a vendor. 4.1 Activities included in being an enterprise The following are some of the activities forming part of the definition of an enterprise: All activities which are carried on continuously or regularly by a person in the Republic or partly in the Republic and in the course or furtherance of which goods or services are supplied to any other person for a consideration, whether or not for a profit; Any activities done in connection with the commencement or termination of the enterprise. It means that input tax can be deducted on the acquisition of capital equipment and trading stock even though no supplies have been made by the vendor. With the termination of the enterprise, all supplies made regarding the termination will also form part of the enterprise; The activities of welfare organisations; The activities of implementing agencies implementing, operating, administrating or managing foreign donor funded projects; The activity of underwriting insurance business by Underwriting Members of Lloyd’s of London, to the extent that the contracts were concluded in the Republic; Non-resident suppliers of certain electronic services to South African customers adhering to certain requirements; The activities of an intermediary facilitating the supply of electronic services supplied by electronic services suppliers responsible for issuing the tax invoices and collecting the payments for the supplies; Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 31 4.2 Activities excluded from being an enterprise The following are some of the activities not forming part of the definition of an enterprise: Supplies outside the Republic, made by a branch or main business permanently located outside the Republic. This will only be applicable where the branch or main business can be separately identified and maintained and has an independent system of accounting; Salaries and wages paid for services rendered by an employee to an employer where an employer-employee relationship exists; Private and recreational activities; Hobbies; Any activity to the extent to which it involves the making of the exempt supplies only; Commercial accommodation where the total value of the taxable supplies does not exceed R120 000 (R60 000 prior to 1 April 2016) in a 12-month period. 5. Exempt supply These supplies are exempt from VAT, in other words, no VAT may be levied on these supplies. Where a person is only making exempt supplies, he will not conduct an enterprise and SARS will therefore not register him as a vendor. Definition of “exempt supply” in It also means that a person, who is making exempt supplies, will not be able to section 1(1) of the deduct input tax on the expenses incurred. Value-Added Tax Act, 1991 The following are some examples of the exempt supplies listed in section 12 of the Value-Added Tax Act, 1991: Financial services (interest received); Educational services (school fees, university class fees); Crèches and after-school care centres; Rental of accommodation in a dwelling (residential accommodation); Transportation of fare paying passengers by road or rail (taxis, busses and trains); Bargaining councils; Political parties. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 32  Detailed information can be obtained in the VAT Zero-rated and Exempt Supplies module. 6. Goods VAT is levied on the supply of goods or services. It is therefore very important to determine exactly what is regarded as goods and services to determine whether there will be a possible VAT implication or not. Definition of “goods” in According to the definition, movable things (something that you can touch), fixed section 1(1) of the property, together with a real right in such goods or fixed property and electricity Value-Added Tax Act, 1991 are regarded as goods. Fixed property consists of: Land, together with any improvements; Sectional title units; Shares in a share block company; Time-sharing interest. Some examples of a real right is the following: A servitude on a farm relating to the right of use of a specific road the State may hold; A mineral right. However, the following items are excluded from goods for VAT purposes: Money (as payment method); Mortgage bonds; A stamp, form or card with a money value sold or issued by the State for payment of tax or duties levied. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 33 7. Input tax Input tax is the amount of VAT paid by a vendor on goods or services acquired by him from a supplier who charged VAT on the said supply. The vendor may deduct the VAT he is entitled to from the returns he must submit regularly. Definition of “input tax” in section 1(1) of the Value-Added Tax Act, 1991 The VAT incurred on the acquisition of goods and services is only input tax to the extent that a vendor uses it to make taxable supplies. Where a vendor uses it to make 70% taxable supplies, only 70% thereof can be deducted as input tax. Binding General Ruling (VAT): No. 16 (Issue 2) dated 30 March 2015 Example 2.7: Input tax deduction to the extent that the vendor uses it to make taxable supplies John, a registered vendor, purchases a single cab bakkie amounting to R310 000 on 15 March 2022. He will use the bakkie to make small deliveries. However, 30% of the use will be applied for private purposes. John will only be entitled to deduct input tax amounting to R28 304,35 (R310 000 × 70% × 15/115). Detailed information can be obtained in the Value-Added Tax Input Tax module. It is also important to remember that the vendor may only deduct input tax where he is in possession of the required documentation. 8. Month It means any of the twelve portions into which any calendar year are divided – January, February, March, etc. Definition of “month” in section 1(1) of the Value-Added Tax Act, 1991 Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 34 9. Output tax Output tax is the VAT charged by a vendor in respect of the supply of goods or services by him. It must be declared on the VAT return he has to submit for each tax period he is registered. Definition of “output tax” in section 1(1) of the Value-Added Tax Act, 1991 10. Person The Value-Added Tax Act, 1991 frequently refers to a person. It is important to note that this term does not merely include a natural, physical person, but also various other types of legal entities and associations of persons. Definition of “person” in SARS registers the person for VAT purposes and not the activities or enterprise. section 1(1) of the The person must however conduct an enterprise before SARS will be able to Value-Added Tax Act, 1991 register him for VAT purposes. The following are examples of persons: Sole proprietors (individuals) – if married in community of property, both spouses will be treated as an unincorporated body of persons; Partnerships – every member is jointly and severally liable with the other members for performing the duties imposed by the Value-Added Tax Act, 1991; Bodies of persons (corporate or unincorporated); Close Corporations; Private Companies; Public Companies; Share Block Companies; Trusts; Associations not for gain; Welfare organisations; Municipalities; Clubs; Deceased/insolvent estates; Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 35  Public authorities upon approval by the Minister with confirmation from the Commissioner that the supplies made are in the furtherance of an enterprise; Foreign Donor Funded Projects (FDFP) until 31 March 2020; Implementing agencies implementing, operating, administrating or managing foreign donor funded projects from 1 April 2020; Non-resident suppliers of certain electronic services to South African customers adhering to certain requirements from 1 June 2014; Intermediaries from 1 April 2019. 11. Prescribed rate It is the rate at which the vendor must pay interest when there is a late payment of VAT (debit interest) published from time to time by the Minister by notice in the Government Gazette. This is also the interest rate applicable to SARS where a refund is not refunded within a specific period (interest on delayed refunds). Definition of “prescribed rate” in The interest rates for the last five years for both interest on late submission and section 1(1) of the Value-Added Tax payment and interest on delayed refunds are as follows: Act, 1991 2023/07/01 – To be determined 11,25% per annum 2023/05/01 – 2023/06/30 10,75% per annum 2023/03/01 – 2023/04/30 10,50% per annum 2023/01/01 – 2023/02/28 9,75% per annum 2022/11/01 – 2022/12/31 9,00% per annum 2022/09/01 – 2022/10/31 8,25% per annum 2022/07/01 – 2022/08/31 7,75% per annum 2022/05/01 – 2022/06/30 7,50% per annum 2022/03/01 – 2022/04/30 7,25% per annum 2020/11/01 – 2022/02/28 7,00% per annum 2020/09/01 – 2020/10/31 7,25% per annum 2020/07/01 – 2020/08/31 7,75% per annum 2020/05/01 – 2020/06/30 9,75% per annum 2019/11/01 – 2020/04/30 10,00% per annum Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 36  2019/03/01 – 2019/10/31 10,25% per annum 2018/07/01 – 2019/02/28 10,00% per annum 12. Services Services means anything done or to be done, including the granting, assignment, cession or surrender of any right or the making available of any facility or advantage. The definition has the effect that anything which is supplied and are not goods will be regarded as services. Services must be studied Definition of “services” in carefully to ensure that VAT is not incorrectly charged if there is no supply of section 1(1) of the Value-Added Tax goods or services. Act, 1991 Excluded from services are the following: Goods; Money (used as payment method); A stamp, form or card with a money value sold or issued by the State for payment of tax or duties levied. The following are examples of services: Copyrights; Goodwill; Trademarks; Fees for professional services (construction/building; estate agents; consultants; architects; engineers; project managers; doctors; private hospital services; lawyers; plumbers; electricians and accountants). 13. Supply The definition is very wide and includes all forms of supply, irrespective of where the supply is effected. A supply of goods may thus be effected under a sale, a rental agreement, instalment credit agreement, expropriation of property and all other forms of supply whether voluntary, compulsory or by operation of law. Definition of “supply” in section 1(1) of the Value-Added Tax Act, 1991 Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 37 All supplies consist of taxable and non-taxable supplies divided as follows: Supplies Taxable Non-taxable Standard-rated = 15% Exempt supplies Zero-rated = 0% Non-supplies including out of scope supplies Examples of non-supplies including out of scope supplies are the following: Statutory fines; Motor vehicle licenses. 14. Taxable supply Taxable supplies consist of the following: Standard-rated (15%) supplies; Zero-rated (0%) supplies. Definition of “taxable supply” in section 1(1) of the Value-Added Tax Act, 1991 14.1 Standard-rated supplies A standard-rated supply is a supply of goods or services subject to VAT at a rate of 15%. The general rule is that the supply of all goods or services is taxable at the standard rate, unless it is specifically zero-rated or exempt. The following are some examples of standard-rated goods or services: Aircraft fuel; Building materials and services; Cigarettes, cold drinks and liquor; Electricity, water, refuse removal (municipal services); Books, magazines and newspapers; Stoves, microwaves and other household consumables and appliances; Furniture; Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 38  Fees for professional services (lawyers, accountants, bookkeepers, engineers); Local transport of goods by air or sea; Local transport of passengers by air or sea (domestic travel); Telephone, internet computer and other telecommunication services; Rental of goods and commercial property such as office space; Motor vehicles, repair services, lubrications, oils and spare parts; Restaurant services; White bread; Meat and fish; Postage stamps; Clothing; Medical services (other than state hospitals); Medicine; Entrance fees; Cleaning materials; Sale of cut-offs (carpets, steel pipes, plastic sheeting). 14.2 Zero-rated supplies Zero-rated supplies are taxable supplies on which VAT is levied at a rate of 0% and are listed in section 11 and Schedule 2 Part A, B and C of the Value-Added Tax Act, 1991. The following are some examples of zero-rated goods or services: Petrol, diesel, bio-diesel and paraffin; Supply of an enterprise as a going concern; Goods temporarily imported for repairs; Services relating to intellectual property rights to be used outside the Republic; Exports; International transport of passengers and/or goods by road, rail, sea or air; Services physically performed outside the Republic; Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 39  Payments made by public authorities and municipalities to welfare organisations; Municipal property rates; Vocational training of employees of a non-resident employer registered as a vendor; Restraint of trade agreements for rights used outside the Republic; Goods for farming purposes (animal feed; animal remedies; fertilizer; pesticides; plants and seed in a form used for cultivation); Certain basic foodstuffs (for example: brown bread; brown wheaten flour; eggs; dried beans; maize meal; milk; dairy powder blend; pilchards in tins or cans; dried mealies and mealie rice; samp; fresh fruit and vegetables; lentils; rice; vegetable cooking oil; edible legumes, that is peas, beans, raw peanuts, cake wheat flour and white bread flour); Sanitary towels (pads) as contained in Part C of Schedule 2 to the Value-Added Tax Act, 1991. The implication of a taxable supply is that VAT must be levied at either the standard or the zero rate. The VAT incurred by the vendor to make a taxable supply may be deducted as input tax. 15. Tax fraction The tax fraction is a formula prescribed by the Value-Added Tax Act, 1991 to allow a person to calculate the amount of VAT which is included in the price. The tax fraction can therefore only be applied to consideration. Definition of “tax fraction” in The formula for the tax fraction is the following: section 1(1) of the Value-Added Tax r Act, 1991 100 + r r = standard rate of VAT (r = 15) The tax fraction is written as 15/115. This means that the amount must be multiplied by 15 and divided by 115 to determine the VAT amount included in the consideration of a supply. The standard rate applicable for VAT before 1 April 2018 was 14%. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 40 16. Tax invoice A tax invoice is a special document relating to a taxable supply (whether wholly or partially) provided for in section 20 of the Value-Added Tax Act, 1991. The Value-Added Tax Act, 1991 prescribes that a tax invoice must contain Definition of “tax invoice” in certain details about the taxable supply including the parties to the transaction. section 1(1) of the Value-Added Tax Act, 1991 It is also important to know what an invoice is in terms of the Value-Added Tax Act, 1991. An invoice is a document notifying the purchaser of an obligation to make payment in respect of a transaction (not necessarily a taxable supply). The issuing of an invoice is one of the events which may trigger the time of supply for a transaction if it is a taxable supply, and it usually means that there would be an obligation to declare output tax. In practice, some vendors combine the function of the two documents to avoid administrative duplications. However, vendors who prefer this method should ensure that their invoices comply with the requirements of a tax invoice, otherwise their customers will not be allowed to deduct the VAT charged as input tax. The following are the two different types of tax invoices: Full tax invoice Must be issued on supplies with a consideration exceeding R5 000. Abridged tax invoice Must be issued on supplies with a consideration exceeding R50 but not exceeding R5 000. The supplier is not required to issue a tax invoice for transactions with a consideration of R50 or less. The following are requirements relating to a tax invoice: A vendor is required to issue a tax invoice to the recipient within 21 days of the date of the supply; A tax invoice must be issued in South African currency, except for a zero-rated supply (for example, goods exported); Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 41  A full tax invoice must be issued for a zero-rated supply even where the consideration is R5 000 or less. A tax invoice will only be regarded as a valid document if the following information is reflected on such document: Section 20(4) & (5) of the Value-Added Tax Act, 1991 Full tax invoice Abridged tax invoice Consideration in excess of R5 000 Consideration of R5 000 and less The words “tax invoice” “VAT invoice” or “invoice” The words “tax invoice” “VAT invoice” or in a prominent place “invoice” in a prominent place Name, address and VAT registration number of Name, address and VAT registration number of the supplier the supplier Name, address and VAT registration number (if Not required registered) of recipient Serial number and date of issue Serial number and date of issue Full and proper description of goods and/or Description of goods and/or services services Quantity or volume of goods or services supplied Not required Price and VAT (according to any of the three Price and VAT (according to any of the three approved methods): approved methods): ▪ Value, VAT and consideration reflected; ▪ Value, VAT and consideration reflected; ▪ Total consideration and the VAT rate ▪ Total consideration and the VAT rate charged; charged; ▪ Total consideration and the VAT amount ▪ Total consideration and the VAT amount charged. charged. Before 8 January 2016 it was only the words “tax invoice” in a prominent place that was acceptable. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 42  Example 2.8: Approved methods to indicate the price and VAT on a tax invoice The three approved methods in which the price and VAT must be indicated on a tax invoice: Method 1 – Value, VAT and consideration: Value R1 675,95 VAT R251,39 Consideration R1 927,34 Method 2 – Total consideration and the VAT rate charged: R1 927,34 including VAT at 15% Method 3 – Total consideration and the VAT amount charged: R1 927,34 including VAT amounting to R251,39 Vendors may issue tax invoices, debit and credit notes to their customers electronically instead of the traditional paper version (hard copy). Vendors wishing to implement an electronic system must however ensure that they do not replace their existing paper based documentary systems before ensuring that they meet certain requirements. If a tax invoice in respect of a particular supply is lost, a tax invoice marked “copy” can be issued. The copy must be clearly marked as “COPY”. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 43  Example 2.9: Full tax invoice TAX INVOICE/INVOICE/VAT INVOICE [section 20(4)(a)] Dreisenstock & Associates (Pty) Ltd 80 Grant Avenue Norwood 2192 VAT Registration No: 4019876543 [section 20(4)(b)] To: Perplex (Pty) Ltd Invoice no: 8295 8 Horwood Road [section 20(4)(d)] Johannesburg 0001 VAT Registration No: 4360123456 Date: 16 December 2022 [section 20(4)(c)] [section 20(4)(d)] DESCRIPTION QUANTITY AMOUNT [section 20(4)(e)] [section 20(4)(f)] Widgets 300 × 200 4 000 R2 000,00 Getwids 39 × 60 × 48 870 R1 300,00 Witslegs 4 × 9 200 R3 400,00 Sub total R6 700,00 VAT @ 15% R1 005,00 Total R7 705,00 [section 20(4)(g)(i)] Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 44  Example 2.10: Abridged tax invoice TAX INVOICE/INVOICE/VAT INVOICE [section 20(5)(a)] Dreisenstock & Associates (Pty) Ltd Invoice no: 8295 80 Grant Avenue [section 20(5)(c)] Norwood 2192 [section 20(5)(b)] VAT Registration No: 4019876543 [section 20(5)(b)] Date: 16 December 2022 [section 20(5)(c)] DESCRIPTION OF GOOD/SERVICES AMOUNT [section 20(5)(d)] Widgets 300 × 200 R300,00 VAT @ 15% R45,00 Total R345,00 [section 20(5)(e)(i)] 17. Tax period Section 27 of the Value-Added Tax Act, 1991 determines the tax periods allocated to all registered vendors. A vendor must submit a VAT201 return for each tax period he is registered for VAT. The five tax periods are as follows: Definition of “tax period” in section 1 Category A; of the Tax Administration Act, Category B; 2011 Category C; Category D; Category E. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 45  Category F seized to exist on 30 June 2015. All Category F vendors have been reverted to Category B. 18. Value Whenever the term “value” is used, it is important to know that this amount is exclusive of VAT. In order to calculate the VAT amount, you will have to multiply the value with 15 and divide it by 100 or apply the VAT rate, 15%. Section 10(2) of the Value-Added Tax Act, 1991 Example 2.11: Value If the value of the supply amounts to R4 200, the VAT amount is excluded and will be calculated as follows: R4 200 × 15/100 (15%) = R630,00 As consideration is inclusive of VAT and value is exclusive of VAT, the following can be concluded: Consideration = Value + VAT; Value = Consideration – VAT; VAT = Consideration – Value; VAT = Consideration × 15/115; VAT = Value × 15/100. 19. VAT registration number The number allocated to the vendor by the Commissioner in terms of section 24(1) of the Tax Administration Act, 2011. It is issued during the registration process. It always commence with a “4” and consists of 10 digits. Definition of “VAT registration number” in section 1(1) of the Value-Added Tax Act, 1991 Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 46 20. Vendor A vendor is a person who is registered for VAT purposes including a person who is liable to be registered for VAT. Where the Commissioner determined the date from which a person is a vendor, that person shall be deemed to be a vendor from that date. Definition of “vendor” in section 1(1) of the Value-Added Tax Act, 1991 Section 22(1) of the Tax Administration Act, 2011 21. VAT liability The formula that must be applied in order to calculate a vendor’s VAT liability is as follows: Output tax – Input tax = VAT liability Where the output tax exceeds the input tax, the VAT liability is an amount payable by the vendor to SARS. Example 2.12: VAT payable by the vendor Precious made the following sales and purchases for the October 2022 tax period: Standard-rated sales (consideration): R169 487 Standard-rated purchases (consideration): R45 236 Instruction: Calculate the VAT liability for this tax period. Solution: Output tax: R169 487 × 15/115 R22 107,00 Less: Input tax: R45 236 × 15/115 (R5 900,35) VAT liability: R16 206,65 VAT payable Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 47 Where the input tax exceeds the output tax, the VAT liability is an amount refundable to the vendor by SARS. Example 2.13: VAT payable by the vendor Precious made the following sales and purchases for the December 2022 tax period: Standard-rated sales (consideration): R69 487 Standard-rated purchases (consideration): R145 236 Instruction: Calculate the VAT liability for this tax period. Solution: Output tax: R69 487 × 15/115 R9 063,52 Less: Input tax: R145 236 × 15/115 (R18 943,83) VAT liability: R9 880,31 VAT refundable Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 48  Activity 2.1 Activity 2.1: Definitions Instructions: This is a group activity. The appointed representative must retain the marked flipchart sheet with the score in order to determine and announce the winning team at the end of the intervention. 1. Name three examples of a person for VAT purposes. 2. Discuss the difference between output tax and input tax. 3. State the tax fraction applied to the consideration of a supply in order to determine the VAT. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 49  Key Learning Points The various definitions applicable to VAT are contained in section 1 of the Value-Added Tax Act, 1991. SARS registers the person and not the activities or enterprise for VAT purposes. Supplies for VAT purposes consist of taxable (15% and 0%) and non-taxable (exempt including out of scope) supplies. When a person is registered for VAT purposes, he becomes a vendor. A VAT registration number commencing with a “4” and consisting of ten digits will be issued to the vendor upon registration. Every vendor has to submit a VAT201 return for each tax period he is registered. Output (the VAT charged by the vendor) minus input tax (the VAT paid by the vendor) equals VAT liability. A vendor has to issue either a full or an abridged tax invoice for each supply. Complete Activity 2 in Workbook Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 50  Unit 3: Registration Learning Outcomes After completing “Registration” the learner will be able to: 1. Apply the requirements relating to the VAT registration process. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 51 The registration requirements for VAT are determined in terms of the provisions of the Value-Added Tax Act, 1991 and the Tax Administration Act, 2011. Therefore it is important to know the legislation regarding registration and cancellation of registration. In this unit we will deal with compulsory registration, voluntary registration, separate registration, the cancellation of registration and the Diesel/Bio-diesel Refund registration. 1. VAT registration 1.1 Compulsory registration The following persons are obliged to apply for VAT registration: A person carrying on an enterprise where the total value of the taxable supplies of goods and services by the person, from all different activities, Section 22 of the Tax Administration exceeds R1 million during any consecutive 12-month period. Act, 2011 Section 23 of the A person entering into a written contractual commitment to make taxable Value-Added Tax Act, 1991 supplies exceeding R1-million in the next 12-month period as from 1 April 2014. A person being a non-resident supplier of certain electronic services to South African customers or his intermediary at the end of any month where the total value of the taxable supplies exceeds R1 million as from 1 April 2019. Prior to 1 April 2019 the threshold was R50 000. Section 23(1A) of the Value-Added Tax Act, 1991 The person is registered, not the enterprise. Bear in mind that such a person must conduct an enterprise for VAT purposes in order to apply for VAT registration. Where the person registers, it will be in respect of all his enterprises, branches or divisions. It is important to note that the threshold applies to the total value of taxable supplies (turnover) and not the net income (profit) of the enterprise. Taxable supplies consist of the following: Standard-rated supplies; Zero-rated supplies. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 52 The following amounts must be excluded when calculating the total value of the taxable supplies: Sale of stock or other assets due to any cessation of or any substantial and permanent reduction in the size or scale of any enterprise; Replacement of plant and machinery or other capital assets used in the enterprise; Abnormal circumstances of a temporary nature; Exempt supplies; VAT. Example 3.1: Calculation of the total value of the taxable supplies Gerald has the following income for the 12-month period ending on 31 January 2023: Value of taxable supplies: R680 000 Replacement of out-dated machinery: R140 000 Export to New York (zero-rated): R310 000 Exempt supplies: R190 000 Total sales: R1 320 000 Instruction: Is Gerald obliged to register for VAT purposes? Solution: The total value of the taxable supplies by Gerald amounts to the following: R680 000 + R310 000 = R990 000 As this is below the threshold of R1 million, Gerald will not be obliged to register as a vendor for VAT purposes. The following are excluded when calculating the total value of the taxable supplies: The replacement of out-dated machinery; Exempt supplies. Just bear the following in mind: If Gerald registers for VAT purposes and then sell out-dated machinery the sale thereof will attract VAT at the standard rate. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 53  Example 3.2: Calculation of the total value of the taxable supplies Phillip has the following income for the 12-month period ending on 31 January 2023: Value of taxable supplies: R780 000 Sale of capital item to permanently reduce the enterprise: R950 000 Export to London (zero-rated): R340 000 Exempt supplies: R195 000 Total sales: R2 265 000 Instruction: Is Phillip obliged to register for VAT purposes? Solution: The total value of the taxable supplies by Phillip amounts to the following: R780 000 + R340 000 = R1 120 000 As this exceeds the threshold of R1 million, Phillip will be obliged to register as a vendor for VAT purposes. The following are excluded when calculating the total value of the taxable supplies: Sale of capital item to permanently reduce the enterprise; Exempt supplies. Just bear the flowing in mind: If Phillip registers for VAT purposes and after date of registration sells capital items to reduce the size or scale of his enterprise, the sale of these items will attract VAT at the standard rate. A person applies for VAT registration by completing and submitting a VAT101 application form accompanied by all the additional documents as contained in VAT-REG-02-G01 – Guide for Completion of VAT Registration Application Section 23 of the Forms – External Guide on the SARS website (www.sars.gov.za). The Value-Added Tax Act, 1991 application form must be submitted to the SARS branch office nearest to the Section 22(2), (4) place where the enterprise is carried on within 21 business days after a person and (5) of the Tax Administration Act, has become liable for registration. 2011 An authorised registered tax practitioner may also submit the application form on behalf of the applicant. In these instances the application form must be accompanied by the power of attorney. Existing eFilers registered for one or more taxes may apply for VAT registration by completing the Registration, Amendments and Verification form (RAV01) on eFiling. Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 54 Non-resident suppliers of electronic service must complete the VAT101 application form and send it via email to [email protected]. The supporting documents that must be attached to the application form is contained in VAT-REG-02-G02 – VAT Registration Guide for Foreign Suppliers of Electronic Services. Where a person applied for registration but did not complete all the information on the VAT101 or did not submit all the additional documentation as required, it may be regarded as if the person has not applied for registration, until such a time as the required particulars and documents have been furnished. Where the Commissioner identifies any risks during the registration process, he may require a vendor to furnish a security or request a surety in the case of a non-natural person. Where a person is obliged to register as a vendor and fails to do so, SARS may register the person as a vendor. Upon registration, the vendor will receive a Notice of Registration to the email address or postal address indicated on the registration application. 1.2 Non-residents Where a non-resident conducts an enterprise in the Republic, he will only be registered if he meets the following requirements: He must appoint a representative vendor in the Republic and furnish the particulars to the Commissioner; He must open a banking account for his enterprise in the Republic and Section 23(2) and furnish the particulars to the Commissioner. section 23(2A) of the Value-Added Tax Act, 1991 Where a foreign entity encounters challenges to meet these requirements the Commissioner may register that person as a branch of a resident registered vendor where they form part of the same group of companies. The resident registered vendor will have to make a written application for this branch registration, subject to certain conditions. 1.3 Voluntary registration A person may apply for voluntary registration where the total value of the taxable supplies does not exceed R1 million, but already exceeded R50 000 in any period of 12 months. Section 23(3)(b) of the Value-Added Tax Act, 1991 Learner Guide – Introduction to Value-Added Tax – 2023 © South African Revenue Service (SARS) 55 The R50 000 threshold for voluntary registration is however not applicable where the vendor is a municipality, welfare organisation, a share block company, a foreign donor funded project (until 31 March 2020) or an implementing agency implementing, operating, administering of managing a Section 23(3)(a) of the Value-Added foreign donor funded project from 1 April 2020. In other words, these persons Tax Act, 1991 can always register on a voluntary basis, even if their total value of taxable supplies are below the R50 000 threshold. There is however certain exceptional circumstances where a person may apply for voluntary registration even though the total value of the taxable supplies has not exceeded the R50 000 threshold or made any taxable supplies as yet. Section 23(3)(b)(ii) of the Value-Added In order to apply for voluntary registration where the total value of the taxable Tax Act, 1991 and supplies of a person is likely to exceed R50 000 in a 12-month period, he has Regulation No. R.447 issued to provide the Commissioner with proof that one or more of the following 29 May 2015 circumstances apply at date of application for registration: Where he made taxable supplies for a period of more than two months, the average of these supplies for the two months prior to the date of registration exceeded R4 200 per month; Where he made taxable supplies for a period of one month the total value of these supplies made in the month prior to the date of application for registration exceeded R4 200; The person is in possession of a written contractual agreement (signed contract) requiring him to make taxable supplies exceeding R50 000 in the 12 months following the date of registration; The person has entered into a finance agreement with certain specified credit providers wherein finance has been provided to fund the expenditure incurred or to be incurred in furtherance of the enterprise, and the total repayments in the 12 months following the date of registration will exceed R50 000; Expenditure incurred or to be incurred as set out in a written agreement or of capital goods acquired in connection with the commencement of the enterprise and payment or an extended payment agreement exceeded R50 000 or will exceed R50 000 in the 12 months following the date of application for registration. Another instance is where, due to the nature of the activities, the total value of his taxable supplies will only e