VAT Changes from the Budget Speech 2017
23 February 2017
By Seelan Muthayan, VAT Director, BDO SA
Expanding the VAT Base
In order to expand the current VAT base, it is proposed in 2018/19 that the supply of fuel will no longer be zero rated. This will no doubt have a direct impact on transport costs. Government will look at either freezing or reducing fuel levies in order to reduce the impact on transport cost. As part of the focus globally to deal with base erosion and profit shifting, more attention will be given to businesses providing foreign electronic services to South African Consumers. As previously mentioned in the 2015 budget the regulations dealing with which electronic services are subject to VAT will be updated with a view to removing any uncertainties and current practical difficulties being experienced.
VAT and Leasehold Improvements
There is currently a lot of uncertainty surrounding the VAT treatment of leasehold improvements. The VAT Act does not provide any guidance in this regard. SARS previously in 2012 issued a draft interpretation note for comment dealing with the VAT implications of leasehold improvements. However, this interpretation note was never finalised. It is proposed that the VAT Act be amended to provide clarity specifically around the time and value of supply of leasehold improvements.
VAT treatment of the national housing programme- Postponement of Amendments
The 2015 amendments abolishing the zero rating provisions of the VAT Act surrounding the national housing programme which was to take effect on 1 April 2017 will be postponed for a further two years due to Municipalities and Treasury not being in a position to make the necessary VAT amendments. Clarifying the zero rating of international travel insurance The VAT Act allows for the zero rate to apply to services which comprise the insuring or arranging of insurance in respect of international transportation of passengers or goods. Its proposed that clarity be provided in respect of these provisions.
SARS could amend the VAT Act in regard or issue an interpretation note.
VAT treatment of services supplied in connection with particular movable property situated in an export country
The VAT Act currently allows VAT to be levied at the zero rate on services supplied directly in respect of movable property situated in any export country at the time the service is rendered. The term “movable property” is however not defined in the VAT Acts. The definition of “movable property” in the Companies Act includes securities or shares. This suggests that services in respect of securities or shares of foreign companies listed on the JSE may be subject to VAT at the zero rate. Proposed changes will be made to the Act to clarify the treatment.
VAT vendor status of municipalities
Certain municipalities merged or disbanded as a result of the local government elections held during 2016. Accordingly, these municipalities either cancelled their VAT registrations or applied for new ones. It is proposed that transitional measures are introduced to address these aspects.
Amending the definition of “resident of the Republic” for VAT purposes
It appears that the definition of “resident of the Republic” in the VAT Act will be amended to provide relief for certain non-VAT registered foreign entities that incur VAT which cannot be claimed as input tax.
Value to be placed on inter-warehouse sales
The VAT Act was amended with effect from 10 January 2012, in respect of the value attributed to the supply of goods made inside a licensed Customs and Excise storage warehouse prior to those goods being cleared for home consumption. As a result of certain administrative and compliance complexities, it is proposed that this amendment should be repealed with retrospective effect.
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