While the economic impact of COVID-19 pandemic on South Africa is still unfolding, it’s likely to be far reaching. The effects are already being felt by businesses over the 21-day national lockdown. Some are able to continue functioning with remote workforces, but others need staff physically present to generate revenue, which can mean a lot of operational difficulties. Staff shortages and absenteeism, the closure of 35 of the 53 land ports, and new restrictions on the movement of cargo by air, sea and road will significantly impact the logistics chain.
From a VAT perspective, vendors with goods currently in or awaiting transit that have already been remitted to SARS as zero-rated exports may have had specific concerns surrounding their obligation to have their goods actually exported within the generally prescribed 90-day period. Fortunately, SARS has recognised these challenges and issued Binding General Ruling No 52 (BGR 52) on 26 March 2020 to help relieve the burden on certain vendors affected by the global COVID-19 pandemic.
Pre-BGR 52: General VAT rules/Original timeframes
Where goods are destined for export and VAT vendors have applied the zero-rate to their transactions, the anticipated logistics delays will likely result in non-compliance with the VAT Act. This will lead to vendors being obliged to account for output tax at 15% on their zero-rated exports if proactive steps are not taken.
The VAT Act allows vendors to apply the zero-rate to transactions involving the exportation of movable goods where the vendor delivers the goods themselves or contracts with a courier, freight forwarder or other cartage contractor to deliver the goods on their behalf if outside South Africa. The zero-rate may only be applied on condition that the vendor obtains and keeps the prescribed documentation and exports the goods within the prescribed time.
The vendor generally has 90 days from (the earlier of) the date the vendor issued an invoice for the goods or the date he received any part of the payment due in respect of the transaction (time of supply), to export the goods. Special time periods apply to certain transactions. The vendor then has an additional 90 days following the export deadline to obtain the prescribed export documentation required to substantiate the zero-rate (effectively 180 days from the time of supply).
If the vendor is unable to export the goods within the 90-day period due to circumstances beyond his control (my emphasis) the vendor may apply to SARS for an extension to export the goods but must apply before the 90-day period expires.
If the vendor is unable to apply for the extension before the 90-day period expires, the vendor has an additional 30 days to apply for the extension as long as the application contains reasons as to why the application could not have been submitted timeously.
SARS will accept the following reasons as being beyond the vendor’s control:
- Exceptional commercial delays or difficulties have prevented the vendor from exporting the goods within the 90-day period, which means:
- The vendor was not able to secure transport for his export, or
- Specific requirements were imposed by the export country pertaining to the type of goods; or
- There has been a civil disturbance or disruption in services; or
- The person responsible for arranging the export has developed a serious illness.
BGR 52 relief
Despite the rules mentioned above, SARS acknowledges the significant VAT impact of commercial delays and difficulties, lockdown related disruption in services and the growing number of infected cases caused by the COVID-19 virus.
To prevent numerous applications for extensions, BGR 52 extends the 90-day prescribed period to export goods (and periods relating to special circumstances) by an additional three months. By implication, the effective 180-day period to obtain the prescribed export documentation has also been extended by 3 months.
However, BGR 52 only applies to exports in respect of which the original timeframes for export have not been exceeded. It is also unknown how long the BGR will remain in force, but it is anticipated that SARS will withdraw the BGR as soon as a state of normalcy is reached. In this regard, the relief should be viewed as temporary.
Vendors which have already exceeded the 90-day timeframe to export goods may not make use of the relief under BGR 52 and should consider applying for export extensions to avoid being required to account for output tax (15/115 * zero-rated price charged) in the VAT period in which the 90-day period expires.
To avoid running into additional cash-flow problems in an already stressful time, we urge vendors to be proactive in their approach to mitigating their VAT exposure by applying for export extensions where necessary and reviewing their exports in light of the BGR 52 temporary relief. Contact BDO to assist in preparing and submitting applications for extensions and for all tax related advice.
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