MODULE 7A: INTRODUCTION TO VAT “services” means anything done or to be done, but excluding a supply of goods in

paragraph (c) of the definition of goods

HISTORY OF VAT
3. VENDOR (s1)
• First implemented in France – 1954
“vendor” means any person who is or is required to be registered under this Act:
• Introduced for the first time in South Africa 29 September 1991
Provided that where the commissioner has under section 23 or 50A determined the
• Started at 10%, increased to 14% in 1993 then 15% on 1 April 2018
date from which a person is a vendor that person shall be deemed to be a vendor
• Administered by Value Added Tax Act No 89 of 1991 (VAT Act)
from that date
• Indirect tax: The tax is levied on one person, but paid by another
“person” includes any public authority, any municipality, any company, any body of
persons(corporate or unincorporated), the estate of any deceased or insolvent
person and any trust fund
BENEFITS OF VAT AS A TAX POLICY
Registered for VAT purposes:
Neutrality towards large businesses & neutrality (A) Voluntary
towards international trade ( e.g. exports are zero-rated) (1) Total taxable supplies for previous 12 months > R50k
Less opportunity for tax evasion than other methods (because tax collection (2) Total taxable supplies reasonably expected to be > R50k in 12 months after
happens at every stage in production) registration
Consumer ultimately bears the full cost of VAT and the Vendor only administers the (B) Compulsory
VAT payments to SARS (1) At the end of the month where total taxable supplies for previous 12 months >
NOTE: All entities are Vat vendors, except the consumer R1 million
WHAT IS VAT? (2) At the beginning of month were total taxable supplies for next 12 months > R1
million into a contract writing
▪ VAT = Tax on the consumption of goods & services in SA 4. ENTERPRISE (s1)
▪ VAT Rate: 15% “Enterprise” means: In the case of a Vendor Any enterprise or activity which is
▪ VAT = Indirect tax- Person liable (final consumer) & Person paying tax over to SARS carried on continuously or regularly by any person in South Africa or partly in SA
(vendor) are not the same by any person in the course or furtherance of which goods or services are
WHEN TO LEVY OUTPUT TAX supplied for a consideration whether for a profit or not
But excludes:
1. SUPPLY (s1)
(1) Supply of services by an employee to his employer for remuneration – no VAT levied
“supply” includes performance in terms of a sale, rental agreement, instalment
on salaries of employees
credit agreement and all other forms of supply whether voluntary or compulsory or
(2) A Hobby
by operation of law.
(3) An activity to the extent that it makes exempt supplies
i) 5 ITEMS: Sale, lease agreement, instalment credit agreement, exchange
transactions and expropriations (forced to sell something) INPUT TAX (s1)
2. OF GOODS/SERVICES (s1) In relation to a vendor means: any output tax charged by the supplier on the supply of
“goods” means corporeal movable things, fixed property and electricity goods and services that the vendor may claim as an input tax to the extent of making
But excluding: taxable supplies
A) Money (not Kruger rands(goods) and crypto currencies, they are not money and
it’s a service that is exempt) (1) Vendor
B) Any right under a mortgage bond or pledge of any such thing or fixed property (2) You are a vendor that bought something from another vendor & suffered a
C) Any stamp, form or card which has money value and has been sold or issued by loss(output tax)
the State for the payment of any tax or duty levied under any Act of Parliament. (3) Item bought is used in the course of taxable supplies
 (4) Possession of a valid tax invoice The supply of a ‘dwelling’ in terms of a rental agreement whereby the ‘dwelling’ is
let & hired  The rental income from letting of a house or flat for residential
purposes is, thus, exempt from VAT.
VAT CALCULATION • Commercial accommodation’ (e.g. taxable supplies made by hotels or hostels) is,
Amount of output tax SIMPLE VAT CALCULATION however, subject to VAT @ 15%.
• Lodging OR board and lodging supplied by employer where: s12(c)(ii)
less Amount of input tax The employee is entitled to occupy the accommodation as a benefit of
+/- Adjustments employment; OR  The employer operates the hostel/boarding house primarily for
the benefit of its employees rather than for making a profit is also an exempt supply
= VAT Refundable/ Due to SARS
• Transport of fare-paying passengers and their personal effects (goods) by road (other
than a game viewing vehicle) or rail (s 12(g))
IMPOSITION OF OUTPUT TAX E.g. transport of fare-paying passengers by bus or taxi  This exemption is thus not
applicable to air tickets  As the exemption refers to the transport of passengers
TYPES OF SUPPLY and their personal effects and not to goods goods, this exemption does not apply to
Two types of supplies courier services
• Education services supplied by school, university, Technikon or college is exempt (s
(1) Taxable supplies, consisting of
12(h))
(a) Supplies at the standard rate
The supply of goods or services for consideration such as school fees, tuition fees or
(b) Supplies at the zero rate
payment for board and/or lodging is exempt
(2)Exempt supplies, No VAT charged at all • Membership contributions to employee organisations (trade unions) s12(i)
• Supply of childcare services e.g. crèche s12(j)

Exempt supplies s12

▪ No output tax is levied Zero-rated Supply of Goods (s 11(1))
▪ No input tax may be claimed in respect of expenditure incurred to make such exempt • Direct exports = movable goods supplied under a sale OR instalment credit
supplies agreement and consigned or delivered to the recipient in an export country (any
Financial services(s 2 & 12(a)) country other than RSA
• Fuel levy goods e.g. petrol, diesel, biofuels (including crude oil) – s 11(1)(h)
▪ Issue or transfer of a debt security • Basic food stuff (Part B of Schedule 2) s 11(1)(j)
▪ Issue or transfer of ownership of a members interest or a share e.g. brown bread, whole wheat brown bread, maize meal, samp, mealie rice, rice,
▪ Provision of credit and paying of interest pilchards, milk & milk powder, fresh fruit and veggies (including mealies, excluding
▪ The provision or transfer of ownership of a long-term insurance policy popcorn), vegetable oil (excluding olive oil), eggs & lentils , Dehydrated, dried,
▪ The issue, acquisition, buying, selling or transfer of ownership of any cryptocurrency canned or bottle fruit and nuts ≠ zero rated, cake wheat flour and white bread
NOTE:
wheat flour, supply of sanitary towels (pads) are zero-rated
a) Interest received and interest paid = considered a financial = exempt supplies
• Supply of gold coins (s 11(1)(k)) such as Kruger Rands ISSUED by Reserve Bank
b) Fees/admin costs realating to exempt financial service will not be exempt from VAT
• Illuminating kerosene (paraffin)
e.g. bank charges, internet banking fees (services fess)
• Rendering of transportation services to passengers or goods is zero rated
Residential Accommodation(s 12(c)) If between 2 places outside RSA; or from a place outside RSA to a place in
• Letting of residential accommodation (s12(c)(i))
 • Municipal rates (property rates and taxes) levied by a municipality = zero-rated, Value of supply
unless a flat rate charged for rates and other goods and services (electricity, gas,
• Consideration defined in s 1(1) as payment in money or otherwise for supply of
water etc.) then standard rated at 15%
goods or services
Standard Rated Supplies • Value of supply = amount excluding VAT
• Consideration of supply = amount including VAT
• Output tax is levied on all taxable supplies(either at 15% or 0%)
• Open market value = Consideration
Output Tax
Time & value of Supply
Input Tax s1
Time of Supply
Input tax can only be claimed if:
• when will the Output tax be levied
• Output tax was levied on the goods or services acquired
invoice basis: VAT is accounted for when an invoice is issued or payment is received, • The goods or services are going to be used to make taxable supplies
whichever occurs first (Default basis) • There is a valid invoice for the supply
Payment basis: VAT is accounted for when payment are made and payments are received Used 95% or more for making taxable supplies = claim 100% of the input tax
• Not applicable for any goods or services for which consideration in money is OUTPUT TAX – INPUT TAX = AMOUNT OF VAT DUE TO/ REFUNDABLE FROM SARS
R100 000 or more(including VAT)
• A vendor voluntarily registered whose taxable supplies do not exceed R50 00 must
be registered on payment Basis DENIAL of Input tax
• General rule is : earlier of date of invoice or date of payment of any part of the price
The goods and services include
• Must apply in writing to be on the payment basis
• Acquisition of a motor car
A motor car, minibus, station wagon, minibus, double cab light delivery vehicle and
TAX Periods s27 any motor vehicle used on public roads, has 3 or more wheels and constructed with
the whole or main purpose of carrying passengers but does not include: Vehicle
Category A: Vendors: Taxable supplies ≤ R30 000 000 in a 12 months period
accommodating 1 person only or more than 16 persons, Caravans and ambulances
Farmers: Taxable supplies) > R1 500 000 in any given 12 months period
2 MONTHLY – Jan, march(odd no.) Tax invoice s20
Category B: Vendors: Taxable supplies ≤ R30 000 000 in a 12 months period
• A supplier must furnish a recipient with tax invoice within 21 days of the date of
Farmers: Taxable supplies > R1 500 000 in any given 12 months period
supply.
2 MONTHLY – Feb, APR (even NO.)
• Copies of invoices must be clearly indicated.
Category C: Vendors: Taxable supplies > R30 000 000 during a 12 months period • Abridged tax invoice is where the supply does not exceed R5000
OR vendors that have applied in writing to be included in this category • For zero-rated supplies, the abridged tax invoice may not be issued
OR venddors that repeatedly been in default in terms of the VAT Act 1 monthly
Category D: Farmers ≤ R1 500 000 over 12 months Micro businesses who has made written
application in this regard Bi-annually Prices and Advertising

Category E: Annually (12 months ending on the last day of their year of assessment). • Any price charged by any vendor in respect of any taxable supply of goods or
Include specific entities (company or trust) who only earn rental income or management services shall be deemed to include VAT (s 64)
fees from connected persons. Vendor and recipient all registered VAT vendors.
 EXAM TECHNIQUE • What is the time of supply
• In addition which Vat period will the input tax be accounted for?
VAT integration
Input tax claimed
• If input tax has been claimed on any expense incurred, the amount will be
deductible per s11(a) or per a special deduction will be the amount exclusive of • If the amount excludes VAT = amount x 15%
input tax actually claimed. • If the amount includes VAT = amount x 15/115
• If output tax has been levied on a amount from sale or other amounts received, the • To the extent of making taxable supplies
amount to be included per the Gross income definition will be the amount exclusive
of output Vat levied.
• For example, capital allowances are calculated on cost price of an asset
If output tax has been levied on the cost price and is claimed as an input tax by a
registered VAT vendor, then allowance are claimed on the cost price net of the input
tax claimed. Same applies to recoupments
• For input tax to be claimed it must be incurred to produce taxable supplies
Output tax theory Question
Type what is the type of supply being rendered? Exempt supplies, Zero-rated supplies or
Standard rated supplies AND is it a good/service?
Timing
• When will the Output tax be levied:
• What is the time of supply?
• In addition, in which VAT period will the Output tax be accounted for? (Accounting
basis and VAT periods)
Value of Supply and Output tax
• Value of supply = consideration x 100/115
• Output tax amount = 15% x value of supply
• Output tax amount =15/115 x consideration

INPUT tax theory question

Type
• was output tax levied on the goods or service (taxable supplies) acquired ?
• will the goods or services acquired be used to make taxable supplies by the
vendor(purchaser)
• was a valid invoice obtained
Timing
• When will the input tax be claimed