As most of our clients know, the registration for Value-added Tax (VAT) has become a slow and frustrating process for taxpayers in South Africa, with more and more documentation and proof required by SARS. The reason given for this by SARS is the amount of fraud and abuse that crept into the registration system where taxpayers would get large upfront VAT refunds and then abandoned their VAT returns and duties. The recently published Taxation Laws Amendment Bill, 2013 shows a compromise by the South African Government, which is aiming on the one hand at allowing the free flow of commerce but on the other hand to block the mentioned abuse of the VAT system. The long awaited new tax legislation in this regard will now come into effect on 1 January 2014 and will amend the existing rules and regulations on VAT registrations as follows:
h3. Compulsory Registration
The compulsory registration applies to the normal VAT registration, where a vendor receives more than ZAR 1 million taxable supplies in a twelve-month-period and is therefore the same as it is currently. Up to now vendors who expect to make ZAR 1 million in taxable supplies were also obliged to register. This has been amended to vendors, who have a contractual written obligation to make ZAR 1 million supplies in the next 12 months. In essence, SARS have added certainty into compulsory registration and this will materially reduce workload for SARS, reduce disputes with taxpayers and speed up the registration process.
h3. Traditional Registration
Organisations like municipalities and non-governmental organisations may still continue to register for VAT. SARS have added to this category all those businesses, which have already incurred ZAR 5 million in expenditures (for example mines, which often have large upfront capital expenditure) in the previous 12 months. Refunds for expenditure incurred will be given to this category and no threshold tests will be required by SARS.
h3. Voluntary Registration
SARS intends scrapping the section allowing vendors who have made R50,000 in taxable sales in their past 12 months of trading to register voluntarily. SARS will from 2014 on allow a “fast track approach” whereby businesses may register and will not be required to pass any threshold tests. However, they will not receive refunds until they have made ZAR 100 000 in turnover (taxable supplies) in a continuous 12 month period. In this period deductions will be allowed to the extent they equate to taxable supplies made. This is the area where SARS is most at risk and hence the new regulations. SARS will also reserve their right to de-register any business, which does not receive ZAR 100 000 in taxable supplies in any 12 month period during the 24 months after the business has been registered for VAT.
Thus, the system should work faster and SARS will be able to reduce abuse and fraud. The only downside for businesses is, if they incur expenditure up front. Typically, these are entities that win a tender and need to spend upfront money to be able to supply the tender. They will lose cash flow, as their refunds will only come as their sales increase and reach the mentioned ZAR 100 000 threshold, invoiced AND received!. Please note that interested parties, such as SAICA, are still lobbying Government and there may be further amendments before the Bill becomes law.
Into SA will keep you posted!