Global Courant 2023-05-22 19:05:32
Load shedding and bad faith are taking their toll on value added tax (VAT), says financial services firm PwC in its latest VAT and Indirect Taxes in Africa report.
The standard VAT rate of 15% applies to all supplies of goods or services within the country – administered by the South African Revenue Service (SARS).
VAT is charged on ‘taxable supplies’, which are supplies of goods or services by a ‘seller’ (a person who is or must be registered as a VAT seller with SARS) in the context of or for the furtherance of a business being exercised by the supplier in whole or in part in South Africa.
VAT was introduced in September 1991 through the VAT Act, with the aim of replacing sales tax. Since 2012, the implementation of tax laws has mainly shifted to the newer Tax Administration Act 28 of 2011.
However, PwC said there are still certain VAT administration provisions in the VAT law.
Load shedding and bad guys
In April this year, SARS reported that continued blackouts had cost it up to R60 billion in tax collections. Johnstone Makhuba, SARS Chief Revenue Officer, said another shortfall is likely due to the delayed effect of blackouts and tax collections.
He said long-term corporate taxes are felt later after VAT collections that feel the first hand of a decline in sales. As a result, VAT collection is expected to lose a further R60 billion over the course of 2023 as load shedding continues.
Another challenge for the tax authorities regarding VAT was the need to quickly tighten up the VAT registration process after detecting a large number of suspicious VAT registrations.
SARS reported that a significant number of registrations were deliberately created with the intent to defraud SARS – harming the country’s tax authorities and ordinary taxpayers.
According to PwC, an individual or company must register if their annual value of taxable supplies has exceeded the annual threshold of R1 million over the past 12 months.
“Recording is not required where the threshold is exceeded solely as a result of the cessation of, or substantial and permanent reduction in the size or scale of an enterprise, the replacement of capital equipment or abnormal circumstances of a temporary nature.” the financial service provider.
A person/company can also apply for voluntary registration as a VAT seller if:
Their taxable supplies have generated more than R50,000 in a previous 12 month period. They are carrying out an enterprise which, due to its nature, can be expected to result in taxable supplies in excess of R50,000 over a period of 12 months. They buy a business as a going concern if the previous owner has made taxable supplies in excess of R50,000 in a 12 month period donor funded projects, municipalities etc., even if the R50,000 requirement is not met.
In response to this uptick, SARS has taken a no-nonsense approach in prosecuting non-compliant taxpayers and made the following changes to its registration system:
All new applications for VAT registration will be subject to a stricter verification process, which may require the applicant to appear in person at the branch closest to the company’s place of business for validation and accreditation. When applicants are expected to visit a branch, the visit must be pre-booked on the SARS website by clicking the “Book an Appointment” icon. All supporting documents required for registration validation must be submitted at the office on the day of the appointment. The VAT registration is not affected until SARS has verified that the request is lawful.
Further developments to end unauthorized VAT abuse include the introduction by SARS of a domestic reverse charge mechanism for transactions related to gold to curb VAT refunds that were prevalent in the second-hand gold market.
PwC said this domestic reverse charge mechanism applies when both the supplier and recipient are registered sellers, and that the obligation to declare VAT on the sale of the valuable metal rests with the recipient and not the supplier.
VAT comparison
PwC’s latest report further included a comparison of VAT rates across Africa.
South Africa, with a tax rate of 15%, shared similarities with countries such as Ethiopia, Gambia, Lesotho and the Seychelles.
Some of the most notable increases in 2023 were seen in Burkina Faso and Togo, which went from no VAT rate to a flat 18%. Ghana also saw an increase, albeit smaller, from 12.50% to 15%, and Togo increased
Nigeria has the lowest VAT rate in Africa at 7.50%.
Read: South Africa has a smoking problem worth millions of rand – and SARS is taking action
