Page 302 - Juta's Indirect Tax

PN 10/1991 VaLue-added tax act: PractIce nOtes PN 10/1991
outside the Republic and the speci ed countries. Where the goods physically pass through the Republic or the speci ed countries en route to the point of destination the supply of the services of transporting the goods will still qualify for zero-rating provided the vendor is responsible for the entire movement of the goods from the point of origin to the point of destination.
2.2 Transport of goods from a place in the Republic or a speci ed country to a place in an export country
In order to qualify for a zero-rating the point of origin of the transport of the goods must be located within the Republic or a speci ed country and the point of destination of the transport of the goods must be located in an export country. The vendor supplying the service of transporting the goods, must be responsible for the entire movement of the goods from the point of origin to the point of destination.
2.3 Transport of goods from a place in an export country to a place in the Republic or a speci ed country
In order to qualify for a zero-rating the point of origin of the transport of the goods must be located in an export country and the point of destination of the transport of the goods must be located within the Republic or a speci ed country. The vendor supplying the services of transporting the goods must be responsible for the entire movement of the goods from the point of origin to the point of destination.
The service of transporting goods which falls within the parameters described above, is termed an ‘international transport service’ for the purposes of this practice note. Any reference to an ‘international transport service’ in this practice note should be construed accordingly.
3 LOCAL TRANSPORT SERVICES
The supply of any service of transporting goods between a place in the Republic or a speci ed country and another place in the Republic or a speci ed country is subject to VAT at the standard rate of 10 per cent.
For the purposes of this practice note the service of transporting goods from a point of origin located within—
• the Republic; or
• a speci ed country,
to a point of destination located within—
• the Republic; or
• a speci ed country,
will be termed a ‘local transport service’. Any reference to a ‘local transport service’ should be construed accordingly.
There are two exceptions to the general rule that local transport services are subject to VAT at the standard rate of 10 per cent.
3.1 Local transport services provided as part of an international transport service
In terms of Section 11 (2) (c), local transport services are zero-rated provided—
• the local transport service is provided as part of the supply of an international transport service; and • the local transport service is provided by the same supplier as the international transport service.
In order to qualify for a zero-rating the local transport service must be provided as part of the international transport service and must therefore be provided as part of the same contract.
The local transport service must furthermore be provided by the supplier of the international transport service in the contractual sense. It is important to note that the supplier of a transport service in the contractual sense is not necessarily the person who physically performs the service, although this may be the case.
Example 1:
A freight forwarder contracts with an exporter to deliver the exporter’s goods from the factory door in Johannesburg to a customer in Liverpool. The freight forwarder is acting as a principal and subcontracts with other parties in order to provide his total service. The forwarder subcontracts with Spoornet to move the goods from Johannesburg to Durban and subcontracts with a shipping line to move the goods from Durban to Liverpool.
Spoornet will charge VAT at 10 per cent to the freight forwarder on its services of transporting the goods from Johannesburg to Durban as it is providing a local transport service to the freight forwarder. The freight forwarder will be entitled to claim a deduction of input tax in respect of the local transport service.
The shipping line, if registered as a vendor, will charge VAT at zero per cent on its services of transporting the goods from Durban to Liverpool as it is providing an international transport service to the freight forwarder.
The freight forwarder when charging the exporter for the entire service of transporting the goods from Johannesburg to Liverpool will charge VAT at zero per cent. Whilst the forwarder is supplying both an international and local transport service, the local transport service is also subject to the zero rate as it is provided as part of the same supply as the international transport service and is provided by the same supplier, i.e. the freight forwarder.
Example 2:
An exporter approaches a freight forwarder to arrange the movement of his goods from Johannesburg to Liverpool. The freight forwarder approaches a ship’s agent and contracts with the ship’s agent on the exporter’s behalf to provide the carriage from Johannesburg to Liverpool. The ship’s agent contracts with the freight forwarder as agent of his principal, a shipowner, who is registered as a vendor. The ship’s agent, acting in his capacity as agent for the shipowner contracts with Spoornet to move the goods from Johannesburg to Durban.
Spoornet will charge VAT at 10 per cent on its services of transporting the goods from Johannesburg to Durban as it is providing a local transport service to the shipowner. The ship’s agent, in this example, is acting as an agent for the shipowner, and whether or not Spoornet’s tax invoice is made out to the shipowner or to the ship’s agent, the shipowner as principal will be entitled to claim a deduction of input tax in respect of the local transport service.
The shipowner will charge VAT at zero per cent on his entire service of transporting the goods from Johannesburg to Liverpool. The subcontracted local transport service has been supplied as part of the international transport service and is supplied by the same supplier, the shipowner. The ship’s agent, who has acted as the shipowner’s agent in this example, may issue a tax invoice to the freight forwarder in respect of the services supplied by his principal, the shipowner. If
294 Juta’s IndIrect tax 2016