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PN 1/2001 VaLue-added tax act: PractIce nOtes PN 1/2001
serves to alter the rate of tax from the standard rate, which is currently 14 per cent, to the rate of zero per cent, but the supply nevertheless remains a taxable supply.
Premiums on short-term policies are payments for services supplied and are, in terms of section 7 (1) (a) of the Act, subject to VAT at the standard rate if the insurer is a vendor. However, section 11 (2) of the Act provides that where VAT is chargeable under section 7 (1) it will in certain cases be charged at the rate of zero per cent, e.g. where the insured vendor pays short-term insurance premiums to the insurer who is also a vendor for insuring the transport of passengers or goods to or from an export country (see section 11 (2) (d) of the Act). Even though the premium for the insurance of passengers or goods is zero rated, the indemnity payment/claim is standard rated. Section 8 (8) of the Act deems the claim to be a consideration received by the insured for a supply of services.
4. It follows that, where an insurer who is registered as a vendor under the Act, provides insurance to another vendor, any indemnity payment to the insured or any other person, excluding those catered for in proviso 2, whereby the insured is indemni ed by the insurer, will attract VAT in the hands of the insured to the extent that it relates to a loss incurred by the insured in the course of carrying on his enterprise. This is so, irrespective of the fact that the service of providing insurance may have been supplied at the rate of zero per cent, e.g. as contemplated in section 11 (2) (d) of the Act.
5. Proviso 2
Where the supply of services contemplated by the insurance contract is not subject to tax under section 7 (1)
(a) of the Act, for example, where an overseas insurance company which is not registered as a vendor makes an indemnity payment, the provisions of section 8 (8) of the Act do not apply. The implication of this is that input tax is not claimable in respect of premiums and indemnity payments are not subject to output tax in terms of section 8 (8) of the Act.
In respect of an indemnity payment received by a vendor on insured goods on which an input tax deduction was denied in terms of section 17 (2) of the Act, no output tax is payable.
6. All previous rulings issued by the Commissioner for SARS or any of cial under his control relating to the rst proviso to section 8 (8) of the Act, where the premium (or part thereof) was subject to VAT at the zero rate, is hereby withdrawn with immediate effect.
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