Page 342 - Juta's Indirect Tax

IN 39 (2) VaLue-added tax act: InterPretatIOn nOtes IN 39 (2)
In terms of section 1 of the PFMA a ‘department’ means a ‘national or provincial department’ and makes reference to Schedules 1 and 2 of the PSA. The term ‘public service’ is not de ned in the PFMA. The term ‘department’ as de ned in section 1 of the PSA means a ‘national department’, a ‘provincial administration’ or a ‘provincial department’. The meaning of these terms is derived from section 7 (2) of the PSA; which states as follows:
‘For the purposes of the administration of the public service there shall be national departments and provincial administrations mentioned in the rst column of Schedule 1, provincial departments mentioned in the rst column of Schedule 2 and the organisational components mentioned in the rst column of Schedule 3.’
The PSA indicates that the meaning of the term ‘public service’ is as contemplated in section 8 of the PSA – ‘Composition of public service. This provision indicates essentially that the public service consists of persons who hold posts on the ‘ xed establishment’ (i.e. posts created for the normal requirements of a ‘department’), including temporary and contract employees in addition to the xed establishment.
From both the PSA and PFMA, it can be concluded that a ‘department’ before 1 April 2005 was interpreted to mean any entity listed in Schedules 1, 2 or 3 of the PSA. (Refer to Annexure B.) It is also submitted that the interpretation principles noscitur a sociis and ejusdem generis apply in respect of the terms ‘division of the public service’ and ‘department’ as discussed above (i.e. they are very closely associated, and each ‘takes their colour’ from the meaning of the other).
Generally, VAT legislation treats divisions, separate enterprises or branches in a very similar manner, which implies that these terms have very similar meanings. The term ‘division’ is de ned in the Collins English Dictionary as –
‘4. one of the parts, groups, etc., into which something is divided
5. a part of a government, business, country, etc, that has been made into a unit for administrative, political or other
reasons’.
‘Branch’ is de ned in The Shorter Oxford English Dictionary as –
‘5. [a] division; a subdivision; a department
6. A component portion of an organization or system
7. A local and subordinate of ce of business’.
In the case S v Coetzee 1927 3 SA 526 (O) 529, it was held that, to be a branch, two requirements must be satis ed, namely –
• the entity must purport to be a branch or ‘section’ of the main body; and
• its objects and activities must substantially conform to those of the main body.
An entity was therefore only regarded as a ‘public authority’ for VAT purposes before 1 April 2005 if it was listed in Schedules 1, 2 or 3 of the PSA (including any organisational component of that entity such as an of ce, division, subsidiary, separate trading account, or branch whose objects and activities substantially conform to those of the main body which it purports to represent). Therefore, as the scope of the term ‘public authority’ before 1 April 2005 was interpreted so that it did not include any of the entities listed in the PFMA, those entities would have been liable to register for VAT in terms of paragraph (a) of the de nition of ‘enterprise’ if they made taxable supplies in excess of the registration threshold in section 23 (1).*
This meant that for the period before 1 April 2005, there was a potential VAT consequence for those public entities which were liable to register, but did not do so as a result of the uncertainty. (See proviso to section 23(4) and the explanation of application of that provision in 6.13.)
The ‘outsourcing’ of activities normally performed by a public authority to private independent businesses did not mean that the entity performing those activities would fall within the ambit of the de nition of a ‘public authority’. Similarly a partnership or joint venture between a government department or division thereof and a private independent contractor would also fall outside the scope of the de nition of a ‘public authority’. (For example, a ‘public-private partnership’ as contemplated in the Regulations to the PFMA – usually referred to as a PPP.)
4.4 De nition of ‘services’
The term ‘services’ means anything done or to be done, including the granting, assignment, cession or surrender of any right or the making available of any facility or advantage. The de nition is meant to be as broad and all-inclusive as possible, but it excludes a supply of goods, and a supply of money. Therefore, if a particular transaction does not constitute a supply of ‘goods’ or ‘money’, it should generally fall within the de nition of ‘services’.
To fall within the scope of the Act, a payment (consideration) must be received by a vendor in respect of taxable ‘supply’ made by that person. This can be an actual supply, or a supply which the Act deems the person to make in the circumstances. It follows that a donation will not be subject to VAT as such a payment is given unconditionally and does not constitute payment for a supply of goods or services to the donor. It is also worth noting that in our law, there is a presumption against the making of a gratuitous payment (donation) unless the facts and circumstances indicate the contrary.† It follows that a person does not merely part with money or goods, or make available facilities or advantages to another person without some form of quid pro quo (mutual consideration, equal exchange, or something given in return for that which is received).
One of the main issues with the application of the law in this regard was that public and local authorities often incorrectly assumed that certain payments made to vendors to make supplies of goods or services related to the delivery of government services and assistance programmes to the public constituted transfer payments which were subject to VAT at the zero rate. Such payments should instead have been treated as consideration for the actual acquisition of goods or services which are subject to VAT in accordance with the normal rules.
In the absence of a written contract, it was often unclear whether a vendor could be regarded as having actually rendered a service to the public authority or local authority making the payment. In other words, it was sometimes
* The current registration threshold effective from 1 March 2009 is R1 million. The registration threshold value was R150 000 before 24 November 1999 and R300 000 from that date until it changed on 1 March 2009.
† Refer for example, to Myers v Lesch 1954 (2) SA 487 (T) and Jepson NO v Lezar (6453/2007) [2009] ZAFSHC 49. 334 Juta’s IndIrect tax 2016