Page 346 - Juta's Indirect Tax

IN 39 (2) VaLue-added tax act: InterPretatIOn nOtes IN 39 (2)
Similarly, if a payment was for the purpose of both exempt and taxable supplies made, or to be made by the vendor, only the part that was properly attributable to taxable supplies quali ed as a zero-rated ‘transfer payment’. Payments received wholly or partially for the purposes of exempt supplies made by a vendor, would have been out-of-scope (non- taxable) for VAT purposes* even if such a payment quali ed as a ‘transfer payment’ as de ned. This is because a deemed supply in terms of section 8 (5), and consequently, the zero rate in terms of 11 (2) (p), could only apply to the extent that the amount was received for enterprise purposes (taxable supplies).
As mentioned in 4.6, one of the major issues which arose was the incorrect treatment of appropriations paid in terms of the annual DOR Act, which did not qualify as zero-rated transfer payments. The interpretation of the VAT treatment of such payments received before 1 April 2005 is, therefore, that they are taxable at the standard rate and cannot be subject to VAT at the zero rate in terms of section 11 (2) (p).†
Any payment from a public or local authority which was not a ‘transfer payment’ also had to be taken into account for the purposes of calculating the apportionment percentage in terms of section 17 (1). For example, when the turnover based method of apportionment was used, payments received in terms of the DOR Act would have been added to the numerator of the formula to the extent that they were received for the intended purpose of making taxable supplies, and the full amount should have been included in the denominator of the formula.
5. The law on or after 1 April 2005
The wording of the amended law is quoted in Annexure A – Part 2.
6. Application of the law on or after 1 April 2005
The various amendments to the law in Annexure A – Part 2 are analysed and interpreted in 6.1 to 6.14 below. Note that the general principles and meaning of certain terms which were explained in the application of the law in 4 are not repeated here, but rather referred to as a cross-reference where necessary. Where those principles and concepts still apply on or after 1 April 2005, they are used as a foundation to augment the analysis and interpretation of the amendments to the law, so that the position after 1 April 2005 may be clearly distinguished from the position before that date.
6.1 De nition of ‘enterprise’ [Paragraph (b) (i)]
Although no amendments were made to paragraph (b) (i) of the de nition of ‘enterprise’, the application of this provision changed because of the amendment to the de nition of a ‘public authority’ which now includes certain public entities.
Before the amendment, it was not clear whether certain public entities would be liable to register under paragraph (a) of the de nition of ‘enterprise’, or if paragraph (b) (i) of the de nition applied. The amendment therefore clari ed that the activities of national and provincial public entities listed in Parts A or C of Schedule 3 to the PFMA (non-business type classi cation) fell within paragraph (b) (i) of the de nition of ‘enterprise’ as these entities are regarded as public authorities with effect from 1 April 2005. (See explanation on the de nition of ‘public authority’ in 6.5 below.)
Unless the said entities make taxable supplies which are similar to those in the private sector and have been noti ed by the Commissioner to register (pursuant to the Minister’s decision), their activities are generally out-of-scope for VAT purposes and they will not register for VAT. Public authorities and public entities listed in Parts A or C of Schedule 3 to the PFMA which were registered before 1 April 2005 were therefore required to deregister with effect from that date. Relief from the output tax normally due on this taxable event is provided to these entities in terms of proviso (iv) to section 8 (2). (See 6.7 below regarding the application of this provision.)
The activities of public private partnerships (PPPs) or other joint business ventures between government and private entities fall within paragraph (a) of the de nition of ‘enterprise’ and not paragraph (b) (i).
The VAT status of an entity may be affected if it has not yet been classi ed or is re-classi ed by the Minister in terms of the PFMA. Usually the effective date of the classi cation or re-classi cation as published in the Government Gazette will be the date of liability, or the date on which the liability to register for VAT purposes ceases (as the case may be). However, in certain cases where the effective date of that classi cation or re-classi cation is considered to be inappropriate, National Treasury and SARS may determine another date which is reasonable in the circumstances taking into account all the relevant circumstances and conditions prevailing for that entity (or other entities in a similar position).
One of the implications of the amendment to the de nition of ‘public authority’ was that the National Skills Fund (Department of Labour) and the Sectoral Education Training Authorities (SETAs) (both Schedule 3A PFMA entities) no longer quali ed to be registered for VAT and were therefore also required to deregister. Consequently, vendors who are liable to pay the Skills Development Levy (SDL) in terms of the Skills Development Levies Act, 1999, are no longer allowed to deduct input tax on SDL payments for periods on or after 1 April 2005.
The same rule applies in respect of any other levy, duty or similar amount charged or levied by a PFMA entity which now falls within the amended de nition of ‘public authority’ if the entity was registered for VAT before 1 April 2005. This rule applies whether the amount is levied in terms of enabling legislation or not. Examples include levies payable to the Financial Services Board, national or provincial gambling authorities, the Water Research Council and the Civil Aviation Authority.
As public authorities were required to deregister for VAT with effect from 1 April 2005, it follows that the amount previously charged or levied would no longer include VAT at the standard rate.‡ Consequently, vendors who make payment of such levy, duty or similar amount are no longer entitled to deduct input tax thereon unless that entity has been noti ed to register for VAT.
* Examples include share purchases in government businesses and passenger transport subsidies paid to businesses that transport fare-paying passengers by road or rail. (Refer to sections 2 (1) (d), 12 (g) and 12 (a).)
† Note, however, the comment in 4.5 about the introduction of section 40A, and later, section 40B to provide relief in the case of certain assessments raised because of this incorrect treatment.
‡ This rule applies unless that levy, duty or similar amount is set by any other Act, Regulation or measure having the force of law as a VAT inclusive amount, where that legislation has not been amended with effect from 1 April 2005 to exclude the VAT. It may be found, therefore, that some public entities continued to charge VAT in this regard for a short period of time until a new regulation could be issued to amend the amount payable to exclude VAT.
338 Juta’s IndIrect tax 2016