Page 350 - Juta's Indirect Tax

IN 39 (2) VaLue-added tax act: InterPretatIOn nOtes IN 39 (2)
payable by constitutional institutions and public authorities upon deregistration. The application of this provision means that no output tax is payable in terms of section 8 (2) upon deregistration where the entity –
• was not a ‘public authority’ before 1 April 2005, but falls within the amended de nition after that date (for example,
Schedule 3A & 3C PFMA entities); or
• is a constitutional institution listed in Schedule 1 to the PFMA, and from 1 April 2005 is no longer regarded as an
‘enterprise’ for VAT purposes because of the insertion of proviso (viii) to the de nition of ‘enterprise’.
A public authority or constitutional institution which was registered for VAT before 1 April 2005 is therefore not required to declare output tax on the value of assets deemed to be supplied upon deregistration, despite the fact that they may have been allowed to deduct input tax on certain assets acquired during the time that it was registered.
Similarly, the proviso to section 23 (4) was also inserted to deal with the liability of those entities which did not register because of the uncertainty regarding the meaning of the term ‘public authority’, and its effect on the application of paragraph (b) (i) of the de nition of ‘enterprise’. (See discussion under 4.1.1, 4.3, 6.1 and 6.5.)
The relief did not, however, apply where the public authority or constitutional institution applied to register for VAT and was registered during the period 22 December 2003 to 31 March 2005. This exclusion was intended to prevent abuse whereby entities which were registered for VAT during the aforementioned period and deducted input tax on their assets whilst being aware that no output tax would be required upon deregistration. Alternatively, if the person representing that entity was not aware of the new laws, to prevent the entity from inadvertently acquiring a tax bene t or advantage as a result of the application of the amended law. The relief applied only in the instances where the vendor –
6.8
(i) fell within the amended de nition of ‘public authority’, and was not noti ed to register in accordance with paragraph (b) (i) of the de nition of ‘enterprise’ with effect from 1 April 2005; or
(ii) was a constitutional institution and as a result of the insertion of proviso (viii) to the de nition of ‘enterprise’ with effect from 1 April 2005, its activities were excluded from the de nition of ‘enterprise’; or
(iii) was a public entity listed in the Schedules to the PFMA, and, as a result of a re-classi cation under those Schedules on or after 22 December 2003, the entity was classi ed as a ‘public authority’ or constitutional institution with effect from 1 April 2005 (the implications of which are set out in points 1 and 2 above). Where the re-classi cation related to only a part of the public authority’s activities, the relief applied only to that extent.
Section 8 (5) – Certain supplies of goods or services deemed to be made or not made upon receipt of a payment from a public authority or municipality by a designated entity
Individual phrases in section 8 (5) (as amended) are explained below. The text that was deleted is shown in bracketed bold font and the text that was inserted is shown as underlined.
‘For the purposes of this Act a [vendor] designated entity shall be deemed to supply services to any public
authority or municipality* ...’
Refer to 4.6 on the application of the law as it read before 1 April 2005 (as those principles are still relevant after 1 April 2005). The effect of replacing the word ‘vendor’ with the term ‘designated entity’, is that section 8 (5) now only applies to designated entities.
As discussed previously, the deemed supply will arise whether the payment is received from a public authority or municipality. Since the de nition of ‘public authority’ was expanded to include public entities listed in Parts A & C of Schedule 3 to the PFMA, any payment by such entity to a ‘designated entity’ will also give rise to a deemed supply which is generally subject to VAT at the standard rate. (Refer also to 6.3 above for more details about designated entities.)
‘...to the extent of any payment made by the authority concerned...’
Refer to 4.6 on the application of the law as it read before 1 April 2005.
‘...to or on behalf of [the vendor] that designated entity in respect of the taxable supply of goods or services by [the vendor to any person] that designated entity;’
See 4.6 on the application of the law as it read before 1 April 2005. The amendment is textual, following on from the fact that this provision applies only to designated entities. The reference to ‘any person’ was deleted as it was deemed super uous to refer to the recipient of the designated entity’s taxable supplies within the context of the amended wording. As a result of some further uncertainty which persisted in regard to the application of section 8 (5), this part of the provision was subsequently amended† as follows:
‘... to or on behalf of that designated entity in [respect of the taxable supply of goods or services] the course
or furtherance of an enterprise carried on by that designated entity.’
The effect of this amendment was to make it clear that the deemed supply which arises in terms of section 8 (5) is a taxable supply if the receipt is for taxable use in the enterprise. The uncertainty that this amendment sought to deal with, was the perception that certain receipts did not fall within the ambit of the provision. For example, if a budgeting shortfall on the salaries of a designated entity was topped up by a payment from National Treasury, the amendment made it clear that the receipt was received in the course or furtherance of the enterprise, regardless of the fact that it related to expenses of the enterprise on which no input tax could be deducted. In other words, such a payment to a designated entity for the purposes of its enterprise must include VAT at the standard rate since there is no zero-rating provision in section 11 (2) which applies for designated entities in this regard.
6.9 Section 8 (5A) – Certain supplies of goods or services deemed to be made or not made upon receipt of a
payment from a public authority or municipality by a vendor (not being a ‘designated entity’)
Individual phrases in section 8 (5A), are explained below.
‘For the purposes of section 11 (2) (t)...”
* The term ‘local authority’ was only replaced by the term ‘municipality’ with effect from 1 July 2006, but as that amendment does not impact on the discussion in this paragraph, the current wording of the Act is used here. The same will apply for further quotations of the law in 6 and in Annexure A – Part 2.
† Refer to Revenue Laws Amendment Act (60 of 2008).
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