Page 351 - Juta's Indirect Tax

IN 39 (2) VaLue-added tax act: InterPretatIOn nOtes IN 39 (2)
Unlike section 8 (5), which applies for the purposes of the Act as a whole, this provision applies speci cally for the purposes of the zero-rating provided for grant payments in terms of section 11 (2) (t).
“...a vendor (excluding a designated entity) shall be deemed to supply services to any public authority,
municipality or constitutional institution listed...”
Since the amendment to section 8 (5) makes that provision applicable exclusively to designated entities, a similar provision was introduced to create a deemed supply where a vendor (not being a designated entity) receives a grant. (See also 4.6 on the application of section 8 (5) for the relevant interpretation principles.)
The issue was that under the previous wording of the Act, a ‘transfer payment’ as de ned would only qualify for the zero-rate in terms of section 11 (2) (p), where the grantor was a ‘public authority’. However, a similar subsidy or grant payment by a municipality or certain PFMA entities did not qualify for the zero-rating.
Section 8 (5A) (through the amended de nition of ‘public authority’), extends the deeming provision relating to grants (and hence the zero-rating provisions under section 11 (2) (t)) to apply in respect of certain payments made by constitutional institutions, municipalities and public entities listed in Parts A & C of Schedule 3 to the PFMA. The purpose of this deeming provision is to bring a grant payment within the scope of the Act so that the zero-rating in terms of section 11 (2) (t) can apply. However, the provision does not apply to a ‘designated entity’, as section 8 (5) will apply in that case (see 6.8 above).
Section 8 (5A) also includes grant payments made between any of the entities mentioned, for example, a grant from one municipality to another, or from a Schedule 3A PFMA entity to a Schedule 3C PFMA entity. This is to cover the situation where the responsibility to approve and make grants available to the identi ed bene ciaries is devolved or assigned to another entity.
“...to the extent of any grant paid to or on behalf of that vendor in respect of the taxable supply of goods or
services by that vendor.’’
The deeming provision only applies where the amount paid to the vendor by the public authority, municipality or constitutional institution is a ‘grant’ as de ned. This part of the wording of section 8(5A) as quoted above is the original wording which was inserted on 1 April 2005. Note, however, that a similar amendment to the one mentioned in the last two paragraphs of 6.8 was also made to section 8(5A) to deal with the continued uncertainty regarding certain payments received. The only difference being that the payment referred to in this provision is subject to the zero rate of VAT in terms of section 11 (2) (t), as the recipient is not a designated entity. (See also 4.6 on the application of section 8 (5) for the relevant interpretation principles, as well as the explanation on the de nition of ‘grant’ in 6.4 above.)
A further issue related to the de nition of a ‘grant’ and the application of the deeming provisions of section 8 (5A) is that compensation paid by a public authority to a vendor (usually a farmer) to supply a ‘controlled animal or thing’ as contemplated in terms of section 19of the Animal Diseases Act 35 of 1984 remained problematic. The reason is that the vendor in such cases is required to actually supply the diseased animals to the public authority. The compensation paid is therefore consideration for an actual taxable supply of goods and cannot give rise to a deemed taxable supply of services in terms of section 8 (5A). The Act was therefore amended on 7 February 2007* to provide for these payments to be subject to the zero rate in terms of section 11 (1) (r).
6.10Section 8 (23) – Certain supplies of goods or services deemed to be made or not made upon receipt of a
housing subsidy payment by a vendor from a public authority or municipality
Individual phrases in section 8 (23) which were inserted, are explained below.
‘For the purposes of this Act ...’
This provision applies for the purposes of the Act as a whole.
‘...a vendor shall be deemed to supply services to any public authority or municipality...’
Previously, housing subsidy payments were treated as zero-rated transfer payments in terms of section 8 (5) and 11 (2) (p). As section 8 (5) was amended so that it applies exclusively to designated entities, a similar provision in the form of section 8 (23) was introduced to create a deemed supply where a vendor (e.g. a property developer or builder), is involved in delivering low cost housing projects and that person receives an amount on behalf of the housing subsidy bene ciary. The purpose of this deeming provision was to bring the housing subsidy payment within the scope of the Act so that the zero-rating in terms of section 11 (2) (s) could apply. (See 4.6 on the application of section 8 (5) as it read before 1 April 2005 for the interpretation principles.)
‘... to the extent of any payment in terms of the Housing Subsidy Scheme referred to in section 3 (5) (a) of the
Housing Act, 1997 (Act 107 of 1997) ...’
The deemed supply only applies in respect of, and to the extent that, the vendor receives payment of the low cost housing subsidy amount to which certain bene ciaries are entitled in terms of the Housing Act. If the housing subsidy is insuf cient to cover the price of the house, the additional consideration payable by the bene ciary to the vendor is subject to tax at the standard rate. This would include a case where the developer is a municipality.
‘...made to or on behalf of that vendor in respect of the taxable supply of goods and services by that vendor’
This part of the wording of section 8 (23) was similar to the wording of sections 8 (5) and 8 (5A) when the law was amended on 1 April 2005. However, as mentioned in 6.8 and 6.9, the wording of sections 8 (5) and 8 (5A) was later amended to refer instead to payments received in the course or furtherance of a vendor’s enterprise to deal with some remaining uncertainty regarding certain payments. Section 8 (23) was also subject to further amendment† so that it now refers to a payment made in terms of a national housing programme approved by the Minister by regulation after consultation with the Minister responsible for Human Settlements. The purpose being to narrow the wording to make it clear that the zero-rating only applies to subsidy payments made in terms of certain housing programmes and not to others.
* Refer to Revenue Laws Amendment Act 20 of 2006.
† Refer to the Taxation Laws Amendment Act (7 of 2010).
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