Page 358 - Juta's Indirect Tax

IN 39 (2) VaLue-added tax act: InterPretatIOn nOtes IN 39 (2)
• The de nition of ‘transfer payment’ as well section 11 (2) (p) that zero-rated the receipt of those payments were both deleted. The de nition of ‘transfer payment’ was replaced with the de nition of ‘grant’ to provide more certainty as to which payments (appropriations or subsidies) from government qualify for zero-rated tax treatment.
• Grants to vendors (other than designated entities) are zero-rated in terms of sections 8 (5A) and 11 (2) (t). This includes a gratuitous payment by a municipality to a private vendor (other than a designated entity, which is not a welfare organisation) provided the payment is truly gratuitous as contemplated in section 67 of the MFMA and has not been incorrectly classi ed as such. Examples of designated entities are business entities listed in Schedules 2, 3B and 3D of the PFMA, entities listed in Schedules 3A and 3C of the PFMA that have been noti ed to register by the Commissioner, and municipal entities.
• Low cost housing subsidy payments are now zero-rated in terms of sections 8 (23) and 11 (2) (s).
• An appropriation in terms of the DOR Act such as a ‘Municipal Infrastructure Grant’ or ‘equitable share’ also quali es
as a zero-rated ‘grant’, unless the recipient is a ‘designated entity’ (not being a welfare organisation).
• A ‘grant’ excludes procurement and other methods of acquiring goods and services by constitutional institutions, public authorities and municipalities (i.e. the payment must not constitute consideration paid in respect of the actual supply of goods or services in terms of section 7 (1) (a) to the entity making the payment, or for a speci c taxable
supply by the recipient to a third party).
• Section 8 (5) was amended so that it now only applies to a ‘designated entity’. Payments made to designated entities,
which are for enterprise purposes, generally attract VAT at the standard rate.
• Designated entities may only zero rate payments from constitutional institutions, public authorities or municipalities
when –
• the amount is a grant for training employees (SETA grants received), or
• the recipient is a ‘welfare organisation’ and the funds are for the purposes of carrying out ‘welfare activities’.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE Date of rst issue: 4 December 2007
Annexure A – Wording of certain provisions in the VAT Act PART 1 – Wording before 1 April 2005
Section 1 - De nitions
Enterprise [Paragraphs (b) (i) and (c)]
‘Enterprise’ means—
(a) in the case of any vendor other than a local authority, ...
(b) without limiting the applicability of paragraph (a) in respect of any activity carried on in the form of a commercial,
nancial, industrial, mining, farming, shing or professional concern—
(i) the making of supplies by any public authority of goods or services which the Minister, having regard to
the circumstances of the case, is satis ed are of the same kind or are similar to taxable supplies of goods or services which are or might be made by any person other than such public authority in the course or furtherance of any enterprise, if the Commissioner, in pursuance of a decision of the Minister under this subparagraph, has noti ed such public authority that its supplies of such goods or services are to be treated as supplies made in the course or furtherance of an enterprise;
(ii) ... (iii) ...
(c) in the case of a vendor which is a local authority, any activity in the course or furtherance of which any of the following supplies of goods or services are made:
(i) The supply of electricity, gas or water;
(ii) the supply of services consisting of the drainage, removal or disposal of sewage or garbage;
(iii) the supply of goods or services incidental to or necessary for ... subparagraph (i) or (ii) apply;
(iv) the making of supplies of goods or services in the course of any business carried on by such local authority,
if—
(aa) such supplies are of the same kind or are similar ... made by any person other than such local authority
...; and
(bb) the revenue normally derived ..., together with any grant or subsidy ..., suf cient to fund the
expenditure ... incurred by that local authority in the production of such revenue; and
(cc) (A) such business falls within a category of businesses which the Minister, having regard to the provisions of items (aa) and (bb) as generally applicable, has by notice in the Gazette determined to be a category of businesses in respect of which the provisions of this subparagraph shall be
deemed to apply; or
(B) such business (not being a business falling within a category referred to in subitem (A)) is
determined by the Minister, having regard to the provisions of items (aa) and (bb) as applicable in the case of such business, to be a business in respect of which the provisions of this subparagraph shall be deemed to apply and the Commissioner, in pursuance of the Minister’s determination under this subitem, has noti ed such local authority accordingly,
and, in the case of a regional services council, a joint services board or a transitional metropolitan council, any other activities of that council or board to the extent that they are nanced by levies referred to in section 8 (6) (b).
Note: Paragraph (c) of the de nition of ‘enterprise’ was subsequently deleted with effect from 1 July 2006.
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