Page 373 - Juta's Indirect Tax

IN 39 (2) VaLue-added tax act: InterPretatIOn nOtes IN 39 (2)
On or after1 April 2005
Same as above, except that the payment to the municipality would constitute a ‘grant’. Since the grant is received in connection with the enterprise activities of the municipality, a deemed supply in terms of section 8 (5A) arises which quali es for the zero rate in terms of section 11 (2) (t).
It is also possible that sections 8 (23) and 11 (2) (s) may apply, depending on whether or not the payments concerned are made in terms of an approved housing subsidy scheme contemplated in those provisions.
Example 4 – Incentive payment for exported goods
The Department of Trade and Industry (DTI) pays an amount of money in terms of a scheme to persons who export goods in excess of a certain value from South Africa.
Before 1 April 2005
Since the export of goods is a taxable supply and the goods exported are supplied to persons other than the DTI (that is, DTI does not receive any goods or services in return for the payment), the vendor receiving the payment is deemed to supply a service in terms of section 8 (5) to DTI. The receipt would have been regarded as a transfer payment which was zero-rated in the hands of the recipient (vendor) in terms of section 11 (2) (p). There is no VAT implication for recipients who are not vendors.
On or after 1 April 2005
The same as above would apply, except that the payment concerned would constitute a ‘grant’. Since it is in respect of that vendor’s taxable supplies, a deemed supply in terms of section 8 (5A) arises, which quali es for the zero rate in terms of section 11 (2) (t). However, this will not be the case if the recipient is a ‘designated entity’, in which case it would be taxed at the standard rate in terms of section 8 (5).
Example 5 – Payment to a public authority which has been noti ed to register
The Department of Home Affairs (DHA) pays an amount to the Government Printing Works (GPW) for the printing of I.D. books and passports.
Before 1 April 2005
GPW was noti ed to register for VAT with effect from the inception of VAT in South Africa. Since DHA is receiving and paying for an actual service from a registered vendor in terms of section 7 (1) (a), it does not qualify as a transfer payment, nor is there any deemed supply in terms of section 8 (5).
On or after 1 April 2005
Same as above. Note that the GPW is a ‘designated entity’ on or after 1 April 2005 as it was noti ed to register and continues to be registered.
Example 6 – Procurement of supplies by a public authority
The Department of Public Works (DPW) pays a building contractor an amount to paint its of ce premises and to install an air-conditioning system.
Before 1 April 2005
Since DPW is actually receiving goods and services in return for the payment made, the payment does not qualify as a transfer payment. Section 8 (5) does not apply and DPW will have to include the VAT that it will be charged in the total cost which it has budgeted to cover the project.
On or after 1 April 2005
Same as above.
Example 7 – Subsidy paid by a public authority to a municipality for taxable purposes
Department of Water Affairs (DWA) pays a subsidy to a municipality to enable that municipality to sink boreholes and provide necessities such as taps, piping and water storage facilities to enable the poor to get access to free water.
Before 1 April 2005
Since DWA is a public authority and the payment is in respect of the taxable supply of water in terms of paragraph (c) (i) and (iii) of the de nition of ‘enterprise’ (as it read at the time) by the municipality to certain members of the community, the municipality is deemed to make a supply to DWA in terms of section 8 (5). The payment will be a zero-rated transfer payment if it is not appropriated in terms of the DOR Act.
The fact that this service is provided for free to a speci c sector of the community does not alter the fact that the supply of water by the municipality is a taxable supply for nil consideration in terms of section 10 (23). Furthermore, it does not matter that the funds are expended on capital infrastructure rather than operational costs. As long as (and to the extent that) the capital infrastructure is for taxable supplies, that receipt quali ed as a zero-rated ‘transfer payment’.
Should the municipality commission a contractor to sink the boreholes and erect the water piping infrastructure, it will be entitled to deduct input tax in this regard. The contractor will be required to charge VAT at the standard rate (if registered as a vendor).
Juta’s IndIrect tax 2016 365