Page 454 - Juta's Indirect Tax

IN 70 VaLue-added tax act: InterPretatIOn nOtes IN 70 INTERPRETATION NOTE: NO. 70
DATE: ACT: SECTION:
SUBJECT:
Preamble
14 March 2013
VALUE-ADDED TAX ACT 89 OF 1991 (THE VAT ACT)
SECTION 1 (1) DEFINITION OF THE TERMS ‘ENTERPRISE’, ‘TAXABLE SUPPLY’, ‘INPUT TAX’, ‘DONATION’ AND ‘CONSIDERATION’ SECTIONS 10 (4) AND 10 (23)
SUPPLIES MADE FOR NO CONSIDERATION CONTENTS
1. Purpose
2. Background
3. International characteristics and principles of VAT
3.1 Tax policy and legislative design
3.2 General principles and guidelines
3.3 Supplies made for no consideration
4. The law
5. Application of the law
5.1 De nitions, concepts and valuation rules
5.1.1 De nition of ‘enterprise’ [section 1 (1)]
5.1.2 De nition of the term ‘consideration’ [section 1 (1)]
5.1.3 De nitions of ‘input tax’ and ‘taxable supply’ [section 1 (1)]
5.1.4 De nition of ‘donation’ [section 1 (1)]
5.1.5 Value of supply [section 10 (23)]
5.1.6 Adjustments [section 18 (1)]
5.2 Supplies made for no consideration
5.2.1 Introduction
5.2.2 General rule
5.2.3 Promotional products and other ‘free’ supplies
5.2.4 Supplies between ‘connected persons’
5.2.5 Corporate social responsibility (CSR) expenses
5.2.6 Fringe bene ts
5.2.7 Municipalities
5.2.8 Public authorities, public entities and designated entities
5.2.9 Associations not for
5.2.10 Welfare organisations
5.2.11 Public bene t organisations (PBOs)
6. Conclusion
Annexure A – The law
Annexure B – Listed welfare activities
Annexure C – Extracts from the VATCOM Report on the government’s draft Value-Added Bill in regard to the VAT treatment of associations not for gain and welfare organisations
Preamble
In this Note references to ‘sections’ are to sections of the VAT Act unless otherwise stated and any word or expression bears the meaning ascribed to it in the VAT Act.
1. Purpose
This Note serves to –
• set out the legal framework for the VAT treatment of supplies of goods or services which are made by vendors for no
consideration in certain circumstances; and
• provide guidance to vendors, on whether –
– • input tax may be deducted in respect of any VAT incurred on goods or services acquired to make supplies for no consideration; and
– • output tax must be declared on any goods or services supplied for no consideration.
2. Background
The de nition of ‘enterprise’ in section 1 (1) is one of the most important de nitions in the VAT Act. Its main purpose is to set out as clearly as possible, the type of persons, activities and supplies which are intended to form part of the tax base, as well as those that are meant to be excluded. In terms of paragraph (a) of this de nition, there is a general requirement that enterprises participating in the VAT system must charge a consideration (price) for the goods or services they supply.
The implication of not meeting this requirement is that supplies made for no consideration are not made in the course or furtherance of an enterprise, and hence, will not be a taxable supply. However, there are many different circumstances under which enterprises will, for purely commercial reasons, make a supply without charging a consideration.
446 Juta’s IndIrect tax 2016