Page 460 - Juta's Indirect Tax

IN 70 VaLue-added tax act: InterPretatIOn nOtes IN 70
‘continuously or regularly’
The de nition also contemplates that the business or enterprise activity is carried on all the time (continuously), or it must be carried on at reasonably short intervals (regularly). ‘Continuously’ is generally interpreted as ongoing, that is, the duration of the activity has neither ceased in a permanent sense, nor has it been interrupted in a substantial way. The term ‘regular’ refers to an activity that takes place repeatedly. Therefore, an activity can be ‘regular’ if it is repeated at reasonably xed intervals taking into consideration the type of supply and the time taken to complete the activities associated with making the supply.
‘by any person’
An enterprise can be conducted by any type of person. The term ‘person’ can include a sole proprietor (natural person), public authority, municipality, company, corporate or unincorporated bodies of persons, deceased or insolvent estate, trust fund, or a foreign donor-funded project. The nature of the person that conducts the enterprise is not usually important, as the de nition is primarily activity based. However, in parts of the de nition, certain persons are mentioned for speci c reasons. For example, reference is made in paragraph (a) to an ‘association or club’ to make it clear that the activities of these entities may qualify as enterprise activities, even if they are conducted on a not-for-pro t basis. The activities of municipalities are also speci cally included in paragraph (a). Public authorities and welfare organisations* are referred to in paragraphs (b) (i) and (b) (ii) of the de nition, as there are special rules which apply.†
‘in the Republic or partly in the Republic’
It is a requirement of an enterprise that the supplies must be made in, or be wholly or partly connected with, the tax jurisdiction of South Africa. For the purposes of this Note, it is assumed that the enterprise activities are conducted in South Africa.
‘in the course or furtherance of which goods or services are supplied’
As VAT is a tax levied on the supply of goods or services by a vendor, it stands to reason that this phrase is the focus of attention in the de nition of ‘enterprise’. It is the fundamental concept which underpins the VAT system as a whole, as there can be no ‘enterprise’ if no goods or services are supplied. However, any supply of goods or services which is exempt under section 12 is excluded from qualifying as an enterprise activity under proviso (v) to the de nition. In addition to the exclusion of exempt supplies from the concept of an ‘enterprise’, the supply of certain other goods or services may fall entirely outside of the de nition of ‘enterprise’. For example, certain supplies which are not made for a consideration, or the supply of private assets of a vendor which are not associated in any way with the enterprise activities carried on, are not supplies made in the course or furtherance of an enterprise, even if that person is a registered vendor.
The terms ‘supply’, ‘goods’ and ‘services’ are all de ned very widely.‡ This is to ensure that the tax base is as wide as possible so that almost all transactions in the economy (except those purposefully excluded) will be potentially taxable. ‘Goods’ essentially refers to tangible property and rights in tangible property, whereas ‘services’ refers to intangible property and anything which a person does, or anything which is not captured by the de nition of the term ‘goods’. Therefore, in a commercial transaction where something is supplied from one person to another, it will generally constitute the supply of goods or services and will potentially be taxable.§ The supply of ‘money’ when used as a medium of exchange to facilitate the payment of consideration for a transaction is not, in itself, regarded as a supply of goods or services. A cash donation can therefore not be a supply of goods or services for no consideration.
‘to any other person for a consideration, whether or not for pro t’
When considering the phrase ‘...for a consideration...’ as part of the test for an enterprise, the question arises as to how these words are to be interpreted. For example, must they be interpreted narrowly so that each and every supply not made for a consideration is a non-taxable supply? Or is a more general test applied where the activities and supplies made by the person as a whole are considered to establish if some, or all, of those activities qualify as ‘enterprise’ activities?
It is considered that the latter approach is the correct one, but in applying this test, it cannot be concluded that once a person is found to be carrying on an enterprise, that all the activities and supplies automatically become taxable, or that all acquisitions are for enterprise purposes.¶ What is required is that the various types of activities conducted are to be tested against the de nition. If a particular activity meets all the requirements of an enterprise, including that it generally involves making supplies of goods or services for a consideration (whether or not it is a pro table activity), that person will be conducting an enterprise. However, if the person also conducts other non-taxable activities which do not involve the making of supplies for a consideration, to that extent, the person does not carry on an enterprise.
A vendor that distributes free samples of its taxable products for testing or sampling by the general public to promote its taxable supplies, is clearly supplying those samples in the course or furtherance of the enterprise. However, if that same vendor manufactures and distributes free literature to promote a particular faith or belief system, those speci c activities do not constitute taxable supplies as there are no enterprise activities (i.e. taxable supplies made for a consideration) to
* Both of the terms ‘public authority’ and ‘welfare organisation’ are de ned in section 1 (1).
† These will be discussed later in the Note. Refer to 5.2.8 to 5.2.11.
‡ The terms ‘supply’, ‘goods’ and ‘services’ are all de ned in section 1 (1). For the purposes of this Note, it is not
necessary to discuss the meaning of these terms in any further detail.
§ Even a donation (other than cash) or the supply of a promotional product for no consideration may constitute a
supply of goods or services. Similarly, any transaction whereby ownership of goods passes from one person to another is regarded as a ‘sale’ as de ned in section 1 (1).
¶ This view was con rmed in the De Beers case. Refer to paragraphs 35 and 36 of the judgment by the SCA.
452 Juta’s IndIrect tax 2016