Page 510 - Juta's Indirect Tax

BGR 004 (3)
VALUE-ADDED TAX ACT: BINDING GENERAL RULINGS
Binding General Ruling (VAT): No. 4 (Issue 3)
27 March 2015
VALUE-ADDED TAX ACT 89 OF 1991
SECTION 1(1) – DEFINITION OF ‘INPUT TAX’
APPORTIONMENT METHODOLOGY TO BE APPLIED BY A MUNICIPALITY
BGR 004 (3)
DATE: ACT: SECTION: SUBJECT:
Preamble
For the purposes of this ruling–
• ‘BGR’ means a binding general ruling issued under section 89 of the Tax Administration Act No. 28 of 2011;
• ‘municipality’ means any municipality falling within any of the categories of municipalities described in section 155
of the Constitution of the Republic of South Africa, 1996;
• ‘section’ means a section of the VAT Act unless otherwise stated;
• ‘VAT’ means value-added tax;
• ‘VAT Act’ means the Value-Added Tax Act 89 of 1991; and
• any other word or expression bears the meaning ascribed to it in the VAT Act.
1. Purpose
This BGR –
• prescribes the apportionment method, as contemplated in section 17(1), that a municipality must use to determine the
amount of VAT which may be deducted as input tax on any goods or services acquired for a mixed purpose;* and
• replaces and withdraws BGR 4 (Issue 2) dated 25 March 2013 ‘Apportionment Methodology to be Applied by
Category A and B Municipalities’.
2. Background
VAT must be imposed at the standard rate under section 7(1)(a) on supplies made in the course or furtherance of carrying on an enterprise. However, the levying of VAT is subject to certain exemptions and exceptions. Some supplies made by a municipality are subject to VAT at 0% under section 11 (for example, grants, municipal property rates etc), or exempt from VAT under section 12 (for example, the transportation of passengers in a bus, the rental of dwellings etc).
In addition, there are some supplies and some forms of income that fall outside the scope of VAT. This include, for example –
• certain supplies that are not made in the course or furtherance of the municipality’s enterprise such as the sale of assets
on which input tax was denied under section 17(2) or that were used to conduct exempt supplies;† and
• certain income streams such as dividends, statutory nes and penalties that do not constitute consideration for any
supply of goods or services made by the municipality.‡
In this regard the VAT 419 – Guide for Municipalities sets out the application of the VAT Act to, amongst others, supplies made by and to municipalities.
3. The law and its application
The de nition of ‘input tax’ requires the principle of ‘direct attribution’ to be applied. This means that the expense must rst be allocated according to the intended purpose for which the expense is incurred, that is, whether it is related wholly to the making of taxable supplies or wholly to the making of exempt or out-of-scope supplies. Expenses that are incurred partly for the purpose of making taxable supplies must be allocated to a mixed purpose.
The VAT incurred on expenses acquired for a mixed purpose may be deducted as input tax to the extent determined in accordance with an apportionment method as contemplated in section 17(1) (that is, determined in accordance with a ruling contemplated in section 41B or Chapter 7 of the Tax Administration Act, 2011).
4. Ruling
4.1 A Municipality must use the turnover-based method of apportionment to determine the amount of VAT to be deducted as input tax on the acquisition of goods or services for a mixed purpose.
4.2 The apportionment formula (the Formula) which must be applied to determine the amount of input tax contemplated
in 4.1 is as follows:
y = ____a____ × _1_0_0_ a+b+c 1
Where:
‘y’ = the apportionment percentage/ratio;
‘a’ = the value of all taxable supplies (including deemed taxable supplies) made during the period;
* For purposes of this BGR the acquisition of goods or services partly for the purpose of consumption, use or supply in the course of making taxable supplies and partly for another intended use will be referred to as a ‘mixed purpose’.
† These are supplies which are neither taxable nor exempt. They are generally referred to as ‘out-of-scope supplies’. ‡ These income streams are generally referred to as ‘income from non-supplies’.
502 Juta’s IndIrect tax 2016