Page 511 - Juta's Indirect Tax

BGR 004 (3) VALUE-ADDED TAX ACT: BINDING GENERAL RULINGS BGR 004 (3)
‘b’ = the value of all exempt supplies made during the period, excluding interest earned on funds for day-to-day operations held in for example a current account at a bank; and
‘c’ = the sum of any other amounts not included in ‘a’ or ‘b’ in the formula, that were received or accrued during the period (whether for a supply or not, for example, income received for out-of-scope supplies).
Notes:
1. The term ‘value’ excludes any VAT component.
2. In the Formula, ‘c will typically include, but is not limited to, items such as statutory nes, penalties, dividends
etc. However, traf c nes are only included in ‘c’ to the extent that payment has actually been received by the
municipality.
3. Exclude from the calculation the value of any capital goods or services supplied, unless supplied under a rental
agreement* (that is, not an instalment credit agreement†).
4. Exclude from the calculation the value of any goods or services supplied where input tax on those goods or
services was speci cally denied under section 17(2).
5. The apportionment percentage should be rounded off to 2 decimal places.
6. Where the Formula yields a result equal to 95% or more, the full amount of VAT incurred for a mixed purpose
may be deducted (the de minimis rule).
4.3 The following requirements and conditions apply in determining the amounts to be included in the Formula:
4.3.1 A grant that is received partly for taxable purposes and partly for non-taxable purposes must be attributed accordingly. For example, if 70% of a grant is for subsidising the taxable supply of water and electricity to customers and 30% is for subsidising the municipality’s exempt public transport business, the grant amount will have to be split into its respective taxable and non-taxable components in accordance with section 10(22). In this example, 70% of the grant amount will be subject to VAT at the zero rate and will be included in ‘a’ in the Formula. The remaining 30% of the grant will be applied for exempt purposes and will be included in ‘b’
in the Formula.
4.3.2 Notwithstanding any permission which may have been granted by the Commissioner to allow a municipality to
account for VAT on the payments basis under section 15(2)(a)(v), the amounts to be included in ‘a’, ‘b’ and ‘c’ in the Formula for each tax period and for the annual adjustment contemplated in 4.3.3 are to be calculated on the invoice basis and in accordance with the principles set out in the Accounting Standards Board’s Standard of Generally Recognised Accounting Practice (GRAP) on Revenue from Non-exchange Transactions (Taxes and Transfers), commonly referred to as GRAP 23. In terms of GRAP 23, income from government grants and subsidies is only recognised when the conditions (if any) are met. Grant income will therefore only be included in the Formula to the extent that such funds are re ected in the income statement of the municipality for the nancial year concerned.
4.3.3 Although the apportionment percentage is applied in each tax period, for practical purposes, a municipality may calculate the percentage based on the previous year’s nancial statements. The percentage so calculated must then be applied in every tax period throughout the new nancial year as an estimate. The apportionment percentage that was used as an estimate must be re-calculated in accordance with the municipality’s audited nancial statements and the necessary VAT adjustment made within six months after the municipality’s nancial year-end.
4.3.4 A municipality that is unable to perform the re-calculation and adjustment within the six-month period referred to in 4.3.3 must approach the Commissioner and request an extension by submitting a VAT ruling application by e-mail to VATRulings@sars.gov.za or by facsimile to 086 540 9390. All ruling applications made under section 41B must comply with section 79 of the Tax Administration Act, 2011, excluding section 79(4)(f) and (k) and (6).
4.3.5 The formal assignment of functions by national or provincial government falls within the ambit of the ‘enterprise’ activities carried on by a municipality, provided the activity does not fall within the ambit of section 12. Any consideration charged, must be included in ‘a’ in the Formula. Any payment received as a result of the national or provincial government providing nancial assistance to enable the municipality to carry out the formally assigned activity is regarded as a ‘grant’ as de ned and must be included in ‘a’ in the Formula.
4.3.6 The activities for which a municipality is appointed as agent by provincial government do not fall within the ambit of the enterprise carried on by the municipality. Only the amount charged for the taxable supply of such agency service to provincial government must be included in ‘a’ in the Formula.
4.4 The VAT incurred and paid for directly on the supply of goods or services associated with provincial government mandates, referred to as ‘unfunded mandates’, is regarded as being incurred in the course or furtherance of the municipality’s enterprise, provided the provincial government mandated activity is not exempt under section 12. The VAT may be deducted in full when the expenses concerned are incurred wholly for purposes of use, consumption or supply in the course of making taxable supplies. Alternatively, the VAT may be deducted in part in accordance with the Formula if the expenses concerned are incurred for mixed purposes.
4.5 The deduction of input tax in all cases is subject to the documentary and other requirements set out in sections 16(2), 16(3), 17 and 20 being met.
4.6 The Commissioner may, on written application, consider the exclusion of extraordinary income‡ which may create a distortion in the Formula. The written application for a VAT ruling under section 41B must be submitted to the centralised e-mail address or facsimile number referred to in 4.3.4.
* Refer to the de nition of ‘rental agreement’ in section 1(1).
† Refer to the definition of ‘instalment credit agreement’ in section 1(1).
‡ This would generally be non-recurring income due to exceptional circumstances.
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