Page 1141 - SAIT Compendium 2016 Volume2

EXPLANATORY MEMORANDUM ON THE TAXATION LAWS AMENDMENT BILL, 2015
I. Background
Under current law, the de nition of commercial accommodation in section 1 of the Value Added Tax Act (VAT Act) contains a monetary threshold of R60 000. In terms of the de nition, where the annual total receipts from the supply of commercial accommodation exceeds or is reasonably expected to exceed R60 000 in a period of 12 months, then the supplies will be deemed to be that of commercial accommodation. This monetary threshold distinguishes between the supply of a dwelling and the supply of commercial accommodation.
In turn, proviso (ix) to the de nition of enterprise states that where these supplies do not exceed the R60 000 threshold or cannot be reasonably expected to exceed the threshold in any 12 month period, then the supplies will not be deemed to have been made in the course of an enterprise.
II. Reasons for change
The monetary threshold available in the de nition of commercial accommodation is similar to the monetary threshold available in the de nition of enterprise. This creates a misunderstanding in the interaction of the two de nitions. In addition, this monetary threshold was last adjusted in 2003 from R48 000 to R60 0000.
III. Proposal
In order to remove the misunderstanding, it is proposed that the monetary threshold should be contained in one de nition, that is, in proviso (ix) of the de nition of ‘enterprise’ in section 1 of the VAT Act and be removed from the de nition of ‘commercial accommodation’ in section 1 of the VAT Act. In addition, it is proposed that the monetary threshold be adjusted from R60 000 to R120 000.
IV. Effective date
The proposed amendments will come into operation on 1 April 2016.
6.2 ZERO RATING: GOODS DELIVERED BY A CARTAGE CONTRACTOR
[Applicable provision: Section 11(1)(m)(ii)]
I. Background
The South African Value Added Tax (VAT) system is destination based, which means that only the consumption of goods and services in the Republic is taxed at the standard rate. VAT is therefore levied at the standard rate on the supply of goods or services in the Republic as well as on the importation of goods into the Republic unless an exemption or exception applies. Subject to certain requirements, VAT may be levied at the zero rate. Based on the above, the supply of movable goods in terms of a sale or instalment credit agreement to a customs controlled area enterprise or an Industrial Development Zone (IDZ) operator is subject to VAT at the zero rate, subject to, amongst others, the goods being delivered by a registered cartage contractor whose ‘main activity’ is that of transporting of goods.
II. Reasons for change
SARS Interpretation Note 30 (Issue 3) provides for the requirements that need to be adhered to and prescribes the documentary proof that must be obtained and retained by a vendor in order to levy VAT at the zero rate on a supply of movable goods under a sale or instalment credit agreement where those goods are consigned or delivered to a recipient at an address in an export country. According to the Interpretation Note, the term ‘cartage contractor’ is de ned as a person whose ‘activities include’ the transportation of goods. This has a wider application than the VAT Act’s current requirement. In addition, the Act requires that a cartage contractor be registered for VAT but the SARS Interpretation Note 30 (Issue 3) does not have this requirement.
III. Proposal
In order to align the VAT Act with the SARS Interpretation Note 30 (Issue 3), it is proposed that the word ‘main activity’ in section 11(1)(m)(ii) be changed to ‘activities include’ to allow for the zero rating of goods delivered by a registered contractor whose activities include that of transportation of goods. Further section 11(1)(m)(ii) of the VAT Act will be amended to remove the requirement for the cartage contractor to be registered for VAT.
IV. Effective date
The proposed amendments will come into operation from 1 April 2016.
6.3 ZERO RATING OF SERVICES: VOCATIONAL TRAINING
[Applicable provision: Section 11(2)(r)]
I. Background
Currently, the VAT system makes provision for zero rating of vocational training of employees in South Africa if certain requirements are met. These requirements include, inter alia, that the vocational training must be provided to an employee of a non-resident employer, the non- resident employer must have its place of business outside the Republic, and the non-resident employer must not be registered as vendor in terms of the VAT Act. Although the training occurs in South Africa, the services are only consumed once the employee utilises the newly acquired skills at the employer’s place of business outside South Africa.
II. Reasons for change
One of the requirements for zero rating of vocational training in section 11(2)(r) is that such training must be supplied to employees in respect of an employer who is not resident in South Africa. The words ‘for an employer who is not resident’ implies that for zero rating to apply, a contractual relationship must exist between the person supplying the vocational training services and the employer. As a result, this section does not cater for a situation where the vocational training is subcontracted by a non-resident supplier to a third party vendor in South Africa.
SAIT CompendIum oF TAx LegISLATIon VoLume 2 1133