{"id":784867,"date":"2024-07-30T12:00:00","date_gmt":"2024-07-30T10:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=784867"},"modified":"2024-07-30T11:24:09","modified_gmt":"2024-07-30T09:24:09","slug":"big-vat-and-tax-changes-for-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/784867\/big-vat-and-tax-changes-for-south-africa\/","title":{"rendered":"Big VAT and tax changes for South Africa"},"content":{"rendered":"\n

There are big changes in the cards in South Africa related to value-added tax (VAT) and how local businesses with global operations are treated from a tax perspective.<\/p>\n\n\n\n

President Cyril Ramaphosa announced planned changes to South Africa’s current value-added tax regime during his opening of parliament address.<\/p>\n\n\n\n

Ramaphosa said the Government of National Unity will look to expand the basket of essential food items exempt from VAT.<\/p>\n\n\n\n

Although he did not provide details on which products would be added to the basket, there is a strong drive to make protein-rich products like chicken VAT-exempt.<\/p>\n\n\n\n

This week, the South African Poultry Association (SAPA) urged the government to include chicken in the basket of essential food items exempt from VAT.<\/p>\n\n\n\n

SAPA said chicken is South Africa\u2019s most popular and affordable meat source, and making it VAT-exempt will help poorer households.<\/p>\n\n\n\n

The association said South Africa\u2019s chicken producers are doing everything in their power to keep chicken prices down.<\/p>\n\n\n\n

Removing the 15% VAT from the chicken portions, which are most consumed by poor households, would bring immediate price relief.<\/p>\n\n\n\n

This is only the start of the expected VAT changes. PwC has also flagged potential changes to VAT levied on cross-border electronic services.<\/p>\n\n\n\n

PwC\u2019s monthly synopsis of developments in the local tax arena added that there could be changes to foreign donor-funded projects and the period when tax deductions can be granted.<\/p>\n\n\n\n

The National Treasury\u2019s Tax Matters and Revenue Laws section of the Budget, released in February, outlined these VAT proposals for further study in collaboration with SARS.<\/p>\n\n\n\n

\u201cThis year\u2019s VAT proposals for further consideration are significant and can have far-reaching implications,\u201d PwC said.<\/p>\n\n\n\n

The financial services firm warned that if these proposals become law, they will have a meaningful impact on businesses.<\/p>\n\n\n\n

VAT collection for cross-border electronic services<\/strong><\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

South Africa\u2019s 2024 Budget proposed simplifying VAT administration by limiting collection to direct-to-consumer (B2C) sales.<\/p>\n\n\n\n

It reversed the 2019 policy and raised concerns about the fairness of this change for businesses previously required to register for B2B transactions.<\/p>\n\n\n\n

VAT collection for cross-border electronic services starting on 1 April 2014, prompted by the growth in eCommerce in South Africa.<\/p>\n\n\n\n

Many companies, such as Microsoft, Google, Steam, and Spotify, offer subscription services to South African consumers.<\/p>\n\n\n\n

Before 2014, South Africans did not pay value-added tax on these services. This disadvantaged local companies and reduced the country’s tax revenue.<\/p>\n\n\n\n

This changed when the eCommerce VAT regulations shifted the onus of collecting and paying VAT from the South African purchaser to the foreign supplier.<\/p>\n\n\n\n

Foreign eCommerce suppliers had to register as VAT vendors in South Africa by 1 June 2014 to offer services in South Africa.<\/p>\n\n\n\n

The change in 2014 targeted educational services, gaming, Internet-based auction services, the sale of e-books, movies, music, and images, and subscriptions.<\/p>\n\n\n\n

In April 2019, South Africa expanded its VAT scope to include a broader range of foreign electronic service providers, including business-to-business (B2B) services.<\/p>\n\n\n\n

However, this expansion exceeded international guidelines to maximise VAT collection on B2B and B2C services.<\/p>\n\n\n\n

The latest budget proposal limits collection to direct-to-consumer (B2C) sales. It relaxes the requirements related to business-to-business (B2B) sales.<\/p>\n\n\n\n

Changes to the tax period for permissible input tax deductions<\/strong><\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

South Africa\u2019s VAT system allows vendors to recoup VAT paid on business purchases through input tax deductions, reducing businesses’ VAT burden.<\/p>\n\n\n\n

To recoup VAT, the business must buy goods or services used for taxable supplies and have proper documentation.<\/p>\n\n\n\n

Ideally, deductions should be claimed in the same tax period as the supply. However, a five-year grace period exists if documentation is delayed.<\/p>\n\n\n\n

The grace period is aimed at helping South African businesses to manage their VAT obligations and cash flow.<\/p>\n\n\n\n

The 2024 Budget proposal seeks to limit this flexibility by requiring deductions made in the original tax period. It simplifies tax administration but raises practical concerns.<\/p>\n\n\n\n

Businesses may face challenges with non-compliant invoices or the need for multiple adjustments.<\/p>\n\n\n\n

Another concern is that SARS\u2019s current eFiling system might struggle to adapt to these changes.<\/p>\n\n\n\n

A review of the VAT treatment of foreign donor-funded projects<\/strong><\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

A more technical change is how Foreign Donor Funded Projects (FDFPs) projects are treated under South Africa\u2019s VAT regime.<\/p>\n\n\n\n

South Africa\u2019s VAT treatment for Foreign Donor Funded Projects (FDFPs) is designed to refund VAT on project expenses.<\/p>\n\n\n\n

However, implementing agencies face challenges due to changes related to VAT introduced in 2020.<\/p>\n\n\n\n

These challenges include lengthy approval processes, complex procedures, and administrative burdens that deter foreign donors.<\/p>\n\n\n\n

The need for tax experts increases costs, and frequent changes and inconsistent application of the legislation create uncertainty.<\/p>\n\n\n\n

These issues undermine the legislation\u2019s intended benefits and may discourage foreign aid flowing into the country.<\/p>\n\n\n\n

The National Treasury proposed simplifying the VAT registration process for Foreign Donor Funded Projects to address this.<\/p>\n\n\n\n

They want to allow agencies to register all their FDFPs under a single VAT number, reducing administrative complexity.<\/p>\n\n\n\n

Companies with global operations under the spotlight<\/strong><\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

PwC\u2019s tax experts warned that the National Treasury might change the country\u2019s tax laws after Coronation\u2019s victory over SARS at the Constitutional Court.<\/p>\n\n\n\n

In June, the Constitutional Court ruled in favour of Coronation in its legal battle against SARS regarding the profits earned by its Irish-based subsidiary.<\/p>\n\n\n\n

SARS had argued that fund management formed the primary operations of Coronation\u2019s subsidiary.<\/p>\n\n\n\n

The fund management occurred in South Africa, while investment management was outsourced to Ireland.<\/p>\n\n\n\n

This interpretation would result in the company paying tax on the net income of its Irish subsidiary to SARS.<\/p>\n\n\n\n

The Constitutional Court disagreed with SARS and said the Irish subsidiary\u2019s licence only permitted fund management, not investment management.<\/p>\n\n\n\n

Thus, Coronation\u2019s interpretation was correct, and its net income was exempt. Therefore, SARS could not claim tax from Coronation\u2019s Irish-based subsidiary.<\/p>\n\n\n\n

The National Treasury indicated it would amend the definition of a foreign business establishment (FBE) if the Constitutional Court\u2019s decision deemed it necessary.<\/p>\n\n\n\n

It said the government would aim to clarify that all important company functions must be performed within the same jurisdiction for the FBE exemption to apply.<\/p>\n\n\n\n

\n\n\n\n

Read: Calls to scrap tax and VAT on two items in South Africa<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

The National Treasury is considering VAT adjustments and intends to review how local businesses with global operations are treated. <\/p>\n","protected":false},"author":10,"featured_media":698449,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9872],"tags":[1293,20318,2407,7438],"class_list":["post-784867","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-cyril-ramaphosa","tag-ecommerce-vat-regulations","tag-pwc","tag-vat"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/784867","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=784867"}],"version-history":[{"count":3,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/784867\/revisions"}],"predecessor-version":[{"id":784888,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/784867\/revisions\/784888"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/698449"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=784867"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=784867"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=784867"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}