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South Africa: National Budget Speech, 2023 – Review of the VAT administrative framework

22 February 2023
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Planned review of the VAT administrative framework

  • SARS intends to review the VAT administrative framework to simplify and modernise the current system, in consultation with all affected parties.
  • In line with SARS’ strategic objective of providing clarity and certainty through instruments such as advance rulings, government also proposes to introduce a legislative framework to empower SARS to conclude bilateral advance pricing agreements.

Reviewing the VAT treatment of specific supplies in the short-term insurance industry

  • Binding General Ruling 14 (BGR 14) deals with the VAT treatment of specific supplies in the short-term insurance industry. BGR 14 has been updated several times since its publication in 2013.
  • Treasury proposes amendments to the VAT Act to clarify the VAT treatment of specific supplies in the short-term insurance industry.

Clarifying the VAT treatment of prepaid vouchers in the telecommunications industry

  • The evolution of the mobile telecommunications industry in South Africa has made it possible for prepaid vouchers to also be used not only for the purchase of airtime and messages supplied by the network issuing the voucher, but also for other services provided by third parties, where the mobile telecommunication company acts as an agent of that third party – for example, data offerings and mobile money services.
  • The VAT Act does not provide clarity in instances where prepaid vouchers are used for services provided by a third party, the mobile telecommunication company is acting as an agent and/or those third-party services are regarded as exempt supplies or non-taxable supply in the VAT Act.
  • This was the main issue in the matter of Mobile Telephone Networks (Pty) Ltd v Commissioner for the South African Revenue Service (805/2021) [2022] ZASCA 142, where the Supreme Court of Appeal (SCA) recently ruled in SARS’ favour on the timing of the associated VAT liability. The SCA confirmed the High Court’s decision that MTN’s prepaid vouchers fall into section 10(19) of the VAT Act, so that VAT must be levied on the sale of the voucher, and not at the time when the voucher is subsequently redeemed for the specified goods or services.
  • It is proposed that changes be made to the VAT Act to provide further clarity in this regard.

Clarifying VAT Rules regarding documentary requirements for gold exports

Goods exported to clients in an export country (any country outside of the Republic) may be charged with VAT at 0%. This is subject to various documentary requirements being met.

Gold refineries in South Africa refine and smelt gold or ore received from various customers, namely depositors. Very often, the refineries also act as agents and therefore sell and export the gold on behalf of these  depositors. Gold from more than one depositor is typically required to make up the volume ordered for sale or export. After the refining or smelting, it is difficult to determine which depositor’s gold is sold or exported because the gold loses its original identity during refinery and smelting.

As a result, depositors find it difficult to obtain the documentary evidence to support the application of the zero rate on a transaction-by-transaction basis in relation to their gold as contemplated in the regulations issued in terms of section 74(1) of the VAT Act read with paragraph (d) of the definition of “exported” in section 1(1). To address this, it is proposed that changes be made to the VAT Act.

Regulations on the domestic reverse charge relating to valuable metals

Effective from 1 July 2022, government introduced a domestic reverse charge aimed at foreclosing schemes and malpractices to claim undue VAT refunds from SARS by vendors operating in the value chain relating to high-risk gold containing material, which includes secondary gold sources as well as certain mine dumps.

These regulations allowed vendors a transitional period of one month – from 1 July 2022 to 1 August 2022 – to comply with the requirements. This implied that registered vendors must account for and pay VAT for transactions falling within the ambit of the regulations in the August 2022 tax period. Further clarification is required to these regulations, specifically with regards to certain areas, such as:

  • The definition of “residue”
  • The definition of “valuable metal”
  • The exclusions to the definition of “valuable metal”
  • The introduction of a de minimus rule in the definition of “valuable metal”
  • Aligning the definition of “valuable metal” with the definition per the Precious Metal Act (2005)
  • Refining the transitional measures