Ruan Jooste
Johannesburg - Before cracking open the champagne bottles to celebrate reaching sale targets, new and smaller enterprises must realise that reaching the R300 000 per annum sales mark means a host of new tax responsibilities.
Value-added tax (VAT) is levied on the supply of goods and services by registered vendors throughout a business cycle at a standard rate of 14%. VAT is also levied on the importation of goods as well as on the supply of imported services into the Republic. VAT should also be levied on an inclusive basis, which means that it has to be included in all prices on products, price lists, advertisements and quotations.
An omitted range of goods and services are exempt and certain other goods and services carry a special rate of 0% VAT. An exemption implies that a supplier does not levy VAT on those exempt supplies but must bear VAT on purchases incurred in making such supplies.
This includes passenger transport, the rental of residential accommodation and educational services. Zero-rating implies that VAT at 0% is levied on supplies made by a vendor and VAT incurred for purposes of making those supplies is claimable as input tax.
Zero rated goods include mostly food products such as brown bread, rice and maize, but also include resources like petrol, diesel and illuminating paraffin. Zero rated services include international transport, payments made by and public authorities to welfare organisations and services supplied outside South Africa.
Zero-rated goods
At the end of each VAT period (usually the 25th of each month), businesses are required to pay the South African Revenue Service (SARS) the difference between VAT collected (output tax) and VAT disbursed (input tax), taking into a account exempt and zero-rated goods and services.
While all this might sound like just another administrative burden, being registered allows one to claim back VAT on business purchases.
For this reason, many businesses that spend a lot on goods and services that carry VAT choose to voluntarily register for VAT. To be able to do so, one's annual turnover should exceed R20 000 but need not be as high as R300 000. The Receiver may grant you a VAT number under these circumstances, but is subject to conditions.
"One of these conditions is that proper accounting records need to be kept in relation to the business carried on. To take full advantage of such a VAT registration, taxpayers should ensure they claim back the VAT on all expenses allowed under the VAT Act," says Geraldine Connell, director from Deloitte.
"Some typical examples of expenses that some taxpayers miss include travel, bank charges, subscriptions and settlement discounts."
Tourists can reclaim VAT
VAT borne by foreign tourists may be refunded by the VAT Refund Administrator (VRA) upon departure from South Africa. The tourist must be in possession of a valid tax invoice and have the goods available for inspection upon departure. An administration fee of 1.5% of the VAT inclusive amount of the claim, subject to a minimum of R10 and a maximum of R250, will be levied by the VRA for processing the refund.
The law dictates that it is compulsory to register for VAT within 21 days of one's annual business turnover exceeding R300 000, or when you reasonably expect it to do so.
"Failure to register on time could end up being very costly for a business as it will be held responsible for the VAT that should have been paid from the date you should have registered, regardless of whether or not VAT has been charged to customers. Business owners could also be liable for penalties and interest on late payments," says Connell.
To register business owners should obtain a VAT101 form from the SARS or at any SARS office and submit it, together with stated documents. "It will take approximately 10 working days to issue a VAT number," says Geraldine Connell, "and taxpayers should bear in mind that the process will take longer, if documentation is incorrect or incomplete.
"SARS will notify you of your VAT number once your application is successful."
Kickbacks
Connell says that if registration is delayed, vendors can continue business by marking up their price by 14%, but not attributing this mark-up to VAT until registered. "Once they have received their VAT registration number, the vendor is obliged to issue a tax invoice which can specify that the additional 14% was in fact VAT," she says.
According to SARS' website applications will also be unsuccessful if applicants have no fixed place of residence or business in SA, don't have a local bank account, not performed the required duties when persons were previously registered under VAT or General Sales Tax (GST) laws and have not met the minimum threshold requirement of R20 000 turnover for the past 12 months.
A lot of responsibility has been placed on local business people, but SARS has tried to make it worthwhile in the form of refunds kickbacks and it can become very expensive not to be a team player.
- Fin24