Declaring zero-rated supplies on your Vat return is an immediate trigger for a SARS Vat audit
If you deal with:
- Direct exports;
- Petroleum, diesel or illuminating paraffin
- Goods temporarily admitted into South Africa; and
- Foreign goods or services…
Who does this change in concession affect?
Before we discuss the change, let's first look at who it affects:
1. Suppliers of certain agricultural goods; and
2. Buyers of these goods.
Let's look at these in detail.
1. If you supply goods to farmers, you should've been zero rating certain goods selected buyers use or consume for agricultural, pastoral or other farming purposes, at the zero rate (Section 11(1)(g) of the Vat Law)
These goods include:
Animal remedy – e.g. medicines;
Plants – e.g. as is used for cultivation; and/or
2. And if the buyer:
Is a registered vendor;
Carries on agricultural, pastoral or other farming operations; and
Is authorised by SARS to buy the goods at the zero rate (this authorisation would be in the form of an additional paragraph on the vendors VAT 103 notice of registration);
He's been able to buy the above goods at the zero rate.
This change in concession affects both of you!
SARS gave this concession for farmers to buy goods at the zero rate, so as to give cash flow relief to the agricultural sector. This is because many farmers give in Vat returns covering a six month period – which is quite a while to wait for your input tax!
But as a farmer, or a supplier, this concession is about to change. Read on to find out how it impacts you…
The Vat Act allows Vat vendors to supply certain goods at the zero-rate.
But for each of these goods, you must collect specific documentation, to prove to SARS why you zero-rated the supply of these goods. In fact, without these documents, SARS might find you guilty of evading tax!
The list of documents varies from one supply to the next! And seeing as SARS has just updated the rules around this, you better get your ducks in a row.
Vendors have been abusing the system, so SARS is changing it
SARS claims it has evidence this zero rating provision is open to abuse. This is because various entities (i.e. those with and without endorsement to buy goods at the zero rate) have entered into fraudulent activities. Let me explain by way of an example.
Mr S Elm, who's not a farmer, wants to buy seeds for his garden.
His cousin, Mr K Elm is a Vat registered farmer who's entitled to buy seeds at the zero rate.
As the cousins both have the same surname, Mr S Elm makes a copy of his cousin's SARS notice which entitles him to purchase goods at the zero rate. He goes along to the nursery and fraudulently buys the seeds at the zero rate of Vat!
So SARS has removed this concession from the Vat Law. But, this is only effective from the date the Minister of Finance will give by notice in the Gazette.
And he can only publish the notice at least 12 months after the amendment Act, which was 15 January 2015. So, presumably, the change might be effective from February 2016. We'll keep you posted.
Did you know if you charge a supply at the zero rate and it should've been standard-rated, SARS will expect that Vat from you? Don't make that mistake. Attend the Vat Masterclass
where I have a whole section dedicated to discussing the ins and outs of zero rated supplies. Book your seat here…