Industry updates | August 2023
Please take note of the following industry updates that may be relevant to you and your business.
COMPLIANCE AND ADMINISTRATION
Due dates for reporting and payments- August 2023:
1. 2023 Tax Season
Tax season for the 2023 (March 2022 to February 2023) tax year kicked off on the 7th of July.
Non- provisional taxpayers are required to submit their tax returns to SARS between the 7th of July and the 24th of October 2023.
Provisional taxpayers are required to submit their tax returns to SARS between the 7th of July and the 24th of January 2024.
To taxpayers receiving auto assessments from SARS, please ensure the accuracy of the information pre-populated on your assessment/ IT12.
2. Potential challenges may be experienced with the Home Affairs interface
SARS announced the roll out of the first phase of the Department of Home Affairs interface project wherein SARS would be able to positively confirm a taxpayer’s marital status and whether they are married in or out of community of property. Where a taxpayer is married in community of property, the interest income received for the 2023 year of assessment would be pre-populated on both spouses’ income tax returns and appropriated 50/50 per spouse upon assessment. All other passive income would still need to be manually declared by both spouses and would be split 50/50 upon assessment.
There are some potential challenges that have been identified which may cause some problems for both taxpayers and SARS.
2.1. Change in marital status during the year of assessment: Where a taxpayer was married or divorced during the year of assessment, the communal income would need to be apportioned between the period the taxpayer was married in community of property and when the taxpayer was not married. Evidently, the interest income currently pre-populated in the 2023 income tax returns does not take into account any apportionments and assumes that the taxpayer has been married in community of property for the full year of assessment.
2.2 Correction of return if the marriage was incorrectly registered with Home Affairs: There have been instances where a taxpayer is married out of community of property and is in possession of a valid antenuptial contract, however, the information provided by the Department of Home
3. Provisional Tax returns (IRP6)
The first provisional tax returns for the 2024 tax year for all individuals as well as companies with a February year end are due to SARS by the 31st of August.
4. VAT
Value-Added Tax (VAT) is a type of consumption tax that is charged on the value added to goods and services at each stage of production and distribution. South Africa’s VAT system was introduced in 1991 and is administered by the South African Revenue Service (SARS). Currently, the standard rate of VAT is 15%, which is levied on most goods and services in the country. However, some goods and services are exempt from VAT or subject to a zero rate. This article explores the various supplies, the VAT registration process, and must-knows of VAT audits.
Exempt Supplies (Section 12)
Exempt supplies are goods and services that are not subject to VAT. This means that VAT cannot be charged on the supply of these goods and services, and the supplier cannot claim back any VAT incurred on their production or distribution.
Some examples of exempt supplies in South Africa include:
Financial services, such as banking, insurance, and investment management;
Educational services provided by a school, college, or university;
Healthcare services provided by a registered healthcare professional; and
Public transport services provided by a licensed operator.
Zero-Rated Supplies (Section 11(1))
Zero-rated supplies are goods and services that are subject to VAT at a rate of 0%. This means that the supplier can claim back any VAT incurred on their production or distribution, but they do not need to charge VAT on the supply of these goods and services.
Some examples of zero-rated supplies in South Africa include:
Exports of goods and services;
Some basic food items, such as brown bread, maize meal, and dried beans; and
The sale of gold coins issued by the South African Reserve Bank.
More often than not, vendors who supply zero-rated goods and services find themselves in a net refund position because of their ability to claim VAT inputs without charging any VAT on their supplies.
VAT Input Tax
VAT input tax is the VAT that a business pays on their purchases of goods and services that are used to make taxable supplies. Businesses can claim back this VAT as a credit against the VAT they owe to SARS on their taxable supplies. However, businesses can only claim back input tax on goods and services that are used for business purposes – if a business purchases goods or services for personal use, they cannot claim back the VAT.
VAT Registration
In South Africa, businesses that make taxable supplies of more than R1 million per year are required to register for VAT. There are also some businesses that are required to register for VAT even if their turnover is less than R1 million. These include:
Businesses that provide electronic services to customers in South Africa, regardless of their turnover
Businesses that import goods into South Africa, regardless of their turnover
Businesses that are part of a group of companies that has a total turnover of more than R1 million
Once a business is registered for VAT, they are required to charge VAT on their taxable supplies and issue tax invoices to their customers. They are also required to submit VAT returns to SARS on a regular basis (usually every two months) and pay any VAT owing to SARS.
The registration process is as follows:
All new applications for VAT registration will be subjected to a more stringent registration process; • Based on a set of risk rules, either a VAT registration number will be issued, or SARS will issue a letter requesting supporting documents required for the validation of the registration;
If, upon submission of the requested supporting documents, the risks identified were not mitigated, the applicant will be required to present themself (in person) to the SARS branch, closest to where the business enterprise is located;
A physical visit to the business enterprise may in exceptional circumstances be required;
Tax practitioners with the necessary power of attorney (POA) can virtually represent the taxpayer if the taxpayer is already registered for a tax product on the tax practitioner’s eFiling profile and the tax practitioner has intimate knowledge of the business; and
VAT registration will only be effected when SARS is satisfied that the application is lawful
VAT Audits
SARS conducts regular audits of businesses to ensure that they are complying with VAT regulations. During a VAT audit, SARS will review a business’s financial records to ensure that they are calculating and paying the correct amount of VAT, and that they are issuing tax invoices and complying with other VAT requirements. If SARS finds that a business has not complied with VAT regulations, they may impose penalties and interest on any unpaid VAT and may also initiate criminal proceedings in serious cases of non-compliance (section 59 and section 60).
Conclusion
In conclusion, VAT is an important source of revenue for the South African government, which brought in over R440 billion in revenue for the 2021/22 fiscal year. It is no wonder that SARS would have such stringent registration and audit rules for VAT in place. These, and other considerations, such as VAT on imports and electronic services, make the South African VAT system complex. It is therefore always advisable to get in touch with a VAT specialist to help navigate these murky waters.
- Domonique Ramos | 07 August 2023