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Comments from Lesley O’Connell (PwC Indirect Tax Partner), Charles de Wet (Head of Indirect Tax, PwC), and Herman Fourie (PwC Indirect Tax Partner)

Review of the definition of “group of companies” for electronic services regulations

It is disappointing that the final Electronic Services Regulations have not as yet been published. The first draft of these Regulations was published a year ago with the release of the 2018 Budget.  Non resident companies supplying electronic services into South Africa require certainty in order to make the required amendments to their ERP systems. Such system changes may take a minimum of 4-6 weeks resulting in involuntary non-compliance for non-resident suppliers.  

The proposed amendment seeks to amend the “group of companies” definition to broaden the ambit of the exclusion.  

No amendment is proposed to “telecommunication services” as referenced in the draft Regulations.

Aligning provisions of the VAT Act with the Insurance Act

Due to the promulgation of the Insurance Act in 2018, it is proposed that certain definitions referenced in the VAT Act will be revised to ensure alignment. In addition, it will be clarified that the transfer of a long-term reinsurance policy is an exempt financial service.  

Refining the VAT corporate reorganisation rules
 
The VAT Act provides relief for companies in the same group by treating the supplier and the recipient of goods or services as the same person during corporate reorganisation transactions.

It is proposed that the VAT Act be amended to clarify the transfer of fixed property in these instances where the fixed property is not transferred as a going concern.

VAT treatment of rental stock paid in terms of the National Housing Programme - section 8(23) read with section 11(2)(s)
 
The VAT Act provides that a vendor (such as a municipality) is deemed to supply services to any public authority (for example, the Department of Human Settlements) if the vendor is paid or makes a payment in line with the National Housing Programme outlined in the Housing Act (1997).  A result is that the municipality is regarded as making a zero rated supply to the public authority, despite the fact that the costs were incurred to build rental stock (which is an exempt supply). VAT in this instance is therefore not a cost to the municipality. This appears to be contrary to the normal principal of input tax. The proposal is unclear as to what is the intention of National Treasury, i.e. insert legislation that permits this deduction or require the municipality to effect an output tax adjustment, that is, to recoup input tax deducted on the construction of the rental stock.

Review of Commissioner’s discretion

It is proposed that a constitutional review of section 72 be conducted.  Section 72 provides the Commissioner with a discretion to alleviate the burden of complying with the normal provisions of the VAT Act in cases where “difficulties, anomalies or incongruities” arise due to the manner in which a particular vendor / class of vendors conduct(s) its business.

In recent years, the Commissioner has in very limited instances exercised his discretion, despite the requirements of the section being met.  The original policy intent to provide the Commissioner with a discretion to assist vendors in certain limited instances should not be forgotten.

Refining the VAT treatment of foreign donor-funded projects

The VAT Act provides relief for foreign donor-funded projects if they meet specified criteria.  The criteria and the type of projects which qualify are unclear, especially in cases where the project is sub-contracted.  It is proposed that these provisions be amended to clarify the policy intention.

Customs and Excise

Excise duties on tobacco and alcohol products to increase between 7. 4 and 9 per cent from 1 April 2019.

General fuel levy increases by 15 cents per litre and road accident fund levy increases by 5 cents per litre on 3 April 2019.

A carbon fuel levy at 9 cents per litre on petrol and 10 cents per litre on diesel will be introduced with effect from 5 June 2019.

Carbon Tax

The carbon tax will be implemented on 1 June 2019.

Increase in health promotion levy

The levy rate will increase to 2.21 cents per gram in excess of 4 grams of sugar per 100ml from 1 April 2019.

SARS publication of the excise rewrite discussion document

SARS has compiled an excise rewrite discussion document that will be published for public comment as part of redrafting the excise duty legislative framework.

Additional proposed amendments

Reviewing the tax treatment of duty-free shops;

Excluding bulk wine movements from the compulsory tariff determination requirement;

Extending the fiscal marking, tracking and tracing intervention to include excise and levy goods; and

Progress with the review of the diesel refund administration: The design of the new standalone diesel refund administration will be outlined in draft rules and notes that will be developed and published for public comment during the course of the year.

Ad valorem proposals to consistently apply and extend current items

Expanding the computer category: It is proposed that the computer category be expanded to include any apparatus with a screen larger than 45 cm;

Expanding the gaming category: It is proposed that the provisions be amended to include any external screen or surface on which gaming console images can be reproduced; and

Government will review provisions relating to duty rebates and refunds in circumstances of vis major (an unpreventable incident caused by a superior external force) in the Customs and Excise Act and its schedules to align them with international best practice.  Consideration must also be given to relief from the imposition of VAT due.

Ad valorem excise duty on motor vehicles

Because of the way ad valorem excise duty is calculated, vehicles produced locally are taxed at a higher rate than imported vehicles. To remove this anomaly, government proposes to align the tax treatment.

RAF levy diesel refunds

The farming, forestry and mining industries are refunded levies paid when they buy diesel. This refund is intended to offset the RAF levy these users pay. However, these diesel users still receive benefits from the RAF if they experience accidents involving motor vehicles, even if the accident is off- road. It is proposed that the RAF levy diesel refund benefit for these primary production industries be limited to ensure that diesel users in these sectors equitably contribute towards their RAF indemnity.

Issued by PwC