VAT Registration

The recently published Taxation Laws Amendment Bill, 2013 (“TLAB”), shows a compromise by Government aimed on the one hand at allowing the free flow of commerce but on the other hand at blocking abuse of the VAT system. New legislation (to be effective 1 January 2014) will amend VAT registration as follows:

Compulsory registration

This caters for the normal VAT registration where a vendor makes more than R1 million taxable supplies in a twelve month period – this criterion remains. Up to now vendors who expect to make R1 million in taxable supplies were also obliged to register. This has been amended to vendors who have a contractual written obligation to make R1 million supplies in the next 12 months. In essence, SARS have added certainty into compulsory registration and this will materially reduce workload for SARS, reduce disputes with taxpayers and speed up the registration process. 

Traditional Registration

Organisations like municipalities and non-governmental organisations may still continue to register for VAT. SARS have added to this category businesses which have incurred R5 million in expenditure (for example mines which often have large upfront capital expenditure) in the previous 12 months. Refunds for expenditure incurred will be given to this category and no threshold tests will be required by SARS. 

Voluntary registration

SARS intends scrapping the section allowing vendors who have made R50,000 in taxable sales in their past 12 months of trading to register voluntarily. 

SARS will allow a “fast track approach” whereby businesses may register and will not be required to pass any threshold tests. However, they will not receive refunds until they have made R100,000 in turnover (taxable supplies) in a continuous 12 month period. In this period deductions will be allowed to the extent they equate to taxable supplies made. This is the area where SARS is most at risk and hence the new regulations. 

SARS will reserve the right to de-register any businesses that do not make R100,000 in taxable supplies in any 12 month period during the 24 months after the entity has registered for VAT.  

The bottom line

Thus, the system should work faster and SARS will be able to reduce abuse and fraud. The only downside is for businesses that incur expenditure up front. Typically, these are entities that win a tender and need to spend upfront money to be able to supply the tender. They will lose cash flow, as their refunds will only come as their sales increase. 

Note that interested parties, such as SAICA, are still lobbying Government and there may be further amendments before the Bill becomes law.