BUDGET & TAX UPDATE 2018

Transcription

1 BUDGET & TAX UPDATE 2018

2 2018 BUDGET & HIGHLIGHTS

3 Where is most of our tax collected? YEAR TAX TYPE PIT CIT VAT FUEL LEVY CUSTOMS DUTY EXCISE DUTY OTHER 2015/16 36,4% 18,1% 26,3% 5,2% 4,3% 3,3% 6.4% 2016/17 37,2% 18,1% 25,3% 5,5% 4,0% 3,1% 6,7% 2017/ % 17,3% 24,7% 5,6% 4,3% 3.3% 6,7% 2018/ % 17,2% 25.9% 5.8% 4,0% 3,2% 6,4% 3

4 Impact of tax proposals on 2018/19 revenue Gross tax revenue (before tax proposals) Budget 2018/19 proposals 36,000 Direct taxes 7,310 Personal income tax 7,510 Revenue from not fully adjusting for inflation 6,810 Revenue if no adjustment is made 14,155 Bracket creep adjustment -7,345 Medical tax credit adjustment 700 Corporate income tax (Special Economic Zones) -350 Estate duty increase 150 Indirect Taxes 28,690 Increase in value-added tax 22,900 Increase in general fuel levy 1,220 Increase in excise duties on tobacco products 420 Increase in excise duties on alcoholic beverages 910 Increase in ad valorem excise duties 1,030 Increase in environmental taxes 280 Introduction of health promotion levy 1,930 4 Gross tax revenue (after tax proposals) 1,321,146

5 2018 Budget Highlights R36 billion proposal. VAT is levied at the standard rate of 15% on the supply of goods and services by registered vendors. The tax rate was 14% until 31 March 2018 Effective Personal income tax increases by not providing full relief for inflation. 52c/l increase in fuel levies: comprising 22c/l for general fuel levy & 30c/l in Road Accident Fund levy. From 1 April, the duty will be levied on the dutiable value of an estate at a rate of 20% on the first R30 million and at a rate of 25% above R30 million. Donations tax rate increases from 20% to 25% on donations of more than R30 million. Alcohol & tobacco excise duties to increase between 6 & 10% - potentially raising R4.3 billion additional revenue Increase in ad valorem customs duties on luxury items consumed by wealthier individuals for example, cars and smart phones 5

6 TAX UPDATES & CHANGES 6

7 Tax Tables Individuals 2018/ /18 Taxable Income (R) Rate of Tax (R) Taxable Income (R) Rate of Tax (R) % % % % % % % % % % % % and above % and above % 7

8 Rebates (R) (R) Rebates for natural persons Under 65 Primary and over Secondary and over - Tertiary

9 Tax Thresholds (R) (R) Under to and over

10 Monthly Medical Scheme Contribution Tax Credits (R) (R) Taxpayer First dependant Each additional dependant

11 Local Interest Exemption & Tax Free Investment (R) (R) Under Over Tax Free Investments The annual limit on contributions remained at R The lifetime limit remains at R

12 Capital Gains Tax Exclusions (R) (R) Annual exclusion Annual exclusion in year of death gains and losses Primary residence exclusion Disposal of small business by natural person if over age 55 or due to ill-health or death Max market value of assets to qualify as a small business million 2 million 1.8 million 1.8 million 10 million 10 million 12

13 Capital Gains Tax Effective Rates YOA commencing 1 Mar 2018 Taxpayer Inclusion Statutory Effective Rate (%) Rate (%) Rate (%) Individuals Trusts Special Other Companies Ordinary Small business corporation Employment company (personal service provider) Foreign company (Permanent establishment) Micro-business subject to turnover tax

14 Travelling Allowance Deemed expenditure table with effect from 1 March 2018 See revised table in the Tax Guide Taxpayers are required to record business travel in log book 14

15 Retirement fund lump sum withdrawal benefits 2018/ /2018 Taxable Income (R) Rate of Tax (R) Taxable Income (R) Rate of Tax (R) % % % % % % and above % and above % 15

16 Retirement fund lump sum benefits or severance benefits 2018/ /2018 Taxable Income (R) Rate of Tax (R) Taxable Income (R) Rate of Tax (R) % % % % % % and above % and above % 16

17 Standard company tax remains unchanged at 28% 2018/ /18 Non-mining companies 28% 28% Close corporations 28% 28% Employment companies 28% 28% Non-resident companies (SA sourced income) 28% 28% 17

18 Withholding Tax 20% is withheld by the entities paying the dividends to the individuals No changes announced in 2018 Disposal of immovable property by non-residents 7.5% individual, 10% company, 15% trust No changes from previous Tax Year Interest paid to non-residents at 15% (imposed on interest from a South African source payable to non-residents) - No changes from previous Tax Year Exempt if paid by any sphere of SA government, a bank or debt is listed Royalties (s49b) 15% from 1 January 2015 Foreign entertainers and sportspersons 15% Service fees No withholding tax but qualifying fees may fall into the provisions of reportable arrangements 18

19 Foreign Dividends Most foreign dividends received by individuals from foreign companies (shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 20% via the normal tax system (not dividends tax). No deductions are allowed for expenditure incurred to produce foreign dividends. 19

20 Small Business Corporations YOA ending between 1 Apr and 31 Mar 2018/ /2018 Taxable income (R) Rate of Tax (R) Taxable income (R) Rate of Tax (R) % % % % % % and above % and above % This year, government will respond to the Davis Tax Commission s report on tax administration and introduce draft legislation to give effect to some of its recommendations 20

21 Micro Businesses YOA ending between 1 Mar and 28/29 Feb Taxable turnover (R) 2018/ /2018 Rate of Tax (R) Taxable turnover (R) Rate of Tax (R) % % % % % % and above % and above % 21

22 Subsistence Allowances & Fringe Benefits Travel in the Republic meals and incidental costs: R416 (was R397) per day Incidental costs only: R128 (was R122) per day Travel outside the Republic Details of these amounts are published on the SARS website under Legal Counsel / Secondary Legislation / Income Tax Notices /

23 Transfer duty Natural and juristic persons Agreements on or after 1 March 2018 Agreements on or after 1 March 2017 Taxable income (R) Rate of Tax (R) Taxable income (R) Rate of Tax (R) % % % % % % % % % % and above % and above % 23

24 Increases in Fuel Levies effective on 4 April 2018 The general fuel levy will increase by 22 cents per litre and the Road Accident Fund Levy will increase by 30 cents. This will push up: The general fuel levy to R3.37 per litre of petrol and to R3.22 per litre of diesel The road accident fund levy to R1.93 per litre for both petrol and diesel. 24

25 Sin Taxes Excise duties increases on 22 February 2018: Cigarettes from R14.30 per pack of 20 cigarettes to R15.52 (8.5%) Tobacco R16.07 per 50 grams to R17.44 (8.5%) Cigars from R75.86 to R82.31 per 23g (8.5%) Traditional African beer no increase Wine from R3.61 to R3.91 a litre (8.8%) Spirits from R56.50 to R61.30 on a 750ml bottle (8.5%) Beer, cider, alcoholic fruit beverage from 146.9c to 161.5c a can (10%) 25

26 Tax on Sugar-Sweetened Beverages Health promotion levy, which taxes sugary beverages, will be implemented from 1 April SA has the worst obesity rate in sub-saharan Africa Denmark, Finland, France, Hungary, Ireland, Mexica and Norway have introduced a tax on sugar-sweetened beverages 26

27 Measures To Protect The Income Base The National Treasury, in close cooperation with the Reserve Bank, the Financial Intelligence Centre and the South African Revenue Service, is taking several steps to detect, disrupt and deter illicit financial flows. These measures include increasing capacity, coordinating a national risk assessment and improving information sharing between various agencies. In line with G20 recommendations, policy measures to deal with transfer pricing and base erosion by multinational companies are been implemented and continue to be tightened. The implementation of country-by-country reporting will enable SARS to ensure that companies pay their fair share of tax in SA. 27

28 Business Incentives Approval special economic zones that will make qualifying companies subject to a reduced corporate tax rate, and enable them to claim an employment tax incentive for workers of all ages; Government has streamlined the administration of the research and development tax incentive; These measures will promote investment in those manufacturing and tradable services sectors that encourage exports, job creation and economic growth; 28

29 Carbon Tax Bill Proposal, Parliament is currently considering the draft Carbon Tax Bill, which will assist South Africa to meet its climate change commitments to reduce our carbon emission; The tax will be implemented from 1 January 2019; The polluter-must-pay-principle to apply to activities which harm the environment, like the dumping of plastics into our oceans and threatening of marine life. 29

30 Davis Tax Commission & Other Reforms This year 2018/19, government will respond to the Davis Tax Commission s report on tax administration and introduce draft legislation to give effect to some of its recommendations. Government will also take steps to implement the customs modernisation programme currently implemented by SARS, to give effect to the new customs and excise legislation passed in President will establish a commission of inquiry into tax administration and governance at SARS. 30

31 Donations Donations Tax rate increases from 20% to 25% on donations of more than R30 million The first R of property donated in each year by an individual is exempt from donations tax. In the case of a taxpayer who is not an individual, the exempt donations are limited to casual gifts not exceeding R per annum in total. Section 56(1) - dispositions between spouses and South African group companies and donations to certain public benefit organisations are exempt from donations tax. 31

32 Exemption for Employer-Provided Bursaries No monetary limit for bona fide bursaries given to an employee to study. Exemption apply only if employee agrees to reimburse employer if studies not completed (except for death, ill-health or injury). Relative of employee bursaries have limits (Proxy does not exceed R ) Basic Education R Higher Education R

33 Fee-Free Higher Education and Training New first-year students; Family income below R per annum At universities and TVET colleges in the 2018 academic year Funded for the full cost of study. NSFAS students at university will have their loans for 2018 onwards converted to a bursary. 33

34 VAT VAT is levied at the standard rate of 15% on the supply of goods and services by registered vendors. The tax rate was 14% until 31 March The increase in the VAT rate will cause the prices of most consumer products to increase by at least 7% A vendor making taxable supplies of more than R1 million per annum must register for VAT. A vendor making taxable supplies of more than R but not more than R1 million per annum may apply for voluntary registration. Certain supplies are subject to a zero rate or are exempt from VAT. 34

35 VAT History It is levied in terms of the Value-Added Tax Act 89 of The South African Value-Added Tax Act makes allowance for exemptions, exceptions, deductions and adjustments that effectively lower the VAT liability. Has been raised at 14% of taxable supplies since 1993 Zero-rated, e.g. petrol, diesel and basic food items such as brown bread, milk and fruit Exempt supplies Financial Services Education, Crèche and after care (School fees and Tuition) Salaries Union Membership fees Transport for fare paying passengers 35

36 SARS Interest Rates Rate of interest (from 1 August 2017) Fringe benefits - interest free or low interest loan (official rate) 7.75% p.a. Rates of interest (from 1 November 2017) Rate Late or underpayment of tax 10.25% p.a. Refund of overpayment of provisional tax 6.25% p.a. Refund of tax on successful appeal or where the appeal was conceded by SARS 10.25% p.a. Refund after prescribed period or late payment of VAT 10.25% p.a. Customs and Excise 10.25% p.a. or notice 36

37 Accrual of Interest Payable by SARS Interest payable by SARS can accrue over a number of years Interest payable by SARS should be deemed to accrue on date of payment 37

38 2017 Amendments

39 2017 Amendment Acts The Rates and Monetary Amounts and Amendment of Revenue Laws Act No. 14 of December 2017 Taxation Laws Amendment Act No. 17 of December 2017 Tax Administration Laws Amendment Act No. 13 of December

40 Tax Administration Laws Amendment Act No. 13 of December 2017

41 Individuals

42 Repeal of foreign employment income exemption S 10(1)(o)(ii) Prior to 2001, South Africa applied a source-based system of taxation. All income which was from a source in South Africa and certain types of income which were deemed to be from a source in South Africa were taxable in South Africa However, from 1 March 2001 South Africa moved to a residence based system of taxation. This means that South African residents are subject to tax on their worldwide income An exemption in terms of Section 10(1)(o)(ii) was introduced to prevent double taxation of the same employment income between South Africa and the foreign host country The above section is now repealed and as a result all South African tax residents will be subject to tax on foreign employment income earned in respect of services rendered outside South Africa with relief from foreign taxes paid on the income under section 6quat of the Act 42

43 Measures to prevent tax avoidance through the use of Trusts S 7C An anti-avoidance measure aimed at curbing the tax-free transfer of wealth to trusts through the use of low-interest or interest-free loans, advances or credit was introduced in 2016 In order to make these types of tax avoidance schemes less attractive to taxpayers, the anti-avoidance measure under section 7C came into effect on 1 March 2017 and applies to all new loans, advances or credit and loans, advances or credit that were already in existence on the date it came into effect Since the introduction of the anti-avoidance measure, it has come to Government s attention that taxpayers have discovered ways to avoid the deemed annual donation triggered by the anti-avoidance measure. In order to curb the abovementioned avoidance, it is proposed that interest free or low interest loans, advances or credit that are made by a natural person or a company (at the instance of a natural person) to a company that is a connected person in relation to a trust should also fall under the anti-avoidance measure. 43

44 Special Purpose Trusts S 7C Trusts are used for various purposes other than to facilitate the transfer of wealth through the use of interest free or low interest loans, advances or credit. As a result, various uses of trusts and/or loans are specifically excluded from the application of the anti-avoidance measure. The include: special trusts that are established solely for the benefit of persons with disabilities; trusts that fall under public benefit organisations vesting trusts (where the vesting rights and contributions of the beneficiaries are clearly established); loans that are advanced to a trust, to the extent that a loan used by the trust for funding the acquisition of the primary residence of the lender; a loan that constitutes an affected transaction a loans provided to the trust in terms of a sharia compliant financing arrangement; and a loan that is subject to the anti-value stripping provisions of section 64E(4) of the Act 44

45 General deductions allowed in determination of taxable income Sections 11(a), 11(e) For the purpose of determining the taxable income derived by any person from carrying on any trade, there shall be allowed as deductions from the income of such person so derived (a) expenditure and losses actually incurred in the production of the income, provided such expenditure and losses are not of a capital nature; (e) save as provided in paragraph 12(2) of the First Schedule, such sum as the Commissioner may think just and reasonable as representing the amount by which the value of any machinery, plant, implements, utensils and articles (other than machinery, plant, implements, utensils and articles in respect of which a deduction may be granted under section 12B, 12C, 12DA, 12E(1) or 37B) owned by the taxpayer or acquired by the taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of the definition of instalment credit agreement in section 1 of the Value-Added Tax Act and used by the taxpayer for the purpose of his or her trade has been diminished by reason of wear and tear or depreciation during the year of assessment 45

46 Set-off of Assessed Losses - Section 20(1) For the purpose of determining the taxable income derived by any person from carrying on any trade, there shall, subject to section 20A, be set off against the income so derived by such person (a) any balance of assessed loss incurred by that person in any previous year which has been carried forward from the preceding year of assessment: Provided that no person whose estate has been voluntarily or compulsorily sequestrated shall be entitled to carry forward any assessed loss incurred prior to the date of sequestration, unless the order of sequestration has been set aside, in which case the amount to be so carried forward shall be reduced by an amount which was allowed to be set off against the income of the insolvent estate of such person from the carrying on of any trade; (b) any assessed loss incurred by a person during the same year of assessment in carrying on any other trade either alone or in partnership with others, otherwise than as a member of a company the capital whereof is divided into shares 46

47 Limitation of Allowances Granted to Lessors of Certain Assets Sections 23A For the purposes of this section affected asset means (a) any machinery, plant or aircraft which has been let and in respect of which the lessor is or was entitled to an allowance under section 12 or 14bis, whether in the current or a previous year of assessment, other than any such machinery, plant or aircraft let by him under an agreement of lease formally and finally signed by every party to the agreement before 15 March 1984; or (b) any machinery, plant, implement, utensil, article, aircraft or ship which has been let and in respect of which the lessor is or was entitled to an allowance under section 11(e), 12B, 12C, 12DA or 37B(2)(a), whether in the current or a previous year of assessment, other than any such machinery, plant, implement, utensil, article, aircraft or ship let by him under an agreement of lease formally and finally signed by every party to the agreement before 19 November 1988, but excluding any such asset let by the lessor under an operating lease or any such asset which was during the year of assessment mainly used by him in the course of any trade carried on by him, other than the letting of any such asset; 47

48 Corporate

49 Clarifying the Value-Added Tax Treatment of Leasehold Improvements A lessee may, during the period of a lease agreement effect improvements on the leasehold property that belongs to the lessor In terms of the common law, improvements that become permanently attached to the leasehold property become the property of the lessor Currently, the VAT Act does not provide guidelines in respect of the Value Added Tax (VAT) treatment of leasehold improvements effected by the lessee to the leasehold property during the period of a lease agreement 49

50 Clarifying the Value-Added Tax Treatment of Leasehold Improvements The lessee shall be deemed to have made a taxable supply of goods to the lessor to the extent that the leasehold improvements are made for no consideration. The value of this supply is deemed to be NIL in these circumstances. There is no deemed supply if the lessee, being a vendor, uses the leasehold improvements wholly for purposes of making exempt supplies. Where leasehold improvements are supplied to the lessor by the lessee, as contemplated in the new section 8(29), the lessor shall be deemed to have made a taxable supply of goods in the course or furtherance of its enterprise, to the extent that the lessor, at the time of completion of the leasehold improvements, uses the fixed property otherwise than for making taxable supplies. 50

51 VAT Vendor Status of Municipalities S 8 of the VAT Act The Local Government Elections that took place on 3 August 2016 resulted in structural changes of some certain municipalities. Some municipalities were disestablished, others have merged, some have been renamed and some have changed their municipal boundaries, but continue to exist in their altered form. As a result, the affected municipalities had to either cancel their VAT registrations or apply for new VAT registrations, and possibly, transfer assets, where applicable At issue is the fact that the VAT Act does not currently provide for interim measures in this regard. As a result, SARS issued a Binding General Ruling (No. 39) outlining interim measures to deal with this situation. In order to address the unintended VAT consequences as a result of the structural changes to certain municipalities, changes were made in the VAT Act to provide interim measures in these instances, in line with the provisions of the SARS Binding General Ruling No

52 Business Incentives

53 Additional Deduction for Learnership Allowance - Section 12H Section 12H provides additional deductions to employers for qualifying learnership agreements. These additional deductions are intended as an incentive for employers to train employees in a regulated environment in order to encourage skills development and job creation. Training contracts qualifying for these deductions are learnership agreements and apprenticeships registered with a SETA. These additional deductions consist of an annual allowance and a completion allowance. 53

54 Employment & Growth Incentives Approval special economic zones that will make qualifying companies subject to a reduced corporate tax rate, and enable them to claim an employment tax incentive for workers of all ages; Government has streamlined the administration of the research and development tax incentive; These measures will promote investment in those manufacturing and tradable services sectors that encourage exports, job creation and economic growth; 54

55 International Tax

56 Refinements of the Domestic Treasury Management Company Regime Qualifying Criteria S1, 24I and S25D In 2013, Government introduced a domestic treasury management company regime for exchange control and tax purposes. The regime was aimed at encouraging listed South African multinational companies to relocate their treasury operations to South Africa Under this regime, listed South African multinational companies are allowed to establish one subsidiary to manage the group treasury functions without being subject to exchange control restrictions that apply to companies incorporated in South Africa 56

57 Refinements of the Domestic Treasury Management Company Regime Qualifying Criteria S1, 24I and S25D For tax purposes, the regime provides relief in respect of unrealised foreign currency gains and losses in that the domestic treasury management company is permitted to use its functional currency, other than the Rand, for currency translations In view of the above, the requirement that a company must be incorporated or deemed to be incorporated by or under any law in force in South Africa was removed. 57

58 Extending the Application of CFC Rules to Foreign Trusts and Donations South African residents are subject to tax on a worldwide basis. In order to curb avoidance, the Act contains CFC rules generally aimed at preventing South African residents from shifting tainted forms of taxable income offshore by investing in CFCs. However, foreign entities such as foreign trusts and foreign foundations do not fall within the ambit of South African CFC rules. 58

59 Extending the Application of CFC Rules to Foreign Trusts and Donations Similarly, foreign partnerships do not fall within the scope of the South African CFC rules. However, the South African residents will still be taxed on their share of foreign partnership income. Government has, since 2008, been concerned that the current CFC rules do not capture foreign companies held by interposed trust or foundations. As a result of this, changes have been made to the Act 59

60 Tax Administration Laws Amendment Act No. 13 of December 2017

61 Interest from SARS S 7D of IT Act When interest is payable by SARS on amounts refundable the taxpayer is obliged to include the amount of interest in the taxpayer s gross income on the earlier of the year in which such interest accrues or is received Where interest accrues over more than one year of assessment it gives rise to practical difficulties as technically assessments for previous years may have to be reopened to reflect the correct amount of interest that accrued to the taxpayer in respect of the relevant years of assessment In order to create certainty and simplify the taxation of interest payable by SARS, the Income Tax Act has been amended to provide that interest payable by SARS only accrues on the date of actual payment. 61

62 Micro Businesses S48C of the IT Act Qualifying micro businesses (with turnover up to R1 million a year) and small business corporations (with turnover up to R20 million a year) are eligible for preferential corporate income tax rates. Where a registered micro business exceeds the R1 million turnover threshold during a particular year of assessment, it is required to notify the Commissioner accordingly within 21 days from the date on which the qualifying turnover of the registered micro business so exceeded the threshold. There was previously no transitional measures for micro businesses that have grown sufficiently during the course of a particular year of assessment to migrate into the small business corporation tax regime. The amendment enables the deregistered micro business to transition smoothly by exempting the micro business from any penalties for underpayment of tax to which the micro business would otherwise have become liable solely as a result of being deregistered due to its qualifying turnover exceeding R1 million. 62

63 Tax Free Investments S64 of the IT Act The Tax Administration Laws Amendment Act, 2016, exempts persons who derive a dividend from a tax free investment (section 12T of the Income Tax Act) from submitting a return in respect of that dividend. Retirement funds are tax exempt savings vehicles, as is the case with tax free investments, and the exemption from submitting returns is now also extended to these funds. 63

64 Pension, Provident & Retirement Fund Contributions para 2 of 4 th Schedule to IT Act For purposes of calculating income tax, employees are able to deduct contributions to pension, provident and retirement funds from their income in terms of section 11(k). The deduction is limited to the lesser of R or 27,5 per cent of remuneration or taxable income. Contributions under these limits are deducted in full. Where the capped amount of R per year applies, the application of the cap for employees tax purposes is now spread over 12 months. 64

65 Court Case

66 Purchase Price Consideration - Case No.: Merits - The issue in this appeal from the Commissioner s assessment of the taxpayer s gross income for the company s 2013 tax year is whether the amounts of the purchase price consideration in respect of certain stands of immovable property sold by the taxpayer in the course of trade, in terms of deeds of alienation entered into during the 2013 tax year, accrued to the taxpayer in that tax year notwithstanding that the taxpayer received payment against transfer of the properties to the purchasers only in the 2014 tax year. The Commissioner has assessed the taxpayer for income tax on the basis that the amounts accrued in the 2013 tax year on the grounds that the taxpayer became entitled to the proceeds of the sales during the 2013 tax year. In the alternative, the Commissioner contends that the proceeds are, in any event, deemed, in terms of s 24(1) of the Income Tax Act 58 of 1962, to have accrued to the taxpayer during its 2013 tax year. It was established in the evidence of the taxpayer s managing director that the proceeds of the sales were shared with a joint venture partner. The detail of this arrangement is not important. This case is concerned only with that part of the proceeds that accrued to the taxpayer during its 2013 tax year Judgment: 30 May Appeal was dismissed. No cotss ruling (See s 130 of the Tax Administration Act)

67 Assessment in Respect of VAT - Case No: VAT 1247 Merits:This is an appeal against an assessment by the respondent, the Commissioner for the South African Revenue Service ( SARS ), issued against the appellant, the CLDC, in respect of liability for Value-Added Tax ( VAT ) in terms of s 22(3) of the Value-Added Tax Act 89 of 1991 ( the Act ). Judgement: The appeal succeeds with costs 67

68 High Court Ruling Input tax deduction South Atlantic Jazz Festival (Pty) Ltd v CSARS HC A129/2014 WC 6 February 2015 The court case considers whether a supplier s failure to issue a tax invoice, despite being demanded by the vendor to do so, precludes the vendor from applying the provisions of either S 20(7) or S 16(2)(f) of the VAT Act to claim an input tax deduction The appellant staged international jazz festivals on an annual basis for which it concluded sponsorships from various parties In terms of these sponsorship contracts the sponsors paid money and provided goods and services for the festival The appellant then provided branding and marketing services to the sponsors It was common cause between the parties that the contracts represented barter transactions All parties were registered vendors 68

69 High Court Ruling Input tax deduction The appellant was liable to declare output VAT on the value of the supply of its branding and marketing services but failed to do so SARS raised additional assessments based on the values and terms stipulated in the sponsorship contracts Appellant did not contest the output tax liability but contented that it should be entitled to offset the liability with the input tax attributable to the supplies made to the sponsors in terms of either sections 20(7) or 16(2)(f) of the VAT Act The appellant s reliance on the said sections stemmed from the fact that the sponsors never issued tax invoices in terms of section 20 and that the contracts should therefore serve as proof of entitlement to a deduction of input tax The Commissioner disallowed the inputs on the basis that the appellant was not in possession of a valid tax invoice 69

70 High Court Ruling Input tax deduction The Court held that there must be an existence or availability of sufficient documentary records The Court accepted that the sponsorship contracts constituted sufficient documentary evidence The following was held by Binns-Ward J at paragraph [15]: If the documents were good enough for the Commissioner to assess the appellant s output tax liability, it is impossible to conceive, having regard to the character of the particular transactions, why they should not also have been sufficient for the purpose of computing the input tax which should have been deemed to have been levied by the sponsors 70

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