Value-Added Tax (VAT)

Question 1

Does “Consideration” include VAT?

Answer 1

In terms of S 1, consideration does include VAT but does not include any deposit (whether it is refundable or not) unless and until the supplier has applied that deposit as consideration for the supply OR the deposit has been forfeited

Question 2

Does “value” include VAT?

Answer 2

No. S 10(2) states that the value of a supply is the consideration received/paid for the supplier, determined in accordance with S 10(3), less any tax.

Question 3

Why is a Branch or Main business of an enterprise situated outside of the republic (if separately identified & has independent accounting records) specifically excluded from the definition of an Enterprise

Answer 3

This is to ensure that the normal rules for export supplies are followed and to prevent companies with foreign branches from unduly benefiting. In terms of S 7(1)(a) VAT is only levied on supplies in the course or furtherence of enterprise. S 11(1)(a) furthermore states that any export of goods (and S 11(2) for services) will be zero rated. Without proviso ii in the definition of “Enterprise” any supplies made by that foreign branch or main business (Independent Branch) is included in enterprise and VAT must be considered. Proviso ii effectively severs the SA based business and the international one. This means that any transactions entered between these two are not in the course or furtherance of an enterprise as defined. Therefore if the local business had to supply the independent branch there would be no VAT! This is rectified in S 8(9). S 8(9) deems the supply between a local business and its Independent Branch as a supply in the course or furtherance of an enterprise whilst maintaining the split. Thereafter, S 11(1) and S 11(2) will apply to give the zero rating