2018 Budget Review: Indirect Tax

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Charles de Wet | Head of Indirect Tax | PwC Africa | charles.de.wet@za.pwc.com |


Increase in VAT rate

The Minister of Finance announced in his Budget speech that the VAT rate will be increased by 1 % to 15% with effect from 1 April 2018. This increase is expected to raise additional revenue of R22.9 billion.

The result of the aforementioned increase, is that consumers will now pay an additional 1% tax on any purchases of goods or services from VAT vendors. This will have a major impact on households’ already tight budget. The implementation of the VAT increase for businesses may be complex, and the implementation date of 1 April 2018 does not leave much time to allow businesses to effect the necessary system changes and enhancements.

Updated regulation for foreign electronic services

The 2017 Budget Review announced that regulations prescribing foreign electronic services subject to VAT would be broadened to include cloud computing and other online services.

Updated draft regulations prescribing foreign electronic services and supporting amendments to the VAT legislation are to be published on Budget Day for public comment.  It is disappointing that the regulations dealing with foreign electronic services have not kept up with international best practice.

Clarification on brown bread

Following recent uncertainty regarding the zero-rating of basic food items, government proposes an amendment to reflect the original policy intent that only brown bread and whole wheat brown bread will be zero-rated, and will not extend to rye or low GI bread.

Cryptocurrency

The VAT and Income tax treatment of cryptocurrencies will be clarified.

Insertion of the definition of “face value of a debt transferred”

A VAT-registered vendor is permitted to claim a deduction for VAT on taxable supplies that have to be written off.

If the vendor cedes or sells the debt that has been written off on a non-recourse basis for an amount that is less than the amount owing, then the sale of the debt is exempt from VAT and the vendor is not required to make any adjustments to the previous VAT deduction. Certain vendors that buy book debt then attempt to claim a further VAT deduction if they write off all or part of this debt in future. This results in a double VAT deduction, which is against the intention of the legislation.

To prevent this double VAT deduction, it is proposed that the term ‘face value of a debt transferred‘ be defined in the VAT Act to take into account the policy rationale explained in the explanatory memorandum.

Postponing the abolishment of the zero-rating of the supply of goods and services for the national housing programme

In 2015, amendments were made to the VAT Act to abolish the zero-rating of the supply of goods and services for government’s national housing programme, with effect from 1 April 2017. In 2017, the legislation was amended to postpone the abolishment date for a further two years to 1 April 2019.

Due to budgetary constraints, it is now proposed to postpone the effective date for this amendment indefinitely.


 

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