The 1st of April 2018 saw the introduction of the new 15% VAT rate. Government has projected an estimated R22.9 Billion increase in revenue as a result of the increase, with the hope of mitigating its impact through an increase in social grant entitlements and zero-rated items.
But what are the implications of VAT during the transitional period? Can 14% still be applicable and under what circumstances?
The first consideration in assessing the VAT rate is determining the transaction date, which is the date on which the transaction is deemed to occur in terms of the VAT Act (89 of 1991). Therefore, the VAT rate applicable will depend on the time of supply which is deemed to be the earlier of either: when an invoice is issued; or when payment is received.
Whilst taking note of the principles associated with the transaction date, the amendments have provided for certain transitional rules. The first of these transitional rules (s67A(1)(i) VAT Act) provides that where goods or services were provided before the 1st of April 2018, the rate of 14% will apply (despite invoicing or payment occurring after the 1st of April 2018). For example, BLC rendered legal services to Mr. X for the period 1 March 2018 to 31 March 2018 but only invoice Mr. X on the 3rd of April 2018. BLC will apply a 14% VAT rate to the invoice.
What happens in the event of the supply of goods or services commencing before and ending after the 1st of April 2018? The second of the transitional rules (s67A(1)(ii) VAT Act) provides that the VAT exclusive price of the supply must be apportioned on a fair and reasonable basis and allocated to the respective periods. For example, BLC rendered legal services to Mr. X for the period 1 March 2018 to 10 April 2018. At the time of invoicing Mr. X, the attendances from 1 March 2018 to 31 March 2018 will be charged at 14% VAT and attendances from 1 April 2018 to 10 April 2017 will be charged at 15% VAT.
The rules relating to the supply of goods and services commencing before and ending after 1 April 2018 are only applicable in respect of the following supplies:-
- Goods supplied under rental agreements
- Goods supplied progressively or periodically
- Goods or services supplied in construction activities
- Services rendered over the period concerned.
A notable omission from the abovementioned supplies is fixed property, which is regulated under a separate transitional rule (s67A(4) VAT Act). In the supply of residential property, even if the time of the supply is triggered after the 1st of April 2018 either due to payment of the purchase price or registration of the property taking place after the aforesaid date, the purchase price of the property could be subject to a VAT rate of 14%. This rate specific rule will only apply if:
- The deed of sale was concluded before the 1st of April 2018; and
- Payment of the purchase price and registration of the property will occur after the 1st of April 2018; and
- The VAT-inclusive purchase price was determined and stated in the deed of sale.
For purposes of this rule, “residential property” includes a dwelling and certain real rights and shares in share block companies relating to right of occupation of or interest in a dwelling. The construction of a new dwelling by a construction enterprise is also included.
The same transitional rule is not extended to commercial properties. Therefore, the normal time of supply rule will apply – i.e. the date of registration of transfer or the date payment of the purchase price is effected, irrespective of when the deed of sale was concluded.
There are no guidelines to bolster the transitional rules and there will be a number of transactions which will need to be subjected to scrutiny and determination in order to seek clarity. Everyone is cautioned to take heed of the changes and apply due diligence and care during the transitional period in order to avoid difficulties or penalties.
If you find yourself facing a VAT query consult our offices for advice and support.