Member Article

On 27 March 2020, the South African Revenue (“SARS”) announced much needed value-added tax (“VAT”) relief on the importation of “essential goods” as part of the coronavirus (COVID-19) tax relief measures.

Section 7(1)(b) of the Value-Added Tax Act, 1991 (“VAT Act”) imposes VAT on the importation of any goods into South Africa by any person. In terms of section 7(1), VAT is imposed at the standard rate of 15%.

If VAT is paid by a VAT-registered vendor on goods imported for purposes of making taxable supplies, the vendor may claim an input tax deduction in respect of the VAT incurred. However, subject to having the relevant customs documentation and receipt for the payment of the import VAT, the VAT may only be claimed during the tax period in which the goods were released in terms of the Customs and Excise Act, 1964. Otherwise, import VAT is usually a final cost to any person who imports goods for non-taxable purposes or who is not VAT registered.

Section 13(3) of the VAT Act provides an exemption from the VAT levied on importation, regardless of whether the goods are imported by a VAT registered vendor or a person who is not a vendor. The exemption applies to goods imported under certain tariff headings as set out in Schedule 1 to the VAT Act.

Due to the measures put in place under the Disaster Management Act, 2002, “essential goods” will now be exempt from import VAT during the COVID-19 pandemic, in terms of Item 412.11/00.00/01.00 of Schedule 1 to the VAT Act. This Item relates to,inter alia, goods imported for the relief of distress of persons in cases of famine or other national disasters.

What constitutes “essential goods” is broadly defined in Regulation R.398 published inGovernment GazetteNo. 43148 of 25 March 2020 to mean:

• Food
  • Any food product, including non-alcoholic beverages;
  • Animal food; and
  • Chemicals, packaging and ancillary products used in the production of any food product.
• Cleaning and Hygiene Products
  • Toilet Paper, sanitary pads, sanitary tampons, condoms;
  • Hand sanitiser, disinfectants, soap, alcohol for industrial use, household cleaning products, and personal protective equipment; and
  • Chemicals, packaging and ancillary products used in the production of any of the above.
• Medical
  • Medical and Hospital Supplies, equipment and personal protective equipment; and
  • Chemicals, packaging and ancillary products used in the production of any of the above.
• Fuel, including coal and gas
• Basic goods, including airtime and electricity.
  
  

The exemptions provided for under section 13(1) of the VAT Act, read with Schedule 1 to the VAT Act, only apply to “goods” as defined for VAT purposes (which specifically include electricity). Therefore, we caution that, although airtime is listed as an essential “good” in the abovementioned regulation, the importation thereof may not necessarily qualify for VAT exemption as, technically, it is not a “good” as defined for VAT purposes.

It is important to note that an exemption under Item 412.11/00.00/01.00 of Schedule 1 to the VAT Act is subject to two requirements. Firstly, an International Trade Administration Commission (“ITAC”) certificate must be obtained. The ITAC certificate must be held at the time the goods are cleared for home consumption and does not apply retrospectively to goods already imported into South Africa.

Secondly, goods imported under this item may not be sold or disposed of to any party who is not entitled to any privileges under this item, or be removed to certain neighbouring countries without the permission of ITAC. There is currently no guidance as to which part(ies) are disqualified from a VAT exemption under this item. Therefore, notwithstanding the broad definition of what constitutes “essential goods”, it is not clear whether the exemption applies to all importers of such products, or whether the exemption is intended to apply only to certain entities such as non-profit organisations or pubic benefit organisations.

A similar exemption from import duty is provided for under rebate Item 412.11 of Schedule 4 to the Customs and Excise Act (which mirrors Item 412.11/00.00/01.00 of Schedule 1 to the VAT Act and therefore giving rise to similar uncertainties as to its application) where ITAC has approved the rebate for the goods concerned.

Many importers will no doubt welcome these seemingly blanket indirect tax relief measures. However, given the wide ambit of the “essential goods” definition and the uncertainties surrounding the VAT exemption and rebate relief provisions, it may be best to err on the side of caution until such time that the necessary clarity has been provided.

Annelie Giles Tax Tax Manager [email protected] +27 82 337 5650

Seelan Moonsamy Tax Tax Manager [email protected] +27 82 332 7346

COVID-19, also known as the Coronavirus, is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) that was declared a pandemic by the World Health Organization on 11 March 2020. The disease has since been reported in over 190 countries.