Value-added tax
671. SARS' new measures on exports to BLNS countries
February 1999

 

 

Introduction

When VAT was introduced in 1991 there was insufficient infrastructure in place for the South African Customs and Excise to administer VAT on imports and exports on behalf of SARS. This situation has now been rectified and accordingly, with effect from 16 November 1998, VAT refunds on exports will be dealt with by SARS at 17 designated BLNS (Botswana; Lesotho; Namibia & Swaziland) border posts. and the measures relating to imports will come into effect on 16 January 1999.

 

The general rule relating to exports is that where a South African vendor exports movable goods. VAT at the zero rate may be applied. The manner in which those goods are removed from South Africa will, however, determine whether VAT is initially charged at the zero rate or whether VAT at the standard rate is charged by the South African vendor and the non-resident purchaser is subsequently entitled to claim a VAT refund. The VAT treatment hinges on whether it is the South African vendor (or the cartage contractor employed by him) who is responsible for the delivery of the goods or whether it is the non-resident purchaser (or his cartage contractor) who will take delivery of the goods. (These procedures are contained in VAT Practice Note number 2 of 1998.)

 

South African vendor responsible for delivery

Where a South African vendor physically delivers goods to a non-resident purchaser at an address in an export country or the South African vendor uses a cartage contractor to deliver the goods on his behalf, the supply may be zero-rated. It is important to note that the cartage contractor must he contractually liable to the South African vendor to deliver the goods and the South African vendor must be liable for the full costs of delivery. In addition to the vendor’s copy of the zero-rated tax invoice, he is required to obtain certain documents within two months of the date of the invoice and retain them for a period of five years.

 

Where the South African vendor physically delivers the goods himself to the non-resident purchaser. the vendor must obtain all the following documentation:

 

Where the South African vendor delivers the goods to the premises of the cartage contractor, a railway station, a harbour, an airport, a postal service or a courier service in South Africa or the cartage contractor takes possession of the goods at the premises of the South African vendor, the South African vendor is required to obtain the following documentation:

In addition to the above, the following documents are required depending upon the mode of transport:

 

Where the above documentation is not obtained by the South African vendor by the last day of the tax period ending after two months from the date of the relevant tax invoice, the supply is deemed to be at the standard rate and the vendor must calculate output tax by applying the tax fraction (14/114) to the selling price, and pay this to SARS. There is, however. some relief in that should the vendor subsequently receive the documentation (within one year from the date of the transaction) the output tax previously raised can be reversed by claiming an equivalent input tax credit in the period in which the documentation is received.

 

Non-resident purchaser responsible for taking delivery

Where goods are not exported by the South African vendor but by the non-resident purchaser, VAT at the standard rate must be charged by the South African vendor on the goods supplied. It is up to the purchaser to obtain a refund of the VAT paid at the designated commercial point of departure. or the refund will he posted to him. (This will depend on whether a VAT refund administrator ("VRA") is present at the designated commercial port).

 

Goods exported by the purchaser himself

Where the purchaser exports the goods himself, in order to obtain a VAT refund he must ensure that:

 

Goods exported by a cartage contractor on behalf of the purchaser

Where the South African vendor delivers the goods to the premises of a cartage contractor, a harbour, an airport, a railway station or a courier service in South Africa, or the cartage contractor takes possession of the goods at the premises of the South African vendor, or the purchaser delivers the goods to the premises of his cartage contractor, the purchaser can apply for a VAT refund but will only be able to do so by submitting a letter to the VRA once he has physically received the goods.

 

In order to qualify for the VAT refund when using a cartage contractor by road, sea, air or rail, the following documentation is required:

 

South African vendor delivers the goods to harbour or airport

Where the South African vendor delivers the goods to any of the designated harbours or airports (delivery to railway stations and border posts is excluded) from where the goods are exported by the purchaser, the South African vendor has the choice as to whether to zero rate the supply or to tax the supply at the standard rate. Where the supply is standard rated the purchaser can apply for a refund in the manner described above.

 

By deciding to zero-rate the supply, the South African vendor effectively assumes the responsibility for obtaining the necessary documentation. The South African vendor must retain for five years the following:

 

If this documentation is not obtained by the last day of the tax period ending after two months from the date of the invoice, the supply will be deemed to be at the standard rate and the vendor must raise the appropriate output tax. If the vendor subsequently obtains the documentation within one year from the date of the original tax invoice an input tax credit may be claimed at that point.

 

Planning point: From the point of view of the non-resident purchaser it is clearly more advantageous for the supplier to bear the costs of transport so that the sale can he zero-rated initially, and the purchaser does not have the administrative burden of claiming the VAT refund. By doing this, however, the burden of retaining all the required documentation is effectively shifted to the supplier and in situations where the purchaser does not forward to the supplier the Customs stamped export documentation, the bill of lading, the air waybill etc., the supplier is required to raise output tax on the tax fraction of the initial amount and is therefore out of pocket. Where goods are exported by air or ship the more favourable alternatives, as far as the supplier is concerned, would be to accept responsibility for transporting the goods only to the harbour or airport because in this way, the sale can still be zero-rated but the documents that the supplier needs to retain are more easily obtainable and the risk to the supplier is therefore reduced (i.e. the supplier does not need to obtain customs and export documentation).

 

Refund

 

Further details relating to the new measures introduced. can be found in Notice 2761 and 2762 of 1998 issued by the South African Revenue Service. (These can be found at the SARS website at www.sars.gov.za).

 

Grant Thornton Kessel Feinstein

VAT Act:S 11, 11(a), 11(3),

para (a) definition of "exported" S 1 VAT Act