Ministry gives clarity on CMT VAT

MBABANE – The Ministry of Finance has clarified the rationale that has resulted in the amendment of the Value Added Tax Act, 2011, more specifically with respect to the treatment of Cut, Make and Trim (CMT) services.

Minister Neal Rijkenberg, through a statement shared with the media, stated that the amendment of the Act had followed due process and had been pursued in good faith, in that all relevant stakeholders were afforded an opportunity to contribute towards the proposed amendments as ‘we sought an all-inclusive solution to the challenges that we faced’.

exercise,” he said.

He cited a statement by the

Burden

Minister of Public Service Mabulala Maseko, in which he said

He said prior to the amendment of the Value Added Tax Act, the CMT industry cited an anomaly with respect to the manner in which services in the industry were treated for VAT purposes.

The minister mentioned in the statement that CMT companies were previously required to pay for the uncut cloth upon importation and later claim the import VAT as input tax on their VAT returns.

This requirement was deemed to be an administrative and financial burden to these companies because their role was only to supply the services of cutting, making and trimming.

Further to this, Rijkenberg said the ministry’s understanding was that the

CMT companies do not own the uncut cloth that is imported for them to cut, make and trim.

He shared that the amendment of the Schedule to the VAT Act sought to address this by providing that the uncut cloth be exempted from paying VAT upon importation and thus relieving the CMT companies from having to pay for goods that were meant to be in the country temporarily.

The minister clarified that the VAT obligation that remained is that of the CMT companies declaring and paying for VAT that relates to the service that they provide; that is, cutting, making and trimming.

“Section 16 of the VAT Act, 2011 provides for determination of the place of supply of services in Eswatini. Section 16(1) states that the place of supply of services will be the location at which

the service is rendered and in the case of the CMT industry, this is in Eswatini and thus the service becomes taxable in Eswatini. Section 16(2) (f) of the VAT Act further explains the supply of human capital to deliver a service; the CMT industry is deemed to be supplying human capital to their South African clients to cut, make and trim their uncut cloth; this, therefore, renders the service taxable in Eswatini,” he said.

Export

CMT companies export finished clothing to their customers in South Africa; the service that they supply is rendered (i.e. consumed) in Eswatini as explained by the above cited sections of the VAT Act.

Considering that the CMT companies do not own the cloth, nor the finished products, the services that they provide cannot therefore be treated as one; it is

on this basis that the said service that was rendered locally cannot ‘accompany’ the finished goods upon exportation as explained by the minister.

He further stated that in accordance with the VAT Act, CMT companies were allowed to claim input tax incurred as part of the service that they provide; these include, inter alia, electricity, cotton, stationery etc., that is, on condition they account for output tax on said services supplied.

The finished products (with transport costs) are exported at 0 per cent. “The Ministry of Finance invites the CMT companies together with their representatives to engage with the ministry directly for further clarification on this matter. There is no intention to cause any harm to the industry and the above described principles are based on global best practice,” he concluded.