Ven­dors and Sars must be on same page

Or po­ten­tial cost will kill the busi­ness for good

Finweek English Edition - - Money Clinic - RUAN JOOSTE ru­anj@fin­week.co.za

AC­TION BY THE South African Rev­enue Ser­vice (Sars) to dereg­is­ter cer­tain Value Added Tax ven­dors could cause sig­nif­i­cant in­con­ve­nience to those en­ter­prises and – worse – a po­ten­tially sub­stan­tial VAT li­a­bil­ity with­out the funds to cover it. Busi­nesses with turnovers that don’t meet the new min­i­mum thresh­old of R50 000/year may find them­selves be­ing sum­mar­ily dereg­is­tered as VAT ven­dors by Sars.

“In its drive to clear its books of com­pa­nies that are sim­ply clog­ging the sys­tem and wast­ing re­sources, Sars is also dereg­is­ter­ing le­git­i­mate busi­nesses – such as some prop­erty de­vel­op­ers and farm­ers – that only breach the min­i­mum thresh­old over time,” says Bernard Sacks, tax part­ner at au­dit, tax and ad­vi­sory firm Mazars.

Take the ex­am­ple of a prop­erty de­vel­oper who has spent sig­nif­i­cant cap­i­tal de­vel­op­ing a new res­i­den­tial es­tate. Dur­ing the course of de­vel­op­ing the prop­erty VAT in­puts (tax paid) ac­crued. But be­cause the prop­erty hasn’t been com­pleted and no units sold, no VAT out­puts (tax re­ceived) have been de­clared.

Be­cause the de­vel­oper doesn’t meet the min­i­mum thresh­old per an­num Sars dereg­is­ters him for VAT pur­poses. Not only can he not claim back VAT in­put costs but he’s also deemed to sup­ply the as­sets (prop­erty) he holds at that date. That means – in ac­cor­dance with the VAT Act – the de­vel­oper is li­able for all the po­ten­tial VAT on the land and any un­fin­ished build­ings or struc­tures.

Sars has al­ready sent letters to some ven­dors no­ti­fy­ing them of its in­ten­tion to sus­pend their VAT reg­is­tra­tion

“The VAT ow­ing to Sars could amount to a sub­stan­tial sum at a time when the busi­ness has no cash flow from turnover,” says Sacks. “And for most de­vel­op­ers that’s an im­pos­si­ble sit­u­a­tion. The same would hold true for farm­ers.”

Let’s say a wine farmer de­vel­ops a new vine­yard and it takes sev­eral years be­fore the vines are ready to pro­duce the right qual­ity of grapes. In the in­terim the farmer has ploughed sig­nif­i­cant fi­nan­cial re­sources into his vine­yard and paid over a great deal of VAT which would have been claimed as in­put VAT, when out­put VAT be­comes a re­al­ity at point of sale. But un­til he makes the first sale of his new wine, his turnover prob­a­bly won’t breach the R50 000 mark.

“If his en­ter­prise is dereg­is­tered he’ll be in the same sit­u­a­tion as the prop­erty de­vel­oper – hav­ing to find sub­stan­tial funds to pay the deemed sup­ply of his vine­yard,” says Sacks. “Sars has al­ready sent letters to some ven­dors no­ti­fy­ing them of its in­ten­tion to sus­pend their VAT reg­is­tra­tion. But on closer read­ing it be­comes ap­par­ent that, in fact, they’ve al­ready been sus­pended and been granted three months in which to chal­lenge the sus­pen­sion be­fore their VAT reg­is­tra­tion is per­ma­nently can­celled,” Sacks says. “De­spite the fact the leg­is­la­tion caters for an ex­tended pe­riod of time to breach the min­i­mum turnover thresh­old, Sars has been is­su­ing those letters on the ba­sis that turnover for the pre­vi­ous 12 months was less than R50 000.”

It seems im­per­a­tive for ven­dors to get in con­tact with Sars as soon as pos­si­ble to en­sure both par­ties are within the scope of the law and be­fore po­ten­tial costs kill the emerg­ing busi­ness.

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