Brown bread VAT free to March

UNCERTAINTY: SCOPA WILL MAKE ANNOUNCEMENT ABOUT WHAT HAPPENS AFTER THAT DATE

Zero-rating also applies to high-fibre brown bread, high-protein brown bread and brown health bread – tax expert Charles de Wet.

Sars has ruled that whole-wheat brown bread, high-fibre brown bread, high-protein brown bread and brown health bread should be sold at a price inclusive of 0% of VAT (zero-rated), but it remains unclear what will happen after March 31 next year when the new ruling is withdrawn.

There was previously concern that a proposed technical amendment to the VAT Act would result in consumers paying 14% more for these specific types of brown bread as the planned changes would have excluded them from the definition of “brown bread”, which is zero-rated, from early next year.

The Sars ruling confirms that the zero-rating on all categories of brown bread will remain intact until at least March 2018.

The background

A Practice Note issued by Sars in 1993 to provide guidance on the VAT classification of various types of brown bread advised that whole-wheat brown bread, high-fibre brown bread, high-protein brown bread and brown health bread were all considered brown bread and qualified as zero-rated items, but the Practice Note was subsequently withdrawn.

Government gazetted new bread regulations earlier in 2017, but the industry felt that the requirements of the Practice Note were less onerous than the new regulations, Sars says in its new ruling, issued on November 27.

“There was also uncertainty in understanding how to apply the relevant regulations in zero-rating the supply of brown bread for VAT purposes.

“Industry therefore continued to rely on the Practice Note as a policy statement, in determining which supplies of brown bread qualify to be supplied at the zero rate,” it says.

Charles de Wet, head of indirect tax at PwC Africa, says the new ruling confirms that the zero-rating is also applicable to wholewheat brown bread, high-fibre brown bread, high-protein brown bread and brown health bread, but it only applies from April 1, 2016 until March 31 2018.

“It is unclear what happens after that date,” he says.

The Sars ruling follows the publication of a parliamentary report by the standing committee on finance on November 14, which confirms that an official announcement will be made to provide clarity on the brown bread issue.

It also says that National Treasury has previously explained that the proposed changes to the bread definitions were of a technical nature and not a change in policy, suggesting that the amendments were not aimed at raising revenue from these categories of brown bread by levying VAT at the standard rate of 14%.

“An official announcement will be made to provide certainty to consumers and vendors until an announcement is made by the minister in the budget and legislative effect is given to that announcement,” the report says.

As a result, Treasury might still decide to impose the standard VAT rate of 14% on wholewheat brown bread, high-fibre brown bread, high-protein brown bread and brown health bread from April 2018.

Official announcement will provide certainty.