STORM BREWING

R2.9 BILLION: TRANSPORT SECTOR’S INCREASED VAT BILL

It’s looks like stormy weather ahead for the transport sector – the minibus taxi industry in particular – as the VAT zero rating on petrol and diesel is removed, forcing customer prices higher.

VAT on diesel and petrol is likely to add to the transport sector’s tax bill, a cost that will likely be passed on to consumers, driving inflation higher.

The taxi industry will be hard-hit once the proposed scrapping of the value-added tax (VAT) zero rating on diesel and petrol is implemented. Finance Minister Pravin Gordhan proposed in the 2017 budget review the removal of the zero rating in an effort to expand the VAT base.

Added burden

Ferdie Schneider, head of tax at BDO, says a rough calculation indicates that the potential tax on previously untaxed parts of the transport industry could contribute around R2.9 billion.

Schneider says the overall expected fiscal gain could be more than R15 billion.

VAT expenditures are estimated at R41.7 billion or almost 40% of the total tax expenditures of R109.6 billion. Tax expenditures include refunds, annual exclusions, tax deductions, preferential tax rates for small businesses and then also the zero rating of basic food items, petrol, diesel and paraffin.

Deloitte indirect tax leader Severus Smuts says the zero rating is no major concession.

The fuel price will increase between 10% and 14% depending on the relief (or lack thereof).

“Petrol is a bare essential for most South Africans because people either use their own transport or public transport (taxies and buses) to get to work and back. Since transport is part of the basket for measuring inflation, it (inflation) will increase.”

This will certainly contribute to the further erosion of disposable income, says Smuts, who is vice-chair of the South African Institute of Tax Professionals.

Charles de Wet, indirect tax partner at PwC, says the initial decision to zero rate the sales of diesel and fuel was based on the fact that it would be a tax on top of a tax.

Currently, 36% of the retail price of petrol represents the general fuel levy, the Road Accident Fund levy and customs and excise levy. In the case of diesel, the taxes constitute 40% of the retail price.

It was also argued that the fuel levy was easy to operate and it was efficient because of the few collections points. It also eased administrative issues. De Wet says the proposed tax upon tax may increase the administrative burden.

Petrol is a bare essential for most South Africans because people either use their own transport or public transport

Severus Smuts Deloitte indirect tax leader

Inputs versus outputs

The downside for the transport industry is that public road and rail transport are exempt from VAT, which means input VAT cannot be claimed.

Smuts says another area that has been targeted to broaden the VAT base is cloud computing and online application services.

“I think the entire list of electronic services is going to be revised.”