Difficulties registering for VAT
Over the past 24 months, tax practitioners and businesses have experienced problems registering for VAT. In some instances, this has prevented businesses from starting operations and from submitting contracts or tenders.
“Business activities should be conducted in a legal manner and in compliance with applicable rules and regulations. The need to be compliant, however, should not hinder the creation or success of businesses,” says a tax partner at a global audit, tax and advisory firm.
“It appears that SARS is concerned that businesses register for VAT only to claim input tax credits without the certainty that they’ll pay VAT back in the near future, which creates a cashflow drain on the fiscus,” he says.
To avoid this, SARS now requires businesses to provide proof of trade.
A newsletter issued by SARS lists requirements such as details or copies of invoices issued, tenders already awarded and signed lease contracts as acceptable proof that trade is being conducted. SARS no longer accepts cash and sales forecasts, or business plans as proof of expected turnover.
“This causes a problem for start-up businesses, especially when the business involves a fairly long and costly set-up phase, as is the case with many manufacturers and more particularly, property developers. It puts them at a cashflow disadvantage because they’ve incurred VAT on start-up expenses, but can’t recover any of this from SARS.”
Many developers finance a property through a new venture and then incur costs to meet municipal requirements before the first erf is sold; and in the current economic circumstances, this may take some time. “A taxpayer wishing to register under these circumstances will need nerves of steel and time to spare, as getting a VAT number could be a lengthy process and may involve following up with SARS’s more executive personnel.”
He asks whether SARS, in trying to reduce the risk of VAT vendors being a cash drain on the fiscus, has taken into account its own VAT law or the impact this will have on business?
For example, Section 23(3(d) of the VAT Act indicates that businesses already carrying on trade activities as well as businesses that ‘can reasonably be expected to result in taxable supplies being made for a consideration only after a period of time…’ may register for VAT . Regardless of this, SARS’s current onerous requirement for proof of trade does not cater for businesses that will only produce income in the future.
“These problems and concerns have been taken to SARS in various forms by a number of lobby groups but to date, the problem is yet to be solved,” he concludes.
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