SYNOPSISOctober 2006
Advance tax rulings in respect of VAT . . . . . . . . 8
Reportable arrangements revamped . . . . . . . . . 0
Fifteen years of VAT in South Africa . . . . . . . . . 11
VAT in Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Highlights of the Draft Revenue LawsAmendment Bill 2006 . . . . . . . . . . . . . . . . . 2
Accrual of income . . . . . . . . . . . . . . . . . . . . 3
Recreational clubs to be partiallytax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . 4
The new general anti-avoidanceprovision . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2 October 2006
The highlights of the statutory amendments foreshadowed by the just-released Draft
Revenue Laws Amendment Bill 2006 are set out below.
Estate Duty Act
The Commissioner is to have
to the power to appoint any
person to be the agent of any
other person in respect of the
payment of duty by the latter
(proposed section 12A) and
will have the same remedies
against property vested in or
under the control or
management of any agent or
trustee as the Commissioner
would have against the
property of the person who is
liable for duty or interest
(proposed section 12B).
Income Tax Act
� A definition is to be provided
of “country of residence”
and “foreign business
establishment” for purposes
of the provisions governing
controlled foreign companies;
(proposed section 9D(1));
� New provisions in respect of
tax exemption for recreational
clubs; (proposed section
10(1)(cO) to dovetail with the
new section 30A;
� New provisions regarding
the tax exemption for
scholarships or bursaries;
(proposed section 10(1)(q)
read with the proposed
section 30A);
� Deductions in respect of
scientific or technological
research and development;
(proposed section 11D);
� A significant expansion of
the deductions available to
personal services companies
or personal service trusts;
(proposed section 23(k)(iii));
� A new category of public
benefit organisation, namely
an agency or branch in the
Republic of a company or
association formed outside
the Republic which is
exempt from tax in that other
country; (proposed section
30(1)(a));
� Section 103(1) and (3) are to
be deleted and replaced by
a proposed new Part IIIA
dealing with “impermissible
tax avoidance arrangements”;
� Section 76A which deals
with reportable arrangements
is to be deleted and
replaced by Part IIB;
� There is to be a new
definition of “personal
service company”;
(proposed paragraph 1 of
the Fourth Schedule);
� Public benefit organisations
are to disregard any capital
gain or loss in respect of the
disposal of an asset not
used for any business
undertaking or trading
activity or which was used,
since the valuation date, in
carrying on a public benefit
activity; (proposed paragraph
63A of the Eighth Schedule);
� An expanded provision
dealing with the deemed
disposal, for capital gains
tax purposes, of an asset to
the taxpayer’s surviving
spouse; (proposed
paragraph 67(2)(a) of the
Eighth Schedule);
� The introduction of a 10th
Schedule to deal with oil and
gas activities.
Value Added Tax Act
The extension of the system of
advanced tax rulings to
value-added tax (proposed
section 41A of the Act).
Highlights of theDraft Revenue LawsAmendment Bill 2006
3October 2006
The accrual of income
Another taxpayer falls into the trap
Unfortunately, some taxpayers try
to economise on professional fees
and either manage their own tax
affairs (a sure recipe for expensive
errors) or else assume that the
professionals who draft their
contracts are well-versed in the
principles of tax (a dangerous
assumption).
Contracts that make excellent
sense and are well-drafted from a
commercial perspective may be tax
disasters. Woe betide the
draftsperson who has the law of
contract at his or her fingertips but
has never got around to studying
income tax.
In Case 11661 (decided in the
Durban Tax Court on 26 May 2006
and not yet reported) the taxpayer
was a manufacturing company that
sold products to wholesalers. Its
standard conditions of sale included
a term which stated that –
“Should payment be made by purchaser
to seller not later than the 25th day … of
the month following the month during
which delivery takes place, the purchaser
shall be entitled to deduct a settlement
discount from his payment, in
accordance with the seller’s discount
scheme …”
During the tax year in question, the
taxpayer calculated its gross income
by deducting the applicable
settlement discount, on the
assumption that the debtor would
pay the account by the 25th of the
month. At the end of the 2003 tax
year, these discounts totalled just
over R4 million. In computing its
gross income for tax purposes, the
taxpayer deducted the aggregate of
such discounts.
SARS raised an additional assessment
which added that discount to the
taxpayer’s gross income.
The crisp issue before the tax court
was whether the so-called “settlement
discounts” formed part of the
taxpayer’s gross income. This turned
on whether the amounts in question
had “accrued” to the taxpayer, even
though they had not been “received”
by him, since the Income Tax Act
defines “gross income” as including
both receipts and accruals.
Citing the well-known cases of
Lategan v CIR 1926 CPD 203 and
CIR v People’s Stores (Walvis Bay)
(Pty) Ltd 1990 (2) SA 353 (A) the
court held – correctly it is submitted
– that an amount “accrues” to a
taxpayer when he becomes
“entitled” to the amount and that, on
the facts of the matter, the taxpayer
became entitled to the full selling
price. The fact that the taxpayer’s
accounting system treated the
amount due as the selling price
less the discount could not (said
the court) alter the situation from a
tax point of view.
The tragedy was that, if the person
who drafted the standard contract
had been aware of elementary
principles of tax law, he or she
could have ensured that only the
discounted amount accrued to the
taxpayer.
This could have been achieved by
the simple stratagem of making the
discounted amount the selling price,
and writing a suspensive condition
into the contract in terms of which, if
the price was not paid by the 25th of
the month, a further amount would
become payable. It is well established
that an amount “accrues” only if and
when the taxpayer acquires an
unconditional right to it.
The tax consequences of a contract
can often be (legally) manipulated in
this way. The fundamental principles
as to the time when an amount falls
to be included in the taxpayer’s
gross income, and the time when
tax-deductible expenditure becomes
deductible are based on the legal
concepts of the “accrual of a right”
and the “incurring of a legal
obligation” respectively.
A taxpayer cannot, merely by
drawing up his accounts in a
particular way, delay the accrual of
income or bring forward the time
that an obligation is incurred.
The South African tax landscape is strewn with pitfalls for the unwary taxpayer. A taxconsultant earns his or her keep by guiding the client around the traps.
4
Clubs to be partially tax-exemptCurrently, section 10(1)(d)(iv)(aa) of the Income Tax Act 58 of 1962 grants an exemption fromincome tax to any company, society or association established to provide social and recreationalamenities or facilities for its members.
SARS has become concerned that
clubs are enjoying this exemption
even where they allow their
amenities to be used by the general
public, and that some clubs are
involved in extensive trading
activities in order to supplement
their membership fees.
SARS has also taken note of
concerns that the exemption
accorded to recreational clubs is
anomalous, in that they are
currently treated more leniently than
public benefit organisations, which
have recently been made subject to
a system of partial taxation.
Under the new dispensation,
recreational clubs are to be subject
to a system of partial taxation, and
will be tax-exempt only within the
confines of the “mutuality principle”
– that is to say, the principle that
where a number of taxpayers join
together to provide funds to share
the expenses of creating amenities
for their common enjoyment (such
as the construction of tennis courts,
golf courses, swimming pools,
club-houses, etc.) they can do so
without incurring any tax liability.
Tax exemption is to be available
only for such cost-sharing
situations. Income derived from
non-members will not be exempt.
A “recreational club” (as defined in
the new section 30A) will be exempt
from tax on membership fees and
subscriptions paid by members,
payments by members for social or
recreational facilities (e.g green fees
for playing a round of golf), and
fund-raising activities of an
occasional nature and undertaken
substantially on a voluntary basis
and without compensation.
The first R20 000 of other income
(for example, investment income
and income derived from letting out
Change of rules for recreational clubs
Under the new dispensation,
recreational clubs are to be
subject to a system of partial
taxation, and will be tax-exempt
only within the confines of the
“mutuality principle”.
October 2006
5
the club premises to non-members)
will be exempt from tax, and the
balance will be taxable in the
ordinary way.
Expenditure in producingexempt income; roll-over ofcapital gains
The club’s expenditure incurred in
producing tax-exempt income will
not be able to be offset against
taxable club income.
Capital gains on the disposal of
club assets (for example, the
sub-division and sale of part of the
club property) will qualify for
roll-over relief, and CGT will be
deferred if the club uses the
proceeds of the sale to purchase an
asset for the club that will produce
tax-exempt income.
Clubs will have to apply toSARS for exemption
Tax exemption for recreational
clubs will not be automatic, and
they will have to apply to SARS for
exemption in much the same way
as public benefit organisations.
Clubs are to be accorded a lengthy
transition period in this regard, and
application must be made before
31 March 2011 or the last day of
the club’s first year of assessment.
The Commissioner cannot deny
exemption if the statutory conditions
are fulfilled, namely that -
� the club is committed to carrying
on its activities solely in a
non-profit manner;
� its surplus funds cannot be
distributed, except upon
dissolution, in which event, it
must transfer its funds an assets
to another tax-exempt club or to
approved public benefit
organisations;
� it pays only reasonable
remuneration;
� all members are entitled to
membership for at least a year
(hence, for example, day-
members’ fees will not be exempt
from tax);
� members cannot sell their
membership rights;
� the club does not knowingly
become involved in tax avoidance
schemes.
Where a club’s constitution does not
satisfy these requirements, it will
suffice if a person in a fiduciary
position vis-à-vis the club gives the
Commissioner a written undertaking
that the club will be administered in
compliance with these requirements.
Violation of these rules can result in
the club’s forfeiting its tax-exempt
status, but SARS must give the club
notice and an opportunity to put its
affairs in order within a stipulated
period.
Once the Commissioner has
withdrawn his approval of a
recreational club, it must within three
months transfer its remaining assets
to another approved recreational
club or an approved public benefit
organisation, other than a connected
person vis-à-vis the club.
If the club fails so to transfer its
assets, or take reasonable steps to
do so, then a drastic consequence
ensues – the market value of the
assets not transferred will be
deemed to be taxable income
accruing to the club in the tax year in
which the Commissioner withdrew
approval.
October 2006
6 October 2006
Part IIA of the Income Tax ActThe centerpiece (and the focus of attention in the business press) of the proposed amendments tothe Income Tax Act is the new general anti-avoidance provision which is to replace section 103(1).
The relatively concise provisions of
section 103(1) and (3) are to be
replaced by twelve new complex
sections, comprising sections
80A–L, which together constitute a
new Part IIA of the Act entitled
“impermissible tax avoidance
arrangements”.
Complex and novel features
The most striking novel features of
the Part IIA are –
� the criterion of “commercial
substance”; (stated in section
80A(a)(ii) and expanded on in
detail in section 80C);
� the criterion of whether the
arrangement in issue “would
frustrate the purpose of any
provision of [the Income Tax]
Act” (proposed section 80A(c)(ii));
� new powers given to the
Commissioner in relation to an
“impermissible avoidance
arrangement” (section 80B) and to
determine whether parties are
“accommodating or tax indifferent
parties” and whether there has
been a “tax benefit”(section 80F);
� a criterion of “commercial
substance” in an arrangement;
(section 80C);
� the concept of “accommodating
or tax-indifferent parties”(section
80E).
The three phases of thegeneral anti-avoidanceprovision
This is the third major revamp of
section 103(1). In its first phase,
section 103(1) lasted from its original
enactment in 1978 to its amendment
in 1996.
1The pre-1996 format of
section 103(1)
In its pre-1996 format, section
103(1) distinguished between
legitimate and illegitimate tax
avoidance on the basis of four
criteria, namely –
(a) the existence of a “transaction,
operation or scheme”;
The new generalanti-avoidance provision
7October 2006
(b) that had the effect of avoiding,
postponing or reducing liability
for tax;
(c) which was entered into in an
abnormal means or manner or
which created non-arm’s length
rights or obligations between the
parties; and
(d) which was entered into for the
sole or main purpose of tax
avoidance.
If all of these elements were
simultaneously present, section
103(1) empowered the Commissioner
to determine the parties’ tax liability
as though the scheme had not been
entered into or carried out, or in
such other manner as he deemed
appropriate to prevent or diminish
the tax avoidance. In terms of
section 103(4), if a transaction had
the effect of avoiding tax, it was
rebuttably presumed that it had
been entered into with a sole or
main purpose of tax avoidance.
There are contested assessments in
the pipeline, still to come before the
courts, which have to be determined
under the pre-1996 format of
section 103(1).
2The post-1996 format of
section 103(1)
The second phase of section 103(1)
lasted from its 1996 amendment to
the coming into force of the
proposed Part IIA.
The reason for the 1996 amendment
was that, from SARS’s perspective,
a major weakness of section 103(1)
in its pre-1996 format was its
“abnormality” criteria, for it was
possible for taxpayers to argue that
that it was not “abnormal” to
structure a transaction so as to
minimise liability for tax, because it
is ordinary business practice to do
so. The validity of this argument has
never been determined by the courts.
The essence of the 1996 amendments
to section 103 was as follows:
� In relation to a transaction,
operation or scheme “in the
context of business”, the
“abnormality” criteria were
replaced by the criterion of
whether the transaction had been
entered into or carried out “in a
manner which would not normally
be employed for bona fide
business purposes other than the
obtaining of a tax benefit”.
Consequently, a transaction which
was not abnormal in its means or
manner or in its rights and
obligations (and which would
therefore have been outside the
scope of section 103(1)) in its
pre-1996 format) became
vulnerable to the section in its
post-1996 format if the transaction
fell within the scope of this new
formula.
� In relation to a transaction,
operation or scheme which was
not in the context of business, the
Commissioner could invoke
section 103(1) where it was
entered into by means or in a
manner which would not normally
be employed in the entering into
or carrying out of a transaction,
operation or scheme of the nature
of the transaction, operation or
scheme in question. Transactions
which were not “in the context of
business” probably included
arrangements such as the
creation and operation of family
trusts, at least where the trust did
not carry on a business.
� The amended section 103(1)
retained, as an alternative, one of
the pre-1996 criteria, namely
whether the transaction, operation
or scheme “has created rights or
obligations which would not
normally be created between
persons dealing at arm’s length
under a transaction, operation or
scheme in the nature of the
transaction, operation or scheme
in question”.
� A new expression – “tax benefit”–
was introduced into the section
and was defined as including any
avoidance, postponement or
reduction of any tax, duty or levy
imposed by the Income Tax Act or
any other law administered by the
Commissioner.
The 1996 amendments did not
abolish the requirement that the
taxpayer must have entered into the
transaction, operation or scheme
solely or mainly for the purposes of
obtaining (what was now called) a
“tax benefit”, and this requirement
remained an overriding condition
precedent to the application of
s 103(1).
A consequence of the way in which
the 1996 amendments were drafted
8 October 2006
was that a taxpayer could, with
impunity, enter into a transaction
that was (objectively) abnormal, so
long as he did not have a (subjective)
sole or main purpose of tax
avoidance. Conversely, a taxpayer
could with impunity enter into a
transaction with the (subjective) sole
or main purpose of tax avoidance as
long as it was not (objectively)
abnormal.
This meant that if two taxpayers, A
and B, entered into exactly the same
type of transaction, which involved
an abnormal means or manner or
abnormal rights and obligations, the
result could be that section 103(1)
applied to A, but not to B, because
A had a sole or main purpose of tax
avoidance, but B did not. Indeed,
this could happen even if A and B
had entered into the particular
scheme with one other, with the
result that the Commissioner could
invoke his draconian powers in
relation to one, but not the other!
There are many disputed
assessments, still to be heard by the
courts, involving section 103(1) in its
post-1996 format.
3Phase three – Part IIA of the
Income Tax Act
It is proposed that Part IIA of the
Income Tax will come into force with
effect from the commencement of
years of assessment ending on or
after 1 January 2007.
An unwelcome aspect of the
introduction of Part IIA is that it will
take many years – perhaps decades
– for the High Court and the
Supreme Court of Appeal to rule on
the interpretation of these new
provisions, and the novel concepts
such as “a lack of commercial
substance”, and whether a
particular tax scheme “would
frustrate the purpose” of any
provision of the Income Tax Act.
In the meantime, the business
community and their professional
tax advisers will have to endure
prolonged uncertainty as to whether
or not a proposed arrangement, or
an arrangement which they have in
fact entered into, will be found to
have infringed Part IIA. This
uncertainty will be particularly acute
in relation to innovative methods of
financing business deals, for it may
be very difficult to determine
whether or not a particular
arrangement “lacks commercial
substance” (as contemplated in
section 80C) or involves “round trip
financing” (as contemplated in
section 80D).
One way for businesspeople to deal
with this uncertainty would be to
write into the contract that particular
contractual provisions will change,
or will be unwound, if SARS
succeeds in invoking Part IIA, or even
if SARS merely gives notice in terms
of section 80J that it may do so.
Such a contractual provision is not
void or impermissible – it merely
makes the contract a “reportable
arrangement” in terms of the
proposed Part IIB of the Act. But it
may be preferable for the parties to
a tax scheme to decide for
themselves, at the outset, how to
unwind the scheme if it is attacked
by SARS, rather than to leave
themselves at the mercy of SARS’s
extensive new statutory powers to,
inter alia, “re-allocate gross income”
or “recharacterise expenditure” in
terms of section 80B.
Advance tax rulings inrespect of VATIn terms of the Draft Revenue Laws Amendment Bill 2006, the
provisions contained in Part IA of chapter III of the Income Tax Act
in relation to advanced tax rulings are to be made applicable,
mutatis mutandis, to the Value Added Tax Act 89 of 1991.
Any procedures and guidelines issues by the Commissioner in
terms of section 76S of the Income Tax Act for the implementation
and operation of the advanced tax ruling system are to apply,
mutatis mutandis, to VAT.
The new anti-avoidance provision
9October 2006
Reportable arrangements revamped
Currently, section 76A of the Income Tax Act provides for the obligatory reporting to SARS oftwo types of arrangement, namely –
� those that result in a tax benefit
and are subject to an agreement
that provides for the variation of
interest, fees, etc. if the actual tax
benefits of the arrangement
deviate from the envisaged tax
benefit;
� those falling within a special
inclusion list, which currently deals
with hybrid debt and equity
instruments.
The purpose of making such
arrangements reportable is to give
SARS early warning of arrangements
that may fall foul of the general
anti-avoidance provision of the Act
or in respect of which SARS may
take action under other statutory
provisions or the common law.
In its brief existence – scarcely 18
months – section 76A has yielded
disappointing results for SARS.
Fewer disclosures have been made
than were expected, and some
taxpayers have raised technical
arguments that their arrangements
did not require to be disclosed
because they fell outside the scope
of the section.
The proposed Part IIB
It is proposed that the present (fairly
concise) section 76A be deleted in
its entirety and replaced by a new
Part IIB, spanning section 80M–Q
which will deal exclusively and in
detail with reportable arrangements.
Section 80A will significantly expand
the definition of “reportable
arrangement” and will dovetail with
section 80C(2) (which forms part of
the new Part IIA and sets out the
characteristics of an avoidance
arrangement which has a lack of
commercial substance).
Subject to specified exceptions (set
out in section 80N) the obligation to
report will generally be triggered by
an arrangement which –
� provides for interest, finance
costs, fees or other charges which
are partly or wholly dependent on
New Part IIB raises the stakes
10
assumptions relating to the tax
treatment of the arrangement; (e.g
where the contract provides that
the interest, finance costs, fees,
etc, will be varied if they do not
qualify as tax deductions);
� has any of the characteristics of a
lack of commercial substance in
terms of the proposed general
anti-avoidance provisions
contained in the new Part IIA;
� will be disclosed by any participant
as a loan or financial liability for the
purposes of Generally Accepted
Accounting Practice but not for
income tax purposes;
� does not result in a reasonable
expectation of a pre-tax profit
for any participant; or
� results in a reasonable
expectation of a pre-tax profit
for any participant that is less
than the value of those tax
benefits to that participant on a
present value basis.
October 2006
The obligation to report a reportable arrangement
The obligation to report a reportable
arrangement is to fall on the
“promoter” of the arrangement –
defined as “any person who is
principally responsible for organising,
designing, selling, financing or
managing that reportable
arrangement”.
This wide-ranging obligation – which
will alarm accountants, attorneys,
consultants and financial institutions
countrywide – represents a radical
change from section 76A, in terms of
which the obligation to report fell only
on the taxpayer.
Conceivably, in relation to a single
“reportable arrangement” adopted by
a particular taxpayer, the obligation to
report to SARS (and the concomitant
penalty for failing to report) could fall
simultaneously on a host of
people other than the taxpayer,
since it is possible that a number
of individuals or institutions could
be “principally” responsible for
each of the stipulated facets of
the arrangement, namely
organising, designing, selling,
financing or managing it.
Hazards for adventurous draftspersons
It is likely that some draftspersons
will continue to try, as they did
with section 76A, to draw
contracts for themselves or their
clients in such a way as not to fall
within the scope of the new Part
IIB of the Act, so as not to trigger
the obligatory reporting.
This will be an even more
hazardous exercise than before.
Under the old section 76A, the
consequence of not reporting a
reportable arrangement was that
the taxpayer would be required to
pay, in addition to the ordinary
amount of tax, an amount
equivalent to the tax benefit
derived from that arrangement.
The new Part IIB raises the stakes
considerably, and failing to report
a reportable arrangement will
incur a penalty of up to R1 million.
(No provision is made for the
forfeiture of any legitimate tax
benefit achieved by the
arrangement.) The penalty is
incurred even if there was
nothing illegal about the
arrangement, and even if it
does not in fact infringe the new
general anti-avoidance
provisions. The penalty is
imposed simply for failure to
report a “reportable
arrangement”.
The Commissioner is given
power to reduce the penalty if
there are extenuating
circumstances and the participant
remedies the non-disclosure
within a reasonable time, or if the
penalty is disproportionate to the
envisaged tax benefit.
11
It was supposed to be a simple tax. An “in and out”. Somehoped, forlornly, that it was a passing fad and wouldn’t last
long. Well 15 years on, Value Added Tax in South Africa isgoing strong, being responsible for consuming (excuse thepun) thousands of hours of government, South AfricanRevenues Services, business and consultants’ time. Why,you ask, is so much time now devoted to administering andmanaging this tax?
The answer is simple, consumption
taxes – notably VAT, GST and
customs duties and excise – are
assuming ever-greater importance
as a revenue-collection tool across
the globe. They are also, by some
distance, the most cost effective
taxes to collect, since the taxpayer
does all the work. In 2002,
consumption taxes comprised
approximately 30% of total
taxation revenue in OECD
countries. Such a large amount of
money requires proper Government
attention to ensure collections are
maximised and leakage is kept
under control.
The flip side of having a
consumption tax system is that,
from a governmental perspective,
the use of VAT and other
consumption taxes to raise revenue
is politically unpopular as they are
viewed as regressive taxes, i.e they
take no account of the ability to
pay. Further, there is thought to be
a negative impact on GDP and
international competition for foreign
direct investment as cross-border
businesses seek tax-friendly
environments with low rates and a
minimum of red tape.
Businesses across the globe,
continent and country are giving
increased attention to their strategy
regarding indirect tax management.
It is now more necessary than ever
to ensure compliance and, where
necessary, have arguments ready
to defend business and tax
decisions from over-zealous tax
officials. SARS has access to
increasingly sophisticated people
(CAs, MBAs, economists) and tools
(data mining and benchmarking
software) to monitor and enforce
tax compliance, particularly on the
part of large corporations. It is also
happily agreeing protocols with
like-minded tax jurisdictions, of
which there are many, for the
exchange of information.
All this activity takes place within
the context of the constant tension
between the need to keep the tax
as straightforward as possible
using initiatives such as e-filing,
and the need for complex legislation
to counter tax avoidance. Going
forward, National Treasury will try
to keep tax legislation as simple as
possible without creating too many
escape hatches for the taxpayer.
SARS will continue to collect tax as
aggressively (and hopefully fairly)
as possible. Our guess is that as
SARS continues to raise its game it
will be the simple things that catch
taxpayers out like inadequate
documentation and VAT treatment
issues that one thought had long
since been resolved.
Fifteen years of VAT in South Africa
12
• Editor: Ian Wilson • Written by R C (Bob) Williams • Sub-editor and layout: Carol Penny
• Distribution: Elizabeth Ndlangamandla •Tel (011) 797-5835 • Fax (011) 209-5835
• www.pwc.com/za
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firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
In the last 15 years, many African countries haveimplemented VAT systems and have adapted their
VAT models to suit unique local circumstances,particularly to lessen the impact of the regressivenature of the tax by creating extensive categories ofexemptions and zero-rating.
Botswana introduced VAT in 2002 as a replacement for
sales tax at a rate of 10%, which is applicable to all supplies
that are not exempt or zero-rated. Exempt supplies include
financial services (but VAT is charged on any fee rendered for
a transaction), educational services and medical services.
Kenya introduced VAT in 1990 to replace sales tax. The
standard rate of VAT is 16%, and a 14% rate applies to hotel
and restaurant services.
Mozambique introduced VAT in 1999, with a rate of 17%.
Transactions within the country involving staple foods such
as maize flour, rice, bread and wheat are fully exempted.
Namibia introduced VAT in 2000, with a standard rate of
15%. Non-residents qualify for a refund of VAT on exported
goods. Services to non-residents directly in connection with
land and buildings are subject to VAT. The sale of a business
as a going concern is not zero-rated.
South Africa introduced VAT in 1991 with a standard rate of
14%. There is no reduced VAT rate, except for zero-rated
supplies. The supply of certain goods and services is exempt,
including certain financial services, residential
accommodation in a dwelling and educational services.
Certain supplies are zero-rated, including the supply of an
enterprise as a going concern.
Tanzania introduced VAT in 1998 with a standard rate of
20%, and no reduced rate except the zero rate.
Uganda introduced VAT in 1996 at a standard rate of 18%.
The supply of goods which are exported from Uganda are
zero-rated.
Zimbabwe introduced VAT in 2003 with three different VAT
rates – a standard rate of 15% (since increased to 17.5%), a
special rate of 22% for cellular telecommunication services,
and a zero rate.
VAT in Africa
Regional offices
Bloemfontein (051) 503-4100
Cape Town (021) 529-2000
Durban (031) 250-3700
East London (043) 726-9380
Johannesburg (011) 797-4000
Port Elizabeth (041) 391-4400
Pretoria (012) 429-0000