South Africa’s Minister of Finance Nhlanhla Nene issued two new sets of VAT regulations in May 2015 concerning the Value-Added Tax Act, which will allow new mining companies to register for VAT before they actually commence with the making of taxable supplies.
Law firm Webber Wentzel unpacked the importance of these regulations in its latest Tax E-Alert on Wednesday.
Commencement of a continuous and regular activity
The first set of regulations address a key obstacle to many newly-established businesses wishing to register as VAT vendors, namely the prerequisite that such businesses make taxable supplies of at least R50 000 per year.
This requirement has been a particularly vexing obstacle in the mining sector where new ventures often begin as prospecting or exploratory operations that find it difficult to register voluntarily as VAT vendors as no taxable supplies will be made for a number of years, Webber Wentzel notes.
This impacts the cash flow of the business as it incurs and pays substantial VAT when consuming goods and services from its suppliers, but has to wait until it is registered as a VAT vendor before it is entitled to claim any of the VAT back from SARS as input tax.
Not only beneficial to the mining sector when exploring for or extracting any mineral, metal, oil, gas or natural gas resource, the new regulations also pave the way for businesses conducting activities in the following sectors to access the VAT vendor status earlier in the lifetime of the business and hence claim VAT inputs earlier:
- agricultural sector: when cultivating land, breeding or raising livestock/ wild animals, planting tree plantations, farming aquatic organisms or plants or catching fish;
- manufacturing sector: when manufacturing plant, machinery, motor vehicles or locomotives;
- property sector: when constructing residential or commercial buildings for the purposes of sale or lease; and
- transport sector: when engaged in the construction of ships and aircraft.
The regulations also apply more broadly to businesses embarking on significant infrastructure projects (which exceed the value of R 1 million and where the completion date is expected be more than 12 months after the commencement date) and those engaging in any activity that involves the beneficiation of minerals extracted during the mining process.
“It is vital that an enterprise seeking to make a voluntary registration in the sectors referred to above is in possession of the relevant permit, licence or authorisation from any appropriate regulatory body allowing that enterprise to conduct the activity in question,” Webber Wentzel points out.
Expanded requirements for voluntary registration as a VAT vendor
The second set of regulations establish particular prescribed thresholds to bind the Commissioner’s discretion and to allow an enterprise to register as a VAT vendor despite holding merely the expectation of making taxable supplies in excess of R 50 000 in 12 months from the date of registration.
The new regulations outline five alternative scenarios sufficient to evidence early voluntary VAT registration under these circumstances, namely:
- the enterprise has a minimum of two months taxable supplies exceeding R 4 200 per month;
- if taxable supplies have only been made for one month then proof that the total exceeds R 4 200;
- written contracts evidencing the expectation of making taxable supplies in excess of R 50 000 in the 12 months following registration;
- a credit agreement with stipulated bodies wherein the enterprise undertakes to make repayment in excess of R 50 000 over the following 12 months; or proof of expenditure incurred in a written agreement or in the acquisition of capital goods which will exceed R 50 000 at least within the 12 months following the date of application.