Tag: VAT

By Allison Jeftha for Fin24 

Fin24 went shopping at South Africa’s leading retailers to see who has the lowest prices on products exempt from the increase in value-added tax (VAT).

The VAT hike from 14% to 15% came into effect on April 1, after an announcement by former finance minister Malusi Gigaba in the 2018 Budget.

There has been a widespread backlash to the impact it will have on South African consumers’ pockets, especially those of the poor.

Only 19 items have been excluded from the VAT hike.

The current list of VAT-exempt items comprises the following items:

• Brown bread
• Maize meal
• Samp
• Mealie rice
• Dried mealies
• Dried beans
• Lentils
• Pilchards/sardines in tins
• Milk powder
• Dairy powder blend
• Rice
• Vegetables
• Fruit
• Vegetable oil
• Milk
• Cultured milk
• Brown wheat meal
• Eggs
• Edible legumes and pulses of leguminous plants

When Fin24 conducted a snap poll among users to share their views on the VAT increase and to tell us which items they would like to be added to the current VAT-free list, we were inundated with responses.

The message was clear: the current list of items is not enough.

Fin24 previously reported that Finance Minister Nhlanhla Nene said government will continue to hold talks with stakeholders in a bid to soften the blow of the VAT hike on the poor, and is prepared to look at expanding the list of zero-rated goods.

Fin24 filled some trolleys at Pick n Pay [JSE:PIK], Woolworths [JSE:WHL], Spar [JSE:SPP], Checkers and Shoprite [JSE:SHP] to get an idea of what the basket of goods would cost.

Here’s what we found:

  • Pick n Pay – Total Price: R363.64
  • Woolworths – Total price: R592.19
  • Spar – Total price: R400.55 spar
  • Shoprite – Total price: R331.08
  • Checkers – Total price: R403.17

The winner is Shoprite, with Pick n Pay not far behind. To be fair, Fin24 compared house brands, and where there weren’t, we chose the cheapest comparable items.

Where the quantities of comparable items in-store differed, we checked for the prices of the like-for-like items of the respective retailers online. The only two retailers that had different size packaging were Pick n Pay and Woolworths. The comparable sized items were found on their websites.

By Pieter van der Merwe for Jacaranda FM

Currently, South Africa has 19 items that are exempt from value-added tax (VAT).

An expert panel is expected to review the existing list of zero-rate items and consider possibly extending the list of items exempt from VAT.

The Minister of Finance has asked that the panel be appointed to probe the impact of the recently announced increase in VAT on the poor.

The tax will go up from 14 to 15% at the beginning of April – the increase in democratic South Africa.

“The review will consider expanding the list of basic food items that are VAT zero-rated, and also consider how specific expenditure programmes can be improved to better target poor and low-income households,” reads a statement by Treasury.

The panel will also accept imput from the public in and various social stakeholders during the process.

The panel, which will be led by Professor Ingrid Woolard, is set to submit its first report by the end of June.

The South African Revenue Service (SARS) meanwhile says it is ready to implement in the one percentage point increase come the first of April.

“SARS teams have been working on changes to the systems which are used to receive VAT declarations made by vendors and calculate any VAT refunds or VAT due to SARS,” reads a statement.

SARS adds changes have also been made to the VAT201 forms.

While the Revenue Service says it does not expect many challenges, it has given large vendors a four month grace period to reflect the change in prices.

1 April: 4 major taxes are coming

While analysts praised former finance minister Malusi Gigaba for a budget speech that steered clear of any shocks or nasty surprises, there are still a number of big changes that will hit South African pockets come April.

VAT hike

Arguably the biggest of these is the increase in the effective VAT rate, which will rise from 14% to 15% adding approximately R22.9 billion to the fiscus.

Bruce Fleming, a financial planner with Old Mutual Private Wealth Management said that the increase was a tough political decision – but said it was important to remember that it is the first such adjustment since 1993 and was therefore overdue.

However, Fleming warned that all households will feel the pinch of the increase, and while zero-rated food items will take some of the increased burden off the poor, there has been no further developments as to whether more items will be added to the basket or even if additional items will be introduced at all.

Fuel levy

Commuters are expected to feel additional pain from 4 April with an increase in the fuel levy – although this increase could be slightly offset by a stronger rand and lower oil prices.

From this date the fuel levy will be increased by 52c per litre on 4 April, pushing up the general fuel levy to R3.62 per litre of petrol, after a hike of 30c per litre last year.

“This is quite significant as it will place an extra burden on all road users especially on those who mostly rely on public transport and will ultimately have an effect on inflation,” said Fleming.

Sin taxes

As expected there was another increase in sin taxes and South Africans will pay between 6% and 10% more for alcohol, while smokers will be paying 8.5% more to sustain their habit.

Fleming said that this is expected to bring in an additional R1.33 billion in revenue in the 2018/19 financial year.

However, the increase in South Africa’s sin taxes are also particularly notable this year, given the recent push towards further legislating both alcohol and smoking regulations.

This means that we could see both a ban on public smoking and an increased drinking age (from 18 to 21) by the next budget speech.

‘Not Wealth’ taxes

“Income tax for the higher earners will continue to squeeze them as there is no relief for inflation in the top four tax brackets,” said Fleming.

“While the bottom three personal income tax brackets as well as the primary, secondary and tertiary rebates will be partially adjusted for inflation through a 3.1% increase, the top four brackets will remain unchanged.”

Despite not seeing a direct increase in the higher wealth brackets, the budget was notable in the amount of ways it plans to indirectly tax wealthier South Africans.

This includes an increase in estate duty from 20% to 25% for estates worth R30 million or more, an explicit tax on smartphones, and an increase in the tax on vehicle prices.

Source: Supermarket & Retailer

One of the biggest changes in finance minister Malusi Gigaba’s recent budget speech was the proposed increase of the VAT rate to 15%.

While the rate is still subject to final parliamentary approval, it is expected to come into effect from 1 April 2018.

Despite the increase being the first in over two decades, the VAT Act currently contains a number of rules which cater for an increase in the VAT rate.

These rules cover, for example, what happens when contracts have been entered into before the VAT rate is increased, where no invoice has yet been issued or payment received.

They also explain why its important to actively track and issue receipts when these transactions are made, to ensure that the correct VAT rate is applied.

Di Hurworth, director of Value Added Tax at KPMG South Africa, broke down exactly how these rules will work when the VAT rate changes in April:

Should goods have been provided before 1 April, or services performed before 1 April, then the current VAT rate (14%), not the new VAT rate of 15%, will apply.

Should goods be provided on a periodic basis or services be performed over a period which falls before and after the effective date of 1 April, then an apportionment must be made on a fair and reasonable basis and the 14% VAT rate will apply to the portion before 1 April 2018, and the VAT rate of 15% will apply on the portion of the supply of goods or services from 1 April 2018.

Specific rules relate to the sale of fixed property.

Hurworth said that there were also special considerations where the time of supply (invoice or payment) falls within the period from the date the minister announces the increase in the VAT rate (21 February 2018) and ending on 1 April 2018.

“If the goods will be provided more than 21 days after 1 April, or the services will be performed after 1 April, the new VAT rate should be charged on the supply of goods or services – i.e. 15%,” she said.

“However, there are certain exceptions to this. This rule therefore prevents invoices being raised before 1 April where goods will be supplied more than 21 days after the effective date.”

Source: Supermarket & Retailer

Wealth tax and VAT hike being considered

With a massive tax shortfall in South Africa, new ways of drawing in revenue for the fiscus are being considered, including a wealth tax.

However, experts warn that a wealth tax is unlikely to cover even a quarter of South Africa’s current debt shortfall of R50 billion, meaning that a VAT increase in some form is also likely.

This is according to Judge Dennis Davis, who was speaking to BusinessDay ahead of a new wealth tax report set to be released by the Davis committee at the end of November.

Early signs indicate that a wealth tax could raise as little as R6-billion, meaning that it will have to be used in conjunction with other tax hikes.

“The problem with a wealth tax in SA is that it would be levied on an incredibly narrow base,” said Davis. “A huge amount of wealth in SA is also tied up in retirement funds, and we are busy investigating the implications of that.”

The committee is also concerned that a new wealth tax may penalise middle-class savings, and is aware that the South African Revenue Service (SARS) would need to institute a sophisticated system to administer it.

In comparison, Davis said that just a 1-percentage-point increase in the VAT rate (bringing it to 15%) would raise R20 billion.

Another option being mooted is a multi-tiered VAT system of 0%, 14% and 20%, said Davis.

This would result in a further twenty “necessities” being zero-rated, while luxury items such as smartphones could see a 20% VAT tax.

“It all comes down to the fact that we have to increase VAT,” said Davis. “Raising personal and company income tax isn’t going to get us there.”

Wealth tax

The Davis Tax Committee issued a media statement on 25 April 2017, calling for written submissions on the introduction of a possible wealth tax in South Africa.

This proposal arrived two months after an increase in the top income tax bracket for individuals by 4% to 45%, resulting in an effective capital gains tax (CGT) rate for individuals of 18%. This should be seen on the back of the increase the CGT rate by nearly 5% from 13.32% in 2014 to the current 18% in 2017.

Unlike income tax, where taxes flow from earnings (ie wages, salaries, profits, interest and rents), a wealth tax is generally understood to be a tax on the benefits derived from asset ownership.

The tax is to be paid on the market value of the assets owned year on year, whether or not such assets yield any income or differently put, it is typically a tax on unrealised income.

According to law firm ENSAfrica, while a wealth tax may undoubtedly be beneficial to address the divide between top and bottom level income earners, two main problems have been identified by some of the countries that have abolished this tax, namely the disclosure and valuation of the applicable “wealth”.

“Some of the reasons for its abolition have been cited as the disproportionately high administration and compliance costs associated with this form of tax, as well as capital flight from the country, said ENSAfrica.

“This sentiment is shared by France, where one report, established by the French Parliament, estimated that more than 500 people left the country in 2006 as a result of the impôt de solidarité sur la fortune (or ISF wealth tax). ”

“Looking at the above factors, it is difficult to see how a wealth tax will assist to improve South Africa’s weak economic growth and unemployment, in particular, if it incites a further flight of capital and a resultant decrease in economic activity,” it said.

Source: Supermarket & Retailer 

VAT hike on the cards

The head of EY’s Africa tax practice has called for the finance minister to be bold and increase the Value Added Tax (VAT) rate by two percentage points in February’s budget, arguing that some large companies have long been readying themselves for the costly exercise of changing systems to accommodate a higher rate.

Africa tax practice head Lucia Hlongwane said in an interview this week that basic foodstuffs were already zero-rated to protect the poor and SA’s VAT rate was below the average for the African continent.

She said the VAT rate had been politicised, but the challenge was to bring down the public debt and “we have to take the pain now”.

Most tax practitioners remain convinced that Pravin Gordhan will not go the VAT route to plug the revenue gap when he tables his budget on February 22, with predictions that he will instead get more out of income tax, especially personal income tax, estate duty and a variety of smaller taxes.

“Tax hikes across the spectrum are a must,” Deloitte Africa head of taxation services Nazrien Kader said on Tuesday.

The medium-term budget projected that R28bn of additional tax would need to be raised in 2017-18 even after the expenditure ceiling was reduced by R10bn.

At 14%, SA’s VAT rate is lower than the Africa average of 15.25% and substantially lower than the Organisation for Economic Co-operation and Development’s average of 19.1%.

The Davis tax committee has estimated that an increase of one percentage point would raise an additional R15bn.

Deloitte director Severus Smuts said if the VAT rate were to be hiked, the list of zero-rated items would have to be reviewed to take account of foods households earning R3,000 to R10,000 relied upon.

With SA still at risk of a ratings downgrade, CEO of EY Ajen Sita said while Gordhan “knows how to keep us out of trouble, what we also want to see is new ideas to take us out of our current state”.

Norton Rose Fulbright head of tax Andrew Wellsted said although hikes in capital gains tax and income tax rates at the higher end would not be a surprise, “I don’t think tax will steal the show in this politically charged environment”.

The budget would be closely watched for what the minister would say on spend items such as the nuclear programme, tertiary education fees and National Health Insurance.

By Hilary Joffe for www.businesslive.co.za

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My Office News Ⓒ 2017 - Designed by A Collective


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