Background My client is an importer of goods. Each tax period he has approximately 10 importation tax invoices from various shipping companies. For every VAT filing, SARS requests supporting documentation. SARS have rejected a VAT invoice
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The VAT Act
Section 7(1)(b) of the VAT Act imposes VAT on the importation of goods into South Africa.
Section 16(3)(a)(iii) of the VAT Act determines that a VAT vendor may deduct/claim input tax paid in terms of section 7(1)(b) of the VAT Act in respect of goods imported into South Africa by the vendor and released in terms of the Customs & Excise Act during the tax period.
Paragraph (a)(ii) of the definition of ”input tax” in section 1(1) of the VAT Act defines VAT paid on the importation of goods as input tax to the extent that the goods have been acquired for the purpose of consumption, use or supply in the course of making taxable supplies.
Section 16(2)(d) of the VAT Act determines that no deduction of input tax in respect of the importation of goods into South Africa may be made unless a bill of entry or other document prescribed in terms of the Customs & Excise Act together with the receipt for the payment of the VAT have been delivered (including by means of an electronic delivery mechanism) in accordance with the Customs & Excise Act and are held by the vendor making the deduction at the time that any return in respect of the importation is furnished.
Application of the principles
General comments
Input tax on the importation of goods into South Africa (generally referred to in practice as Customs VAT) cannot be claimed based on a tax invoice issued by a shipper or a clearing agent. It must be claimed based on the Customs importation documentation and proof that the VAT has been paid to SARS Customs.
The Customs documentation
As far as the Customs documentation is concerned, the goods imported must be cleared by Customs under the Home Use Customs Procedure (Customs Procedure A10). The procedure code (A10) and the date of clearance will be reflected on the Release Notification issued by Customs.
An input tax deduction may be made in the tax period that the goods are cleared by Customs (evidenced by the Release Notification). The VAT vendor making the deduction only needs to be in possession of the actual documentation on the date that the VAT return in which the deduction is made, is submitted.
For example, SARS Customs clears goods on (say) 31 March 2020 and the VAT is paid to SARS before the VAT return is due (see comments below regarding when payment of the importation VAT must be made), input tax on the importation of the goods may be made in the March tax period provided that the VAT vendor is in possession of the required Customs documentation by the time that the March VAT return is submitted (i.e. at the latest 30 April 2020).
Payment of Customs VAT
As a general principle, Customs VAT must be paid to SARS. It is not regarded as having been paid if it was paid to an intermediary (for example a clearing agent). The onus is on the importer to obtain proof from the intermediary that the VAT has been paid to SARS. In practice clearing agents have processes in place to advise importers when the VAT has been paid to SARS.
With regards to the timing of the payment of the Customs VAT to SARS, the actual payment must be made before the tax return in which the deduction is claimed, is submitted.
In the above example the input tax deduction may be made in the March 2020 tax period if the actual VAT is paid to SARS by the time that the March VAT return is submitted (i.e. at the latest 30 April 2020) and the vendor holds the SARS receipt on that day.
Summary of rules
Transaction: Importation of goods
Document/s to be obtained: SAD500 (Bill of Lading) & Release notification
Critical dates: Date of goods released for Home Use must fall in the tax period in which the input tax claim is made. The actual documentation must be held when the VAT return for the tax period is submitted.
Transaction: Payment of VAT to SARS
Document/s to be obtained: A SARS receipt
Critical dates: The payment must be made and the receipt held by the time that the VAT return for the tax period is submitted.
In the example above, the input tax deduction may be made in the March 2020 tax period notwithstanding the fact that the actual payment to SARS may only have been made in April 2020.