Kindly provide guidance with regards to the VAT rate that must be charged by a local travel agency to arrange travel packages for local travellers to foreign destinations. The travel agency is arranging transport, accommodation, and sightseeing.
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The VAT Act General sections dealing with allocating VAT to supplies Section 7(1)(a) of the VAT Act imposes VAT on the supply of goods or services made by any vendor in the course or furtherance of the vendor’s VAT enterprise. Section 8(15) of the VAT Act determines that where a single charge is made for a supply of goods or services in circumstances where if separate amounts were charged, a portion of the supply would be standard rated and a portion zero-rated, the supply is deemed to be separate supplies for VAT purposes (i.e. VAT must be levied at the standard on the standard rated portion and zero-rated on the zero-rated portion). Section 10(22) of the VAT Act determines that where a taxable supply is not the only matter to which a consideration relates the supply is deemed to be for such part of the consideration that is properly attributable to the taxable supply. In other words, output tax is only payable on the taxable element of the supply. Sections dealing with different VAT rates and treatment Section 11(2)(a) of the VAT Act zero-rates the supply of international transport services. Section 12(g) of the VAT Act exempts from VAT the supply by any person in the course of a transport business of any services comprising the transport by that person in a vehicle operated by him of fare-paying passengers and their personal effects by road or railway. Where the supply is made outside South Africa, the supply is a taxable zero-rated supply. Section 11(2)(l) of the VAT Act zero-rates the supply of services to a non-resident. The zero-rating does not apply where the services are supplied directly in connection with moveable property that is situated in South Africa at the time that the services are rendered, unless the goods are exported to the non-resident subsequent to the supply of the services. The zero-rating also does not apply where the service is supplied directly to the legal recipient of the service or any other person where such person or the legal recipient of the service is in South Africa at the time that the service is rendered. Application of the principles Agent or principal relationship The capacity in which one person acts with regards to another person is determined by the legal arrangement between the contracting parties. A travel agent normally acts as an agent on behalf of the traveller (the principal). Tour packages.
The various components of a tour package retain their original characteristics from a VAT perspective, irrespective of the fact that a single charge is made and invoice issued for all components. It generally includes the following elements: (a) International flights – Zero-rated – Section 11(2)(a) (b) Accommodation outside South Africa – Zero-rated – Section 11(2)(k) (c) Other services supplied outside South Africa - Zero-rated – Section 11(2)(k) Treatment of commission A fee for arranging an international tour for South African residents is subject to VAT at the standard rate to the extent that the fee does not relate to the arranging of international transport. Treatment of specific elements of the tour A fee charged to South African residents for arranging international flights – Zero-rated. A fee for arranging or supplying local flights for South African residents – Standard-rated. A fee for arranging transport in a foreign country – Zero-rated. Recovery of airport passenger taxes – No VAT as the tax is imposed on the passenger and is merely recovered from the passenger by the agent/operator. Summary The rate of VAT applicable to the respective categories of supplies is: (a) Arrangement on local transport – Standard rated (b) Arranging of international transport – Zero-rated (c) Arranging of international sightseeing events – Standard rated