A taxpayer has a Non-Profit Organisation (NPO) that would like to place an order with them but wants the value added tax (VAT) to be exempted because they are a registered NPO. The taxpayer is a VAT registered entity. Can my client sell the goods
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The VAT Act Section 7(1)(a) of the VAT Act imposes VAT on the supply of goods or services made by a vendor in the course or furtherance of the VAT enterprise carried on by the vendor. VAT is imposed at the standard rate of (currently 15%), unless the supply qualifies to be supplied at the zero-rate in terms of section 11 of the VAT Act or is exempt from VAT in terms of section 12 of the VAT Act. Section 12(b) of the VAT Act determines that the supply by any association not for gain of donated goods or services or any other goods made or manufactured by such association if at least 80% of the value of the materials used in making or manufacturing such other goods consists of donated goods, constitutes exempt supplies for VAT purposes. Application of the principles Supplies made by associations not for gain as defined in section 1(1) of the VAT Act are treated the same as any other supply of goods or services made by any person. The only deviation is where the 80% rule discussed above applies to goods supplied by a NPO (under which circumstances the supplies would be exempt from VAT). In summary, unless the 80% rule applies to the goods being ordered and the NPO qualifies as an association not for gain, the normal VAT rules must be applied to the supply.