My client is a car rental business. They have not purchased enough vehicles to meet demand and so would like to hire passenger vehicles in order to add to their fleet in the short term. Are they able to claim input VAT on this car hire cost?
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
We are not sure why you believe the Act doesn’t provide for this. The provisos to section 17(2)(c) set out those instances when input tax may in fact be deducted on the acquisition of a motor car.
Proviso (i), to section 17(2)(c) of the Value-Added Tax Act, specifically provides that the deduction is not denied where the item is a motor car, not only a 2-door bakkie, as you indicated. For ease of reference it is copied here:
Provided that—
-
this paragraph shall not apply where that motor car is acquired by the vendor exclusively for the purpose of making a taxable supply of that motor car in the ordinary course of an enterprise which continuously or regularly supplies motor cars, whether that supply is made by way of sale or under an instalment credit agreement or by way of rental agreement at an economic rental consideration;
-
…
If the vendor doesn’t supply the vehicles “by way of rental agreement at an economic rental consideration”, the deduction of the input tax is denied. Otherwise, it would not be denied.
The practice generally prevailing explains it as follows:
“The application of the first proviso to section 17(2)(c) requires that each motor car must be acquired by a motor dealer, as defined above, for purposes of resale or rental. If the motor car is acquired for either of the aforementioned purposes, the vendor will be entitled to an input tax deduction.”