Section 72 of the VAT Act – Adapt or die!

Section 72 of the VAT Act – Adapt or die!

• 13 January 2020
• VAT
• Christo Theron

An amendment to section 72 of the VAT Act will significantly reduce the grounds under which SARS will issue rulings under this section in the future. If no action is taken, it would also affect rulings issued in the past. It is therefore critical that all VAT vendors understand the implications of and act timeously to avoid nasty surprises in the future. 

Introduction

Section 72 of the VAT act allows the Commissioner for SARS to issue rulings where the manner in which business is conducted conflicts with VAT legislation and results in anomalies, difficulties or incongruities when applying the relevant requirements of the VAT Act strictly. The section has often been used in the past by SARS as an interim measure pending the introduction of new legislation.

Old and new rules 

In the past section 72 rulings could be issued to individual taxpayers based on the specific unique circumstances of each taxpayer. In terms of new legislation which came into effect on 21 July 2019, the circumstances under which section 72 rulings will be issued have been significantly narrowed.

In terms of the new rules section 72 rulings will not be issued if the circumstances giving rise to the request for the ruling are unique to a single vendor. In future a section 72 ruling would only be issued if the difficulties, anomalies or incongruities would also impact other vendors or classes of vendors making similar supplies as the applicant. This requirement places a challenging burden on the applicant to prove that other vendors experience similar difficulties.

A further requirement is that the application will not be considered if it results in an outcome contrary to the construct and policy intent of the legislator or any specific provisions of the VAT Act. The challenge with this requirement is that vendors often do not know what SARS’ formal policy is with regards to certain issues. Unless a process is put in place to clarify policy at all levels, this provides SARS with a basis of refusing applications notwithstanding the merits thereof. 

Status of historic rulings

Section 72 rulings currently in force or applications for rulings made before 21 July 2019 will remain in force until 31 December 2021, if the vendor applies within certain timeframes for the rulings to be confirmed by SARS. Any application for confirmation of a ruling will be considered taking into account the legislation as it read before 21 July 2019. If a vendor does not apply for confirmation and a ruling expires, any new application would have to be made in terms of the new rules. This situation will result in client specific applications positively ruled on in the past, now being rejected.

Conclusion

It is imperative that VAT vendors familiarise themselves with the new rules and take appropriate action timeously to ensure that their rights under current rulings are protected.

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