VAT changes now in force

In this series of articles, Cameron Kotze the Tax Partner at Ernst and Young discusses some topical tax issues for our readers. The 2004 Value-Added Tax Amendment Act was published as Government Gazette number 3282 on September 22 2004.

The importance of the date of publication of the 2004 VAT Amendment

Act is that most of the changes to the existing legislation becomes

effective from the first day of the month following the month

during which the Act is published in the Government Gazette.

Therefore, the changes made to the VAT Act by the 2004 VAT

Amendment Act become effective from October 1 2004.

 

The more salient changes to the VAT Act are covered in this

article.

 

The provision relating to the zero-rating of residential

properties has been amended and now limits the zero-rating to the

sale of land and/or buildings and the erection of buildings used

solely for residential purposes.

 

Improvements to a residential building therefore become standard

rated from October 1 2004 and include the restoration of an

existing building.

 

Repairs have always been standard rated and is not affected by

this amendment.

 

The amendment does require the building to be used solely for

residential purposes and is of concern because where a building is

sold or erected and is used both for residential and

non-residential purposes, the whole transaction must be standard

rated.

 

This may not have been the intention when the legislation was

drafted.

 

The sale of livestock by any registered VAT person can be

zero-rated from October 1 2004.

 

Game is specifically excluded and the sale thereof remains

standard rated.

 

Some literature indicates that the zero-rating is restricted to

communal farmers only.

 

This view is not correct and any VAT registered person who sells

livestock can zero rate such a transaction.

 

Where a VAT registered person sells live animals to any person

and the selling price depends on the weight and quality of the meat

once the animal is slaughtered, the sale is standard rated because

such a transaction does not constitute the sale of live stock

because it is regarded as a sale of meat.

 

Public transport services have also been redefined in an attempt

to ensure that the rental of transport vehicles to users is

standard rated.

 

Some practical problems will still arise for a rental enterprise

where one school hires a bus to transport children and each child

contributes towards the cost of transport (apparently exempt from

VAT) and other another school hires a bus and does not require the

children to contribute to the transport cost (apparently standard

rated).

 

Section 38(12) of the VAT Act empowers the Commissioner for

Inland Revenue to make arrangements with any person to make VAT

refunds to foreign nationals on behalf of the Commissioner.

 

A VAT refund office is now operative at the Hosea Kutako

International Airport where foreign nationals can claim back VAT

paid on goods purchased in Namibia that they take with them when

departing from Namibia.

 

My initial impression is that this office works well and

tourists get their refunds without any problems if they comply with

the requirements laid down by the VAT Act.

 

The change to the interest and penalty provisions for the late

payment of VAT is welcomed.

 

Up to September 30 2004 interest was imposed on the outstanding

VAT and penalties at a draconian rate of 20 per cent per year

calculated daily and compounded monthly.

 

From 1 October 2004 interest will be imposed only on the

outstanding tax and at a rate of 20 per cent per year calculated on

the simple interest rate basis.

 

The in duplum rule applicable to interest chargeable in the

common law has been reinstated in the VAT Act which limits the

interest payable on the unpaid VAT to the original debt.

 

Similarly, the penalties chargeable on unpaid VAT accumulates at

10 per cent per month or part thereof for each month the VAT

remains unpaid and is limited to amount of VAT that remains

unpaid.

 

The maximum penalty that can be charged for failure to pay VAT

is the amount of the original VAT liability.

 

The Commissioner must be complimented for the effort made to

simplify the legislation in this regard because the old provisions

were very difficult to administer and contributed to general

confusion amongst taxpayers and administrators alike.

 

You need to ensure you are aware of all the changes to the VAT

Act that became effective last Friday to ensure you comply with the

law.

 

Complying with the law is the right thing to do! Should readers

have queries, they are invited to send them to

cameron.kotze@za.ey.com.

 

Therefore, the changes made to the VAT Act by the 2004 VAT

Amendment Act become effective from October 1 2004.The more salient

changes to the VAT Act are covered in this article.The provision

relating to the zero-rating of residential properties has been

amended and now limits the zero-rating to the sale of land and/or

buildings and the erection of buildings used solely for residential

purposes.Improvements to a residential building therefore become

standard rated from October 1 2004 and include the restoration of

an existing building.Repairs have always been standard rated and is

not affected by this amendment. The amendment does require the

building to be used solely for residential purposes and is of

concern because where a building is sold or erected and is used

both for residential and non-residential purposes, the whole

transaction must be standard rated.This may not have been the

intention when the legislation was drafted.The sale of livestock by

any registered VAT person can be zero-rated from October 1

2004.Game is specifically excluded and the sale thereof remains

standard rated.Some literature indicates that the zero-rating is

restricted to communal farmers only. This view is not correct and

any VAT registered person who sells livestock can zero rate such a

transaction.Where a VAT registered person sells live animals to any

person and the selling price depends on the weight and quality of

the meat once the animal is slaughtered, the sale is standard rated

because such a transaction does not constitute the sale of live

stock because it is regarded as a sale of meat.Public transport

services have also been redefined in an attempt to ensure that the

rental of transport vehicles to users is standard rated. Some

practical problems will still arise for a rental enterprise where

one school hires a bus to transport children and each child

contributes towards the cost of transport (apparently exempt from

VAT) and other another school hires a bus and does not require the

children to contribute to the transport cost (apparently standard

rated).Section 38(12) of the VAT Act empowers the Commissioner for

Inland Revenue to make arrangements with any person to make VAT

refunds to foreign nationals on behalf of the Commissioner. A VAT

refund office is now operative at the Hosea Kutako International

Airport where foreign nationals can claim back VAT paid on goods

purchased in Namibia that they take with them when departing from

Namibia. My initial impression is that this office works well and

tourists get their refunds without any problems if they comply with

the requirements laid down by the VAT Act.The change to the

interest and penalty provisions for the late payment of VAT is

welcomed.Up to September 30 2004 interest was imposed on the

outstanding VAT and penalties at a draconian rate of 20 per cent

per year calculated daily and compounded monthly. From 1 October

2004 interest will be imposed only on the outstanding tax and at a

rate of 20 per cent per year calculated on the simple interest rate

basis.The in duplum rule applicable to interest chargeable in the

common law has been reinstated in the VAT Act which limits the

interest payable on the unpaid VAT to the original debt. Similarly,

the penalties chargeable on unpaid VAT accumulates at 10 per cent

per month or part thereof for each month the VAT remains unpaid and

is limited to amount of VAT that remains unpaid. The maximum

penalty that can be charged for failure to pay VAT is the amount of

the original VAT liability.The Commissioner must be complimented

for the effort made to simplify the legislation in this regard

because the old provisions were very difficult to administer and

contributed to general confusion amongst taxpayers and

administrators alike.You need to ensure you are aware of all the

changes to the VAT Act that became effective last Friday to ensure

you comply with the law.Complying with the law is the right thing

to do! Should readers have queries, they are invited to send them

to cameron.kotze@za.ey.com.

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