TAX TALK: 2003 VAT amendments finally here

In this series of articles, Cameron Kotze the Tax Partner at Ernst and Young discusses some topical tax issues for our readers. Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com.

The Minister of Finance presented the long awaited amendments to the Value-Added Tax Act last week. Some of the amendments are of a technical nature and some others will have a significant effect on certain sectors of the Namibian economy.The timing rule for the supply of fixed property under a sale has been amended with effect from 1 October 2002 when the supply of fixed property became subject to VAT.If the sale is subject to VAT at 15%, the time of supply is the earlier of the date of registration of the property in the deeds registry or the date any payment is made in respect of such property.Buyers and sellers of fixed property should therefore ensure where upfront payment is made such payment is framed as a deposit to ensure the full VAT on the sale of the property does not become payable as a result of the upfront payment.Section 48 of the VAT that deals with record keeping has been amended with effect from 28 November 2002 to allow a VAT registered person to keep the accounting records outside Namibia indefinitely if certain requirements are complied with.The value of a supply made by a VAT registered person who carries on betting activities (casino’s and gambling) will be amended to be the net income (bets less winnings paid) less the gambling levy reduced by the standard rated tax fraction (15/115).A welcome change to the interest provisions is the deletion of the compounding rate and the introduction of the simple rate of interest.This is a change that is long overdue as the 20% rate of interest is rather heavy and far in excess of the official rate of interest (12%) used by the Receiver of Revenue to tax low interest loans and the current prime over draft interest rate of 12,5%.The section dealing with penalties for late payment of VAT has also been simplified to impose a flat 10% penalty on late payments for each month the tax is paid late.Both this amendment and the previous paragraph’s amendment are welcomed and should encourage taxpayers who are in default to rectify their non-compliance with the VAT Act.The zero-rating applying to various supplies in connection with residential properties have been amended and the sale of fixed property or the erection of or extension to a building used only for residential buildings can be zero-rated.All repairs to residential buildings must therefore be standard rated.It is important to note that where a building is used for residential purposes and business purposes, the selling price must be apportioned to determine the value of the building to be used for business purposes that must be standard rated (15%).The supply (sale or export) of livestock by a VAT registered person can be zero-rated once the 2003 Amendment Act becomes law.Livestock farmers will still be required to pay VAT on their purchases but will not receive VAT on their livestock sales and this will have a detrimental effect on their cash flow.The supply of goods or services for use by physically handicapped persons can also be zero-rated once the 2003 Amendment Act becomes law.The supply of agricultural land to the State by a VAT registered person to be used solely for resettlement purposes can be zero-rated once the 2003 Amendment Act becomes law.The definition of public transport services has been amended and includes only the supply by any person of transport by road, air, sea or railway directly to individual fare-paying passengers.Where a bus and driver is therefore rented to transport a group of people for a fee, such supply is subject to VAT at 15% because such a supply falls squarely into the definition of a rental consideration.Where individuals however pay a fee for a transport service from one place to another, such a supply remains exempt from VAT.All the above amendments, unless specifically stated otherwise, will come in to effect on the first day of the month following the month in which the 2003 VAT Amendment Act is published in the Government Gazette.Some of the amendments are of a technical nature and some others will have a significant effect on certain sectors of the Namibian economy.The timing rule for the supply of fixed property under a sale has been amended with effect from 1 October 2002 when the supply of fixed property became subject to VAT.If the sale is subject to VAT at 15%, the time of supply is the earlier of the date of registration of the property in the deeds registry or the date any payment is made in respect of such property.Buyers and sellers of fixed property should therefore ensure where upfront payment is made such payment is framed as a deposit to ensure the full VAT on the sale of the property does not become payable as a result of the upfront payment.Section 48 of the VAT that deals with record keeping has been amended with effect from 28 November 2002 to allow a VAT registered person to keep the accounting records outside Namibia indefinitely if certain requirements are complied with.The value of a supply made by a VAT registered person who carries on betting activities (casino’s and gambling) will be amended to be the net income (bets less winnings paid) less the gambling levy reduced by the standard rated tax fraction (15/115).A welcome change to the interest provisions is the deletion of the compounding rate and the introduction of the simple rate of interest.This is a change that is long overdue as the 20% rate of interest is rather heavy and far in excess of the official rate of interest (12%) used by the Receiver of Revenue to tax low interest loans and the current prime over draft interest rate of 12,5%.The section dealing with penalties for late payment of VAT has also been simplified to impose a flat 10% penalty on late payments for each month the tax is paid late.Both this amendment and the previous paragraph’s amendment are welcomed and should encourage taxpayers who are in default to rectify their non-compliance with the VAT Act.The zero-rating applying to various supplies in connection with residential properties have been amended and the sale of fixed property or the erection of or extension to a building used only for residential buildings can be zero-rated.All repairs to residential buildings must therefore be standard rated.It is important to note that where a building is used for residential purposes and business purposes, the selling price must be apportioned to determine the value of the building to be used for business purposes that must be standard rated (15%).The supply (sale or export) of livestock by a VAT registered person can be zero-rated once the 2003 Amendment Act becomes law.Livestock farmers will still be required to pay VAT on their purchases but will not receive VAT on their livestock sales and this will have a detrimental effect on their cash flow.The supply of goods or services for use by physically handicapped persons can also be zero-rated once the 2003 Amendment Act becomes law.The supply of agricultural land to the State by a VAT registered person to be used solely for resettlement purposes can be zero-rated once the 2003 Amendment Act becomes law.The definition of public transport services has been amended and includes only the supply by any person of transport by road, air, sea or railway directly to individual fare-paying passengers.Where a bus and driver is therefore rented to transport a group of people for a fee, such supply is subject to VAT at 15% because such a supply falls squarely into the definition of a rental consideration.Where individuals however pay a fee for a transport service from one place to another, such a supply remains exempt from VAT.All the above amendments, unless specifically stated otherwise, will come in to effect on the first day of the month following the month in which the 2003 VAT Amendment Act is published in the Government Gazette.