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.