What is VAT?
Value-Added Tax is commonly known as VAT. VAT is an indirect tax on the consumption of goods and services in the economy. Revenue is raised for the government by requiring certain businesses to register and charge VAT on the taxable supplies of goods and services. These businesses become vendors that act as agents for the government in collecting the VAT.
VAT is charged at each stage of the production and distribution process and it is proportional to the price charged for the goods and services.
VAT increased from 14% to 15% from 1 April 2018. VAT is levied on the supply of most goods and services and the importation of goods. The VAT on the importation of goods is collected by customs. There is a limited range of goods and services which are subject to VAT at zero rates or are exempt from VAT.
Who should register for VAT?
Any person that carries on a business may register for VAT. You can register once for all different tax types using the client information system. The term person is not only limited to companies but also includes, amongst others, individuals, partnerships, trust funds, foreign donor-funded projects and municipalities. To register, an application form must be completed and a specific process must be followed, both of which you can find on our page how to register for VAT.
A person must register for VAT if the taxable supplies made or to be made are, over R1 million in any consecutive twelve-month period.
A person may also choose to register voluntarily if the taxable supplies made, in the past period of twelve months, exceeded R50 000. As of the 1st of March 2012, qualifying micro businesses that are registered for Turnover Tax may also choose to register for VAT provided that all the conditions for voluntary registration for VAT are met.
A person who is obliged to register for VAT is referred to as a vendor.
- When should I submit returns and make payments?
A vendor is required to submit VAT returns and make payments of the VAT liabilities (or claim a VAT refund) under the tax period allocated to the vendor. The VAT returns and payments are normally submitted or made on or before the 25th day after the end of the tax period. Late payments of VAT will attract a penalty and interest.
- Tax periods.
It is a common misconception that all farmers may be or are required to be registered on Category D (six-monthly or bi-annual tax period). This is not true as a farming enterprise is required to make a written application to the Commissioner to be registered on Category D. Further, vendors who qualify for the Category D tax period must meet the following criteria:
- The enterprise must consist solely of agricultural, pastoral, or farming activities.
- The total turnover from all farming activities must not exceed R1,5 million per consecutive period of 12 months.
Where the value of taxable supplies exceeds R1,5 million in any consecutive period of 12 months, the Commissioner will allocate either a Category A or B tax period to the vendor (two-monthly tax period).
Where the value of taxable supplies exceeds R30 million per consecutive period of 12 months, the vendor will be obliged to pay over the VAT and submit monthly returns per Category C tax period.
Zero-Rated Supplies
To assist farmers with their cash flow, many of the products which are used or consumed in the course of conducting a farming enterprise are zero-rated or exempt from VAT on importation. Some examples of goods that may be purchased at the zero rates are:
- Animal feed.
- Animal remedy.
- Fertiliser.
- Pesticide.
- Plants and seeds are used for cultivation.
(Please refer to Part A of Schedule 2 to the VAT Act for the complete list)
A. What are the Requirements for Buying Goods at a Zero Rate?
The following requirements must be met for the farming enterprise to purchase the goods in the mentioned Schedule at zero rates:
- The farming enterprise must have a VAT registration certificate indicating the farming enterprise’s entitlement to purchase the goods listed in Schedule 2 at zero rates.
- The aforementioned notice of registration must be presented to the supplying vendor.
- The VAT registration number of a person carrying on the farming activity must appear on the tax invoice issued by the supplying vendor.
- The goods supplied must be specified in Part A of Schedule 2 to the VAT Act and must not be prohibited goods.
How do I Access the Diesel Refund Scheme?
Farming is a qualifying activity under the Diesel Refund Scheme. Most farming enterprises will qualify to be registered for the Diesel Refund Scheme. The person carrying on the farming enterprise may therefore apply for registration for the Diesel Refund Scheme, provided the enterprise is registered for VAT. The Diesel Refund Scheme is currently administered through the VAT system, hence, the requirement that VAT registration is a pre-requisite for participation in the scheme.
If the person is already registered for VAT as a vendor, then registration for the Diesel Refund Scheme can be made by completing and submitting a VAT 101D form.
If the person is not registered for VAT as a vendor, then registration for VAT as a vendor and registration for the Diesel Refund Scheme can be made simultaneously by completing and submitting VAT 101 and VAT 101D forms, respectively. Note that these registrations still depend on whether the other remaining requirements for VAT registration and the Diesel Refund Scheme are complied with.
On-land farming is an eligible activity that qualifies for a refund of part of the general fuel levy and the Road Accident Fund levy imposed on distillate fuel (diesel) in terms of the Customs and Excise Act. The diesel must be purchased by the user for use and used as fuel for their primary production activities in farming.
A. How do I Claim a Diesel Refund?
Refunds under the Diesel Refund Scheme are merely processed by utilising the VAT administrative system. The concession is granted to qualifying purchasers under the Customs and Excise Act.
Once registered, the claim for a diesel refund will be made using the VAT201 return which is available on e-Filing. A diesel refund claim will be offset against any VAT liability that is payable for the tax period concerned, or the diesel refund claim will increase any VAT refund that is due to the vendor.
All the relevant documentation must be kept relating to diesel purchases as well as the various logbook entries or other records which indicate the actual amounts of diesel drawn from stock for eligible and non-eligible use during the tax period.
Any diesel refund amount which is found to have been incorrectly refunded will have to be paid back to SARS, together with any penalties and interest that are applicable.
Taxation of Farming Operations
- VAT.
- Special income tax provisions.
- Farm workers: minimum wage.
- Diesel refunds.
- Assessed losses (natural persons).
Farming Operations
- Special VAT category for farmers.
- Zero-rate input costs.
- Zero-rating of agricultural produce.
Special VAT Category for Farmers
- Category D.
- Six-month periods ending in August and February.
- Restricted to vendors that only carry-on farming activities.
- Taxable supplies do not exceed or are not likely to exceed R1.5 million in 12 months.
Goods used or consumed for agricultural, pastoral, or other farming purposes (Section 11 (1)(g)). The supply is of such used or consumed for agricultural, pastoral, or other farming purposes as are outlined in Part A of Schedule 2, provided such supply is made in compliance with such conditions as may be prescribed in the said.
Goods that Qualify for 0%
- Animal feed.
- Animal remedy.
- Fertiliser.
- Pesticide.
- Plants.
- Seed.
Requirements
The Commissioner, in respect of a vendor registered under this Act, is satisfied that the vendor, being the recipient of any such goods, carries on agricultural, pastoral or other farming operations and has issued to him a notice registration in which authorisation is granted whereby the goods concerned may be supplied to him at the rate of zero per cent. The goods concerned are supplied to a vendor who has a valid notice of registration as a vendor and authorisation contemplated in paragraph (a). A tax invoice in respect of the issued containing such particulars as required by section 20 (4) of this Act. The acquisition, disposal, sale or use of the said goods is prohibited in terms of section 7bis of the Fertilisers, farm feed, Agricultural Remedies and Stock Remedies Acts, 1947.
Future of this Zero-Rating
Proposed amendment: Para. (g) to be Deleted by s. 96 (1) (a) of Act No.43 of 2014 with effect from the date determined by the Minister to notice in the Gazette which notice may not be published earlier than the promulgation of that Act – date not determined.
- Vegetables are not cooked or treated in any manner except to preserve such vegetables in their natural state, but excluding dehydrated, dried, canned or bottled vegetables or such vegetables as are described under separate Items in this PART.
- Fruit is not cooked or treated in any manner except to preserve such fruit in its natural state, but excludes dehydrated, dried, canned or bottled fruit and nuts.
- Milk, including high-fat, full-fat, low-fat or fat-free milk, is the milk of cattle, sheep or goats that has not been concentrated, condensed, evaporated, sweetened, flavoured, cultured or subjected to any other process other than homogenisation or preservation by pasteurisation, ultra-high temperature treatment, sterilisation, chilling or freezing or the addition of minerals, vitamins, enzymes and other similar additives not exceeding one per cent by volume of the final product, solely to increase the nutritional value.
- Eggs, being raw eggs laid by hens of the species Gallus domesticus, whether supplied in their shells or the form of egg pulp are raw pulp consisting of the yolk and white which is obtained from such eggs after the shells have been removed.
- Edible legumes and pulse of leguminous plants, dried, whole, split, crushed, skinned or in powder form, but not further prepared or processed or where packaged as seed or such pulse as are described under separate Items in this PART.
How to Calculate VAT
A. Example 1
How to calculate the 15% VAT to add to the purchased amount when VAT is excluded.
- Expenditure for goods (VAT excluded) = R100
- Vat @ 15 %: R 100 x 15% = R15 (100 x 15÷100)
TOTAL AMOUNT PAYABLE + VAT 15% = R115
B. Example 2
How to calculate the 15% VAT if the VAT is included in the total expenditure.
- Expenditure for goods (VAT included) = R230
- Vat @ 15 %: R 230 x (15÷115) = R30
TOTAL COST with VAT EXCLUDED = R200