Legislation in South Africa—the Taxation Laws Amendment Bill B 18-2019—affects rulings issued by the tax authority to taxpayers with regard to value added tax (VAT). The changes are effective 21 July 2019 and apply to all section 72 ruling applications made after that date.
For existing section 72 rulings, there are transitional provisions.
The Taxation Laws Amendment Bill B 18-2019 (TLAB) includes various amendments to section 72 of the VAT law—a provision that has for many years been a contentious section for South African Revenue Service (SARS) and National Treasury. Section 72 was originally introduced to enable SARS to issue rulings to overcome difficulties, anomalies or incongruities experienced by vendors in complying with any particular section under the VAT law, in circumstances when the difficulties resulted from the manner in which they conduct their business.
A ruling issued in terms of section 72 could only be issued when the ruling did not have the effect of substantially increasing or reducing the ultimate liability for tax levied under the VAT law. The section further specifically permitted SARS to make an arrangement or a decision so as to overcome the difficulties as to:
In other words, the section granted SARS discretionary authority to issue rulings contrary to the law for as long as the effect of the legislation does not substantially increase or decrease the ultimate tax liability.
This provision in South Africa is one of a kind in VAT regimes (or other indirect tax regimes) globally and been controversial due to different views as to its correct interpretation and application, and even its relevance. One of the contentious issues has been that the section cannot or is not to be used to overcome mere administrative burdensome difficulties. Nevertheless, many vendors have over the years requested and have been issued rulings under section 72—ruling that they are still relying on, since legislative amendments have not addressed their unique circumstances.
As far as SARS’ discretion is concerned, the legislative amendments to section 72 add an additional requirement namely, that the difficulties need to be similar to difficulties which have arisen or may arise for any other vendor or class of vendors of the same kind or who make similar supplies. This amendment provides that section 72 rulings cannot have the effect of granting preferential treatment to certain vendors over others. The amendments also remove the specific reference to the application of the zero-rate or an exemption and replace it with a proviso that the ruling cannot be contrary to the construct and policy intent of the VAT law as a whole, or with any specific provision in the VAT law. This proviso could effectively broaden or narrow the ambit of SARS’ discretion, depending on the circumstances.
The amendments further specifically include that the Commissioner may publish, by public notice, a list of transactions or matters in respect of which he may decline to make a decision.
The section 72 amendments included in the TLAB are effective from 21 July 2019 and will apply to all section 72 ruling applications made after that date. For existing section 72 rulings the following transitional provisions apply:
Vendors need to confirm their position if they rely on any section 72 rulings and consider whether it is necessary to submit applications for extensions of such rulings, if they wish to continue to rely on same. Alternatively, vendors need to consider whether their existing ruling can be confirmed in terms of the revised wording of the section, in which case a re-application could be made in terms of the revised section. In addition, vendors who rely on section 72 rulings that are unlikely to be re-confirmed in terms of the amended section need to consider how they will deal with their particular difficulties after 31 December 2021.
Read a November 2019 report [PDF 117 KB] prepared by the KPMG member firm in South Africa
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