Unallocated receipts VAT or not? Presented by National Treasury:

1 2 3 4 Agenda Current issues Key Tax Acts applicable Section 102 of Tax Admin Act Practical outcomes

1. 2. 3. 4. Current issues – unallocated receipts ISSUE: CONSIDERATION: 1. No SARS guidance on issue No interpretation note available, no VAT case law 2. Different VAT treatment by municipalities Some municipalities tax it, others not 3. Unallocated receipt (debtor - & non-debtor) controls not effective Unallocated receipts follow-ups not repeated after 1st attempt 4. Unallocated receipts in some cases written to revenue after 3 years Municipalities inadvertently take a “tax position” based on GRAP

Key Tax Acts applicable VAT Act Tax Admin Act 1. Municipality bears the onus to prove that an unallocated receipt should NOT be taxed [s 102 read with s 95] VAT must be declared on receipt of payment [s 9(1), read with s 15(2)(a)(v), s 16(4)(b)] 2. SARS must base their assessment (in case of audit etc) on “reliable information” and/or with agreement with municipality (s 95) In practical terms VAT must be declared in the month the unallocated receipt is received 3. May make VAT adjustments (deductions) subsequent to confirming true VAT status of unallocated receipts

Section 102 of Tax Admin Act “(1) A taxpayer bears the burden of proving— (a) that an amount, transaction, event or item is exempt or otherwise not taxable; (b) … (c) the rate of tax applicable to a transaction, event, item or class of taxpayer; …(own emphasis)

Practical outcomes Risks Practical proposal Fruitless and wasteful expenditure (interest & penalties) if picked up by SARS audit and no VAT declared Declare output tax on unallocated receipts If non-compliance material = impact audit outcome negatively Consider VDP process as contemplated in Tax Admin Act for past failures

Thank You