1. SALGA - CENTURION 10 th National Municipal Managers’ Forum 8-10 JUNE 2016 Maximum Profit Recovery (PTY) LTD Page 1

2. VAT Challenges in Municipalities UNALLOCATED INCOME – VAT TREATMENT AGENT / PRINCIPAL ARRANGEMENTS – PRACTICAL EXAMPLE DELAYED VAT REFUNDS – TAXPAYERS’ REMEDIES THE ROLE OF MAXPROF Page 2Maximum Profit Recovery (PTY) LTD

3. UNALLOCATED INCOME – VAT TREATMENT Municipalities often receive income in respect of supplies made which cannot be allocated to a consumers’ account for various reasons; Unallocated income should not be confused with Excess Payments received in respect of supplies made; Section 8(27) of the VAT Act, 1991 affords a municipality four months to refund such Excess Payments failing which Output VAT becomes liable to SARS in the tax period following the last day of the 4 th month; In contrast, Output VAT is liable on unallocated income in the tax period when consideration was received. The downside to this is that part of the income may be in respect of Zero Rated or Exempt supplies; MaxProf has assisted its clients through the implementation of income allocation procedures which has successfully improved cash flow; Maximum Profit Recovery (PTY) LTD Page 3

4. VAT Challenges in Municipalities UNALLOCATED INCOME – VAT TREATMENT AGENT / PRINCIPAL ARRANGEMENTS – PRACTICAL EXAMPLE DELAYED VAT REFUNDS – TAXPAYERS’ REMEDIES THE ROLE OF MAXPROF Page 4Maximum Profit Recovery (PTY) LTD

5. AGENT / PRINCIPAL ARRANGEMENTS – INCOME & OUTPUT VAT LIABILITIES A District Municipality effectively delegates the Water and Sewerage functions to its Local Municipalities; In turn, each Local Municipality is responsible for the Billing and Collection of this income from Consumers; Section 54(1) of the VAT Act regulates the treatment of agent/principal relationships; Maximum Profit Recovery (PTY) LTD Page 5 District A Local 1Local 2Local 3

6. AGENT / PRINCIPAL ARRANGEMENTS – INCOME & OUTPUT VAT LIABILITIES…continued Consequently, the District Municipality is liable for the Output VAT in respect of this income received and not the Local Municipality; Furthermore, in terms of section 9(1) of the VAT Act, the Principal (District Municipality) is liable for the Output VAT as soon as the income is received by the Agent (Local Municipality) irrespective of whether the income has been paid over to the Principal or not; The principles that apply to the treatment of Expenditure and Input VAT on these relationships tend to be more challenging; Through our differentiated techniques, MaxProf has successfully assisted Mopani District Municipality with their VAT treatment in this regard. Maximum Profit Recovery (PTY) LTD Page 6

7. VAT Challenges in Municipalities UNALLOCATED INCOME – VAT TREATMENT AGENT / PRINCIPAL ARRANGEMENTS – PRACTICAL EXAMPLE DELAYED VAT REFUNDS – TAXPAYERS’ REMEDIES THE ROLE OF MAXPROF Page 7Maximum Profit Recovery (PTY) LTD

8. Delayed VAT refunds – Taxpayers’ Remedies Value-Added Tax Act: Subject to the provisions under section 44(1) of the VAT Act, SARS is obliged to pay any amount of tax refundable in terms of section 16(5) to the tax payer; Subject to certain exceptions, section 45(1) of the VAT Act determines that where SARS does not within a period of 21 business days, make a refund of an amount refundable, interest is payable; Tax Administration Act: Section 190(1) of the TAA determines that SARS must pay a refund plus interest; Maximum Profit Recovery (PTY) LTD Page 8

9. Delayed VAT refunds – Taxpayers’ Remedies…continued Taxpayers’ Remedies: 1.Arguable that an excessive delay in effecting a refund constitutes a breach of the right to property – section 25 of SA Constitution; 2.May be taken on review under section 6(1)(h) of the Promotion of Administrative Justice Act 3 of 2000 (“PAJA”) However, while points 1 and 2 above are legal, it does come with a cost; 3. A formal objection may be lodged to an undue delay in SARS authorising a refund; 4. Case may be referred to the fairly recent Complaint Management Office (“CMO”); 5.Case may be referred to the Office of the Tax Ombud; 6.The taxpayer could issue a formal letter of demand to SARS. Maximum Profit Recovery (PTY) LTD Page 9

10. VAT Challenges in Municipalities UNALLOCATED INCOME – VAT TREATMENT AGENT / PRINCIPAL ARRANGEMENTS – PRACTICAL EXAMPLE DELAYED VAT REFUNDS – TAXPAYERS’ REMEDIES THE ROLE OF MAXPROF Page 10Maximum Profit Recovery (PTY) LTD

11. The Role of MaxProf Through years of experience and differentiated techniques, MaxProf has proved to be the leader in this industry; We have assisted numerous municipalities in overcoming such challenges with proven results; Let us now extend our assistance to your municipality; Our contact details: Maximum Profit Recovery (PTY) LTD Page 11