VAT on fuel

National Treasury has indicated an intention to expand the VAT base by removing the zero rating on fuel. To mitigate the effect, National Treasury is considering combining this change with a freeze or decrease in the fuel levy.

This will, however, have the effect of increasing the cost of fuel which will cascade through the economy by way of increased costs, and furthermore contradicts the initial policy intent of subjecting fuel, already subject to a fuel levy, to an additional tax in the form of VAT.  

This change will be subject to consultation leading up to the 2018 Budget.

VAT on electronic services

National Treasury proposes updating regulations to broaden the scope of electronic services which are subject to VAT in South Africa, and to include Cloud computing and services provided using online applications. Further changes will be introduced to remove uncertainties and practical difficulties. While the detail of these changes has not been outlined, it remains to be seen whether the changes will align with broader OECD principles aimed at addressing base erosion and profit shifting.  

Amendments to definition of ‘resident of the republic’

Definition of ‘resident of the Republic’

National Treasury proposes amending the definition of ‘resident of the republic’ in the VAT Act to ensure that the zero-rating for non-residents is not jeopardized. Such amendment aims to ensure that non-residents do not incur non-recoverable VAT.

Housing subsidy payments

The proposed deletion of the zero rating of housing subsidy payments has been postponed for two years. The law currently provides that payments made in terms of certain national housing programmes, reflected in a regulation, be zero rated. As no such regulation currently exists, the question has to be asked whether any payments can currently be zero rated.   

Moveable property situated in an export country

The Budget implies that shares and securities of a foreign company listed on the JSE are to be regarded as moveable property situated in a foreign country. The VAT Act currently provides for services in respect of such shares and securities to be zero rated and National Treasury has proposed amendments to the VAT Act to clarify the tax treatment of these services. It is not clear what further clarification is required in this area.

Customs and excise

As predicted, National Treasury has sought to increase excise duties in respect of cigarettes and alcoholic beverages. National Treasury will furthermore amend the Tax Administration Act to tighten the controls around the marking, tracking and tracing of locally manufactured and imported tobacco products to limit fraud. In addition, the fuel levy will be increased by an additional 30c per litre.

Sugar tax

In line with previous statements, Government proposes implementing a tax on sugary beverages as soon as the necessary legislation is approved by Parliament and signed by the President. The tax will be administered through the Customs and Excise Act. National Treasury’s socio economic impact assessment shows a relatively small effect on job losses.
 
Following the draft policy paper and consultation with industry, the design of the tax has been revised such that:
– The World Health Organisation definition will be applied to cover the intrinsic and added sugars in sugary beverages;
– The sugar content will remain the base on which the tax is applied;
– The proposed tax rate has been decreased t0 2.1c/gram for sugar content in excess of 4g/100ml; and
– Of the proposed rate, 50 per cent will apply to concentrated beverages.

Some of the revenue collected will be used to support health promotion interventions to fight non-communicable diseases.  

Carbon tax

A revised Carbon Tax Bill will be released during 2017 for public consultation and is expected to be tabled in Parliament mid-2017. Latest developments include:
– During the first phase of the tax until 2020, there will be no impact on the price of electricity;
– A revised regulation for the carbon offset allowance will be published by mid-2017.

Government expects to provide clarity on the alignment of the carbon tax and carbon budget after 2020.

Lesley O’Connell, Partner PwC Indirect Tax.