SYNOPSISOctober 2006

Advance tax rulings in respect of VAT . . . . . . . . 8

Reportable arrangements revamped . . . . . . . . . 0

Fifteen years of VAT in South Africa . . . . . . . . . 11

VAT in Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Highlights of the Draft Revenue LawsAmendment Bill 2006 . . . . . . . . . . . . . . . . . 2

Accrual of income . . . . . . . . . . . . . . . . . . . . 3

Recreational clubs to be partiallytax-exempt . . . . . . . . . . . . . . . . . . . . . . . . . 4

The new general anti-avoidanceprovision . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2 October 2006

The highlights of the statutory amendments foreshadowed by the just-released Draft

Revenue Laws Amendment Bill 2006 are set out below.

Estate Duty Act

The Commissioner is to have

to the power to appoint any

person to be the agent of any

other person in respect of the

payment of duty by the latter

(proposed section 12A) and

will have the same remedies

against property vested in or

under the control or

management of any agent or

trustee as the Commissioner

would have against the

property of the person who is

liable for duty or interest

(proposed section 12B).

Income Tax Act

� A definition is to be provided

of “country of residence”

and “foreign business

establishment” for purposes

of the provisions governing

controlled foreign companies;

(proposed section 9D(1));

� New provisions in respect of

tax exemption for recreational

clubs; (proposed section

10(1)(cO) to dovetail with the

new section 30A;

� New provisions regarding

the tax exemption for

scholarships or bursaries;

(proposed section 10(1)(q)

read with the proposed

section 30A);

� Deductions in respect of

scientific or technological

research and development;

(proposed section 11D);

� A significant expansion of

the deductions available to

personal services companies

or personal service trusts;

(proposed section 23(k)(iii));

� A new category of public

benefit organisation, namely

an agency or branch in the

Republic of a company or

association formed outside

the Republic which is

exempt from tax in that other

country; (proposed section

30(1)(a));

� Section 103(1) and (3) are to

be deleted and replaced by

a proposed new Part IIIA

dealing with “impermissible

tax avoidance arrangements”;

� Section 76A which deals

with reportable arrangements

is to be deleted and

replaced by Part IIB;

� There is to be a new

definition of “personal

service company”;

(proposed paragraph 1 of

the Fourth Schedule);

� Public benefit organisations

are to disregard any capital

gain or loss in respect of the

disposal of an asset not

used for any business

undertaking or trading

activity or which was used,

since the valuation date, in

carrying on a public benefit

activity; (proposed paragraph

63A of the Eighth Schedule);

� An expanded provision

dealing with the deemed

disposal, for capital gains

tax purposes, of an asset to

the taxpayer’s surviving

spouse; (proposed

paragraph 67(2)(a) of the

Eighth Schedule);

� The introduction of a 10th

Schedule to deal with oil and

gas activities.

Value Added Tax Act

The extension of the system of

advanced tax rulings to

value-added tax (proposed

section 41A of the Act).

Highlights of theDraft Revenue LawsAmendment Bill 2006

3October 2006

The accrual of income

Another taxpayer falls into the trap

Unfortunately, some taxpayers try

to economise on professional fees

and either manage their own tax

affairs (a sure recipe for expensive

errors) or else assume that the

professionals who draft their

contracts are well-versed in the

principles of tax (a dangerous

assumption).

Contracts that make excellent

sense and are well-drafted from a

commercial perspective may be tax

disasters. Woe betide the

draftsperson who has the law of

contract at his or her fingertips but

has never got around to studying

income tax.

In Case 11661 (decided in the

Durban Tax Court on 26 May 2006

and not yet reported) the taxpayer

was a manufacturing company that

sold products to wholesalers. Its

standard conditions of sale included

a term which stated that –

“Should payment be made by purchaser

to seller not later than the 25th day … of

the month following the month during

which delivery takes place, the purchaser

shall be entitled to deduct a settlement

discount from his payment, in

accordance with the seller’s discount

scheme …”

During the tax year in question, the

taxpayer calculated its gross income

by deducting the applicable

settlement discount, on the

assumption that the debtor would

pay the account by the 25th of the

month. At the end of the 2003 tax

year, these discounts totalled just

over R4 million. In computing its

gross income for tax purposes, the

taxpayer deducted the aggregate of

such discounts.

SARS raised an additional assessment

which added that discount to the

taxpayer’s gross income.

The crisp issue before the tax court

was whether the so-called “settlement

discounts” formed part of the

taxpayer’s gross income. This turned

on whether the amounts in question

had “accrued” to the taxpayer, even

though they had not been “received”

by him, since the Income Tax Act

defines “gross income” as including

both receipts and accruals.

Citing the well-known cases of

Lategan v CIR 1926 CPD 203 and

CIR v People’s Stores (Walvis Bay)

(Pty) Ltd 1990 (2) SA 353 (A) the

court held – correctly it is submitted

– that an amount “accrues” to a

taxpayer when he becomes

“entitled” to the amount and that, on

the facts of the matter, the taxpayer

became entitled to the full selling

price. The fact that the taxpayer’s

accounting system treated the

amount due as the selling price

less the discount could not (said

the court) alter the situation from a

tax point of view.

The tragedy was that, if the person

who drafted the standard contract

had been aware of elementary

principles of tax law, he or she

could have ensured that only the

discounted amount accrued to the

taxpayer.

This could have been achieved by

the simple stratagem of making the

discounted amount the selling price,

and writing a suspensive condition

into the contract in terms of which, if

the price was not paid by the 25th of

the month, a further amount would

become payable. It is well established

that an amount “accrues” only if and

when the taxpayer acquires an

unconditional right to it.

The tax consequences of a contract

can often be (legally) manipulated in

this way. The fundamental principles

as to the time when an amount falls

to be included in the taxpayer’s

gross income, and the time when

tax-deductible expenditure becomes

deductible are based on the legal

concepts of the “accrual of a right”

and the “incurring of a legal

obligation” respectively.

A taxpayer cannot, merely by

drawing up his accounts in a

particular way, delay the accrual of

income or bring forward the time

that an obligation is incurred.

The South African tax landscape is strewn with pitfalls for the unwary taxpayer. A taxconsultant earns his or her keep by guiding the client around the traps.

4

Clubs to be partially tax-exemptCurrently, section 10(1)(d)(iv)(aa) of the Income Tax Act 58 of 1962 grants an exemption fromincome tax to any company, society or association established to provide social and recreationalamenities or facilities for its members.

SARS has become concerned that

clubs are enjoying this exemption

even where they allow their

amenities to be used by the general

public, and that some clubs are

involved in extensive trading

activities in order to supplement

their membership fees.

SARS has also taken note of

concerns that the exemption

accorded to recreational clubs is

anomalous, in that they are

currently treated more leniently than

public benefit organisations, which

have recently been made subject to

a system of partial taxation.

Under the new dispensation,

recreational clubs are to be subject

to a system of partial taxation, and

will be tax-exempt only within the

confines of the “mutuality principle”

– that is to say, the principle that

where a number of taxpayers join

together to provide funds to share

the expenses of creating amenities

for their common enjoyment (such

as the construction of tennis courts,

golf courses, swimming pools,

club-houses, etc.) they can do so

without incurring any tax liability.

Tax exemption is to be available

only for such cost-sharing

situations. Income derived from

non-members will not be exempt.

A “recreational club” (as defined in

the new section 30A) will be exempt

from tax on membership fees and

subscriptions paid by members,

payments by members for social or

recreational facilities (e.g green fees

for playing a round of golf), and

fund-raising activities of an

occasional nature and undertaken

substantially on a voluntary basis

and without compensation.

The first R20 000 of other income

(for example, investment income

and income derived from letting out

Change of rules for recreational clubs

Under the new dispensation,

recreational clubs are to be

subject to a system of partial

taxation, and will be tax-exempt

only within the confines of the

“mutuality principle”.

October 2006

5

the club premises to non-members)

will be exempt from tax, and the

balance will be taxable in the

ordinary way.

Expenditure in producingexempt income; roll-over ofcapital gains

The club’s expenditure incurred in

producing tax-exempt income will

not be able to be offset against

taxable club income.

Capital gains on the disposal of

club assets (for example, the

sub-division and sale of part of the

club property) will qualify for

roll-over relief, and CGT will be

deferred if the club uses the

proceeds of the sale to purchase an

asset for the club that will produce

tax-exempt income.

Clubs will have to apply toSARS for exemption

Tax exemption for recreational

clubs will not be automatic, and

they will have to apply to SARS for

exemption in much the same way

as public benefit organisations.

Clubs are to be accorded a lengthy

transition period in this regard, and

application must be made before

31 March 2011 or the last day of

the club’s first year of assessment.

The Commissioner cannot deny

exemption if the statutory conditions

are fulfilled, namely that -

� the club is committed to carrying

on its activities solely in a

non-profit manner;

� its surplus funds cannot be

distributed, except upon

dissolution, in which event, it

must transfer its funds an assets

to another tax-exempt club or to

approved public benefit

organisations;

� it pays only reasonable

remuneration;

� all members are entitled to

membership for at least a year

(hence, for example, day-

members’ fees will not be exempt

from tax);

� members cannot sell their

membership rights;

� the club does not knowingly

become involved in tax avoidance

schemes.

Where a club’s constitution does not

satisfy these requirements, it will

suffice if a person in a fiduciary

position vis-à-vis the club gives the

Commissioner a written undertaking

that the club will be administered in

compliance with these requirements.

Violation of these rules can result in

the club’s forfeiting its tax-exempt

status, but SARS must give the club

notice and an opportunity to put its

affairs in order within a stipulated

period.

Once the Commissioner has

withdrawn his approval of a

recreational club, it must within three

months transfer its remaining assets

to another approved recreational

club or an approved public benefit

organisation, other than a connected

person vis-à-vis the club.

If the club fails so to transfer its

assets, or take reasonable steps to

do so, then a drastic consequence

ensues – the market value of the

assets not transferred will be

deemed to be taxable income

accruing to the club in the tax year in

which the Commissioner withdrew

approval.

October 2006

6 October 2006

Part IIA of the Income Tax ActThe centerpiece (and the focus of attention in the business press) of the proposed amendments tothe Income Tax Act is the new general anti-avoidance provision which is to replace section 103(1).

The relatively concise provisions of

section 103(1) and (3) are to be

replaced by twelve new complex

sections, comprising sections

80A–L, which together constitute a

new Part IIA of the Act entitled

“impermissible tax avoidance

arrangements”.

Complex and novel features

The most striking novel features of

the Part IIA are –

� the criterion of “commercial

substance”; (stated in section

80A(a)(ii) and expanded on in

detail in section 80C);

� the criterion of whether the

arrangement in issue “would

frustrate the purpose of any

provision of [the Income Tax]

Act” (proposed section 80A(c)(ii));

� new powers given to the

Commissioner in relation to an

“impermissible avoidance

arrangement” (section 80B) and to

determine whether parties are

“accommodating or tax indifferent

parties” and whether there has

been a “tax benefit”(section 80F);

� a criterion of “commercial

substance” in an arrangement;

(section 80C);

� the concept of “accommodating

or tax-indifferent parties”(section

80E).

The three phases of thegeneral anti-avoidanceprovision

This is the third major revamp of

section 103(1). In its first phase,

section 103(1) lasted from its original

enactment in 1978 to its amendment

in 1996.

1The pre-1996 format of

section 103(1)

In its pre-1996 format, section

103(1) distinguished between

legitimate and illegitimate tax

avoidance on the basis of four

criteria, namely –

(a) the existence of a “transaction,

operation or scheme”;

The new generalanti-avoidance provision

7October 2006

(b) that had the effect of avoiding,

postponing or reducing liability

for tax;

(c) which was entered into in an

abnormal means or manner or

which created non-arm’s length

rights or obligations between the

parties; and

(d) which was entered into for the

sole or main purpose of tax

avoidance.

If all of these elements were

simultaneously present, section

103(1) empowered the Commissioner

to determine the parties’ tax liability

as though the scheme had not been

entered into or carried out, or in

such other manner as he deemed

appropriate to prevent or diminish

the tax avoidance. In terms of

section 103(4), if a transaction had

the effect of avoiding tax, it was

rebuttably presumed that it had

been entered into with a sole or

main purpose of tax avoidance.

There are contested assessments in

the pipeline, still to come before the

courts, which have to be determined

under the pre-1996 format of

section 103(1).

2The post-1996 format of

section 103(1)

The second phase of section 103(1)

lasted from its 1996 amendment to

the coming into force of the

proposed Part IIA.

The reason for the 1996 amendment

was that, from SARS’s perspective,

a major weakness of section 103(1)

in its pre-1996 format was its

“abnormality” criteria, for it was

possible for taxpayers to argue that

that it was not “abnormal” to

structure a transaction so as to

minimise liability for tax, because it

is ordinary business practice to do

so. The validity of this argument has

never been determined by the courts.

The essence of the 1996 amendments

to section 103 was as follows:

� In relation to a transaction,

operation or scheme “in the

context of business”, the

“abnormality” criteria were

replaced by the criterion of

whether the transaction had been

entered into or carried out “in a

manner which would not normally

be employed for bona fide

business purposes other than the

obtaining of a tax benefit”.

Consequently, a transaction which

was not abnormal in its means or

manner or in its rights and

obligations (and which would

therefore have been outside the

scope of section 103(1)) in its

pre-1996 format) became

vulnerable to the section in its

post-1996 format if the transaction

fell within the scope of this new

formula.

� In relation to a transaction,

operation or scheme which was

not in the context of business, the

Commissioner could invoke

section 103(1) where it was

entered into by means or in a

manner which would not normally

be employed in the entering into

or carrying out of a transaction,

operation or scheme of the nature

of the transaction, operation or

scheme in question. Transactions

which were not “in the context of

business” probably included

arrangements such as the

creation and operation of family

trusts, at least where the trust did

not carry on a business.

� The amended section 103(1)

retained, as an alternative, one of

the pre-1996 criteria, namely

whether the transaction, operation

or scheme “has created rights or

obligations which would not

normally be created between

persons dealing at arm’s length

under a transaction, operation or

scheme in the nature of the

transaction, operation or scheme

in question”.

� A new expression – “tax benefit”–

was introduced into the section

and was defined as including any

avoidance, postponement or

reduction of any tax, duty or levy

imposed by the Income Tax Act or

any other law administered by the

Commissioner.

The 1996 amendments did not

abolish the requirement that the

taxpayer must have entered into the

transaction, operation or scheme

solely or mainly for the purposes of

obtaining (what was now called) a

“tax benefit”, and this requirement

remained an overriding condition

precedent to the application of

s 103(1).

A consequence of the way in which

the 1996 amendments were drafted

8 October 2006

was that a taxpayer could, with

impunity, enter into a transaction

that was (objectively) abnormal, so

long as he did not have a (subjective)

sole or main purpose of tax

avoidance. Conversely, a taxpayer

could with impunity enter into a

transaction with the (subjective) sole

or main purpose of tax avoidance as

long as it was not (objectively)

abnormal.

This meant that if two taxpayers, A

and B, entered into exactly the same

type of transaction, which involved

an abnormal means or manner or

abnormal rights and obligations, the

result could be that section 103(1)

applied to A, but not to B, because

A had a sole or main purpose of tax

avoidance, but B did not. Indeed,

this could happen even if A and B

had entered into the particular

scheme with one other, with the

result that the Commissioner could

invoke his draconian powers in

relation to one, but not the other!

There are many disputed

assessments, still to be heard by the

courts, involving section 103(1) in its

post-1996 format.

3Phase three – Part IIA of the

Income Tax Act

It is proposed that Part IIA of the

Income Tax will come into force with

effect from the commencement of

years of assessment ending on or

after 1 January 2007.

An unwelcome aspect of the

introduction of Part IIA is that it will

take many years – perhaps decades

– for the High Court and the

Supreme Court of Appeal to rule on

the interpretation of these new

provisions, and the novel concepts

such as “a lack of commercial

substance”, and whether a

particular tax scheme “would

frustrate the purpose” of any

provision of the Income Tax Act.

In the meantime, the business

community and their professional

tax advisers will have to endure

prolonged uncertainty as to whether

or not a proposed arrangement, or

an arrangement which they have in

fact entered into, will be found to

have infringed Part IIA. This

uncertainty will be particularly acute

in relation to innovative methods of

financing business deals, for it may

be very difficult to determine

whether or not a particular

arrangement “lacks commercial

substance” (as contemplated in

section 80C) or involves “round trip

financing” (as contemplated in

section 80D).

One way for businesspeople to deal

with this uncertainty would be to

write into the contract that particular

contractual provisions will change,

or will be unwound, if SARS

succeeds in invoking Part IIA, or even

if SARS merely gives notice in terms

of section 80J that it may do so.

Such a contractual provision is not

void or impermissible – it merely

makes the contract a “reportable

arrangement” in terms of the

proposed Part IIB of the Act. But it

may be preferable for the parties to

a tax scheme to decide for

themselves, at the outset, how to

unwind the scheme if it is attacked

by SARS, rather than to leave

themselves at the mercy of SARS’s

extensive new statutory powers to,

inter alia, “re-allocate gross income”

or “recharacterise expenditure” in

terms of section 80B.

Advance tax rulings inrespect of VATIn terms of the Draft Revenue Laws Amendment Bill 2006, the

provisions contained in Part IA of chapter III of the Income Tax Act

in relation to advanced tax rulings are to be made applicable,

mutatis mutandis, to the Value Added Tax Act 89 of 1991.

Any procedures and guidelines issues by the Commissioner in

terms of section 76S of the Income Tax Act for the implementation

and operation of the advanced tax ruling system are to apply,

mutatis mutandis, to VAT.

The new anti-avoidance provision

9October 2006

Reportable arrangements revamped

Currently, section 76A of the Income Tax Act provides for the obligatory reporting to SARS oftwo types of arrangement, namely –

� those that result in a tax benefit

and are subject to an agreement

that provides for the variation of

interest, fees, etc. if the actual tax

benefits of the arrangement

deviate from the envisaged tax

benefit;

� those falling within a special

inclusion list, which currently deals

with hybrid debt and equity

instruments.

The purpose of making such

arrangements reportable is to give

SARS early warning of arrangements

that may fall foul of the general

anti-avoidance provision of the Act

or in respect of which SARS may

take action under other statutory

provisions or the common law.

In its brief existence – scarcely 18

months – section 76A has yielded

disappointing results for SARS.

Fewer disclosures have been made

than were expected, and some

taxpayers have raised technical

arguments that their arrangements

did not require to be disclosed

because they fell outside the scope

of the section.

The proposed Part IIB

It is proposed that the present (fairly

concise) section 76A be deleted in

its entirety and replaced by a new

Part IIB, spanning section 80M–Q

which will deal exclusively and in

detail with reportable arrangements.

Section 80A will significantly expand

the definition of “reportable

arrangement” and will dovetail with

section 80C(2) (which forms part of

the new Part IIA and sets out the

characteristics of an avoidance

arrangement which has a lack of

commercial substance).

Subject to specified exceptions (set

out in section 80N) the obligation to

report will generally be triggered by

an arrangement which –

� provides for interest, finance

costs, fees or other charges which

are partly or wholly dependent on

New Part IIB raises the stakes

10

assumptions relating to the tax

treatment of the arrangement; (e.g

where the contract provides that

the interest, finance costs, fees,

etc, will be varied if they do not

qualify as tax deductions);

� has any of the characteristics of a

lack of commercial substance in

terms of the proposed general

anti-avoidance provisions

contained in the new Part IIA;

� will be disclosed by any participant

as a loan or financial liability for the

purposes of Generally Accepted

Accounting Practice but not for

income tax purposes;

� does not result in a reasonable

expectation of a pre-tax profit

for any participant; or

� results in a reasonable

expectation of a pre-tax profit

for any participant that is less

than the value of those tax

benefits to that participant on a

present value basis.

October 2006

The obligation to report a reportable arrangement

The obligation to report a reportable

arrangement is to fall on the

“promoter” of the arrangement –

defined as “any person who is

principally responsible for organising,

designing, selling, financing or

managing that reportable

arrangement”.

This wide-ranging obligation – which

will alarm accountants, attorneys,

consultants and financial institutions

countrywide – represents a radical

change from section 76A, in terms of

which the obligation to report fell only

on the taxpayer.

Conceivably, in relation to a single

“reportable arrangement” adopted by

a particular taxpayer, the obligation to

report to SARS (and the concomitant

penalty for failing to report) could fall

simultaneously on a host of

people other than the taxpayer,

since it is possible that a number

of individuals or institutions could

be “principally” responsible for

each of the stipulated facets of

the arrangement, namely

organising, designing, selling,

financing or managing it.

Hazards for adventurous draftspersons

It is likely that some draftspersons

will continue to try, as they did

with section 76A, to draw

contracts for themselves or their

clients in such a way as not to fall

within the scope of the new Part

IIB of the Act, so as not to trigger

the obligatory reporting.

This will be an even more

hazardous exercise than before.

Under the old section 76A, the

consequence of not reporting a

reportable arrangement was that

the taxpayer would be required to

pay, in addition to the ordinary

amount of tax, an amount

equivalent to the tax benefit

derived from that arrangement.

The new Part IIB raises the stakes

considerably, and failing to report

a reportable arrangement will

incur a penalty of up to R1 million.

(No provision is made for the

forfeiture of any legitimate tax

benefit achieved by the

arrangement.) The penalty is

incurred even if there was

nothing illegal about the

arrangement, and even if it

does not in fact infringe the new

general anti-avoidance

provisions. The penalty is

imposed simply for failure to

report a “reportable

arrangement”.

The Commissioner is given

power to reduce the penalty if

there are extenuating

circumstances and the participant

remedies the non-disclosure

within a reasonable time, or if the

penalty is disproportionate to the

envisaged tax benefit.

11

It was supposed to be a simple tax. An “in and out”. Somehoped, forlornly, that it was a passing fad and wouldn’t last

long. Well 15 years on, Value Added Tax in South Africa isgoing strong, being responsible for consuming (excuse thepun) thousands of hours of government, South AfricanRevenues Services, business and consultants’ time. Why,you ask, is so much time now devoted to administering andmanaging this tax?

The answer is simple, consumption

taxes – notably VAT, GST and

customs duties and excise – are

assuming ever-greater importance

as a revenue-collection tool across

the globe. They are also, by some

distance, the most cost effective

taxes to collect, since the taxpayer

does all the work. In 2002,

consumption taxes comprised

approximately 30% of total

taxation revenue in OECD

countries. Such a large amount of

money requires proper Government

attention to ensure collections are

maximised and leakage is kept

under control.

The flip side of having a

consumption tax system is that,

from a governmental perspective,

the use of VAT and other

consumption taxes to raise revenue

is politically unpopular as they are

viewed as regressive taxes, i.e they

take no account of the ability to

pay. Further, there is thought to be

a negative impact on GDP and

international competition for foreign

direct investment as cross-border

businesses seek tax-friendly

environments with low rates and a

minimum of red tape.

Businesses across the globe,

continent and country are giving

increased attention to their strategy

regarding indirect tax management.

It is now more necessary than ever

to ensure compliance and, where

necessary, have arguments ready

to defend business and tax

decisions from over-zealous tax

officials. SARS has access to

increasingly sophisticated people

(CAs, MBAs, economists) and tools

(data mining and benchmarking

software) to monitor and enforce

tax compliance, particularly on the

part of large corporations. It is also

happily agreeing protocols with

like-minded tax jurisdictions, of

which there are many, for the

exchange of information.

All this activity takes place within

the context of the constant tension

between the need to keep the tax

as straightforward as possible

using initiatives such as e-filing,

and the need for complex legislation

to counter tax avoidance. Going

forward, National Treasury will try

to keep tax legislation as simple as

possible without creating too many

escape hatches for the taxpayer.

SARS will continue to collect tax as

aggressively (and hopefully fairly)

as possible. Our guess is that as

SARS continues to raise its game it

will be the simple things that catch

taxpayers out like inadequate

documentation and VAT treatment

issues that one thought had long

since been resolved.

Fifteen years of VAT in South Africa

12

• Editor: Ian Wilson • Written by R C (Bob) Williams • Sub-editor and layout: Carol Penny

• Distribution: Elizabeth Ndlangamandla •Tel (011) 797-5835 • Fax (011) 209-5835

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firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

In the last 15 years, many African countries haveimplemented VAT systems and have adapted their

VAT models to suit unique local circumstances,particularly to lessen the impact of the regressivenature of the tax by creating extensive categories ofexemptions and zero-rating.

Botswana introduced VAT in 2002 as a replacement for

sales tax at a rate of 10%, which is applicable to all supplies

that are not exempt or zero-rated. Exempt supplies include

financial services (but VAT is charged on any fee rendered for

a transaction), educational services and medical services.

Kenya introduced VAT in 1990 to replace sales tax. The

standard rate of VAT is 16%, and a 14% rate applies to hotel

and restaurant services.

Mozambique introduced VAT in 1999, with a rate of 17%.

Transactions within the country involving staple foods such

as maize flour, rice, bread and wheat are fully exempted.

Namibia introduced VAT in 2000, with a standard rate of

15%. Non-residents qualify for a refund of VAT on exported

goods. Services to non-residents directly in connection with

land and buildings are subject to VAT. The sale of a business

as a going concern is not zero-rated.

South Africa introduced VAT in 1991 with a standard rate of

14%. There is no reduced VAT rate, except for zero-rated

supplies. The supply of certain goods and services is exempt,

including certain financial services, residential

accommodation in a dwelling and educational services.

Certain supplies are zero-rated, including the supply of an

enterprise as a going concern.

Tanzania introduced VAT in 1998 with a standard rate of

20%, and no reduced rate except the zero rate.

Uganda introduced VAT in 1996 at a standard rate of 18%.

The supply of goods which are exported from Uganda are

zero-rated.

Zimbabwe introduced VAT in 2003 with three different VAT

rates – a standard rate of 15% (since increased to 17.5%), a

special rate of 22% for cellular telecommunication services,

and a zero rate.

VAT in Africa

Regional offices

Bloemfontein (051) 503-4100

Cape Town (021) 529-2000

Durban (031) 250-3700

East London (043) 726-9380

Johannesburg (011) 797-4000

Port Elizabeth (041) 391-4400

Pretoria (012) 429-0000