Following announcement of the actions taken by government to combat the COVID-19 crisis, many South Africans may be aware of the proposed tax measures that are effective from 1 April 2020. There is, however, an additional fiscal measure under the Value-Added Tax Act No. 89 of 1991 (“VAT Act”) that has been implemented that may have gone unnoticed.
Our analysis on fiscal relief measures initially proposed, stressed the importance of bringing the VAT system into the equation, albeit in a different context.
When the Regulations under the Disaster Management Act No. 57 of 2002 were published on 25 March 2020, it effectively made provision for this exemption by providing for the definition of “essential goods”, which include:
- Food – Any food product, including non -alcoholic beverages; animal food; and chemicals, packaging and ancillary products used in the production of any food product.
- Cleaning and hygiene products – Toilet paper, sanitary pads, sanitary tampons, condoms; hand sanitiser, disinfectants, soap, alcohol for industrial use, household cleaning products, and personal protective equipment; and chemicals, packaging and ancillary products used in the production of these items.
- Medical – Medical and hospital supplies, equipment and personal protective equipment; and chemicals, packaging and ancillary products used in the production of any of the above.
- Fuel – including coal and gas.
- Basic goods – including airtime and electricity.
SARS announced on 27 March that items falling within this definition will fall under Item 412.11 of Schedule 1 to the VAT Act. Schedule 1 must be read with section 13(3) of the VAT Act, which provides for the exemption. There will also be a full rebate of customs duty in terms of item 412.11 of Schedule 4 of the Customs and Excise Act No. 94 of 1964.
This initiative should stimulate the importation of essential goods, whilst providing much needed relief for vendors who would not be required to pay input VAT to SARS.
Word of caution
With the increased demand for these goods, and with the VAT exemption on importation, business owners may be tempted to diversify their trade and capitalise. However, it is important to note that the importation of goods under this item in Schedule 1 is not unconditional.
Businesses who wish to import these goods must obtain a certificate from the International Trade Administration Commission and may be subject to any further conditions agreed to by the Governments of the South Africa, Botswana, Lesotho and Swaziland.
Naturally, relief measures must be implemented with haste, which means there may be some practical hurdles for taxpayers, especially in complying with any formalities. Whilst it is very difficult to avoid these issues, where there are hindrances in obtaining certificates for example, the impact of the relief is somewhat compromised.
Work in progress
Governments around the globe are traversing unchartered waters at a very high pace, which simply means that no one has the wisdom on the best way to survive the crisis from a fiscal perspective.
The South African government appears to be paying attention when the private sector weighs in, which is an encouraging sign, as it continuously develops fiscal relief. For example, the relief package was expanded between the time the initial explanatory notes were published (29 March) to when National Treasury published the draft bills on 1 April.
The Organisation for Economic Co-operation and Development (“OECD”) provides another perspective by compiling the various relief measures imposed by countries across the globe. The South African context is undoubtedly a unique one, but this is an invaluable contribution by the OECD that the government must utilise.
Overall, government must be commended for the swift action it has taken in these times, even though we may encounter several kinks along the way.