Source - Bizcommunity.com
A recent tax court judgment where a not-for-profit organisation was denied a value added tax (VAT) claim could have far-reaching implications for welfare businesses and corporate social responsibility (CSR) programmes.
The non-profit religious organisation in question distributes its message by way of free magazines. It claimed VAT back as it was incurred on the production, layout and printing of the magazine. The basis of the claim was that underlying costs were incurred to make taxable supplies - that being the physical supply of the magazines. The claim was denied by Sars and on appeal, the assessment was confirmed by the tax court.
According to the VAT Act, taxable supplies are anything that a business supplies to a third person on which VAT must be charged (at 14% or 0%).
Yet, if one applies the above tax court judgment to donations made to needy beneficiaries - e.g. feeding schemes - it would mean that any free offerings made by a non-profit association, would not constitute a taxable supply.
"The result would be that such organisations will be unable to recover VAT incurred on services consumed in the making of such supplies," Theron says.
In practice, it will also erode corporate South Africa's ability to contribute towards social upliftment projects, he says.
Many of these activities entail the making of free supplies to nominated beneficiaries. If these supplies of goods or services are made at no cost, VAT incurred in the procurement of goods consumed in the process of making such supplies, will not qualify as recoverable VAT.
Theron says Sars must provide clarity on this issue by way of an interpretation note or a legislative change.