Input Tax Without Valid Tax Invoice

The South Atlantic Jazz festival case (“Jazz festival case”) put into a motion a series of changes to the VAT legislation, more specifically, as to when an input tax claim can be made without a proper tax invoice. In short, the taxpayer in the South Atlantic Jazz festival case was successful in a dispute against SARS to claim an input tax credit without a valid tax invoice.

It came as no surprise when the legislation was subsequently changed in 2015 by section 25 of the 2015 Taxation Laws Amendment Act to effectively delete the provision successfully relied upon by the taxpayer in the Jazz Festival case. Not all was however lost – consolation was left for taxpayers seeking the same relief as was offered to the taxpayer in the Jazz Festival case. The consolation, however, came on SARS’ terms as taxpayers seeking an input tax deduction without a valid tax invoice can continue to seek an input tax deduction, provided:

• Certain circumstances prescribed by SARS exists; and
• The taxpayer is in possession of certain documents prescribed by SARS.

During 2016, SARS published two draft binding general rulings setting out (a) what the circumstances are that must be present and (b) what the prescribed documents are to claim an input tax credit without a proper tax invoice.

The circumstances under which taxpayers could seek this special relief would, based on the draft binding general ruling exist if:

• The taxpayer exhausted all remedies to obtain a valid invoice;
• All taxes and returns must be up to date; and
• The period in which the claim is sought falls on or after 1 April 2016

The documents prescribed per the other draft binding general ruling were essentially documents allowing all elements of a valid tax invoice to be identified.

The 2016 Draft Tax Administration Laws Amendment Bill however proposed to delete the above consolation and replace it with, what is arguably, a more restrictive one.

Per clause 24(1)(b) of the Draft Taxation Laws Amendment Bill, a taxpayer seeking an input tax deduction without a valid tax invoice must apply for a ruling from SARS before the taxpayer can claim an input tax credit and further states that SARS can only issue a ruling if:

• The taxpayer has taken reasonable steps to obtain a valid tax invoice; and
• No other provision in the VAT Act allows a deduction of the input VAT.

If the proposed change makes it into the final Act, which seems likely at this stage, it is evident that taxpayer’s will, with effect from 1 April 2016, need to apply for a ruling to get an input tax deduction if not in possession of a valid tax invoice.

Comments submitted on the proposed section to the effect that rulings are often administratively burdensome and the ruling process takes long were met with reassurance in the SARS and National Treasury Response Document that SARS has capacity to deal with applications in this regard. In addition, it would appear that rulings of this nature will be processed by SARS within 2 months, a somewhat shortened period.

Given our experience with ruling applications, we are skeptical that a ruling process will be practical in this space, however, we understand the policy rationale for the proposed change.

Taxpayers will be well advised to seek professional advice should they wish to rely on the new provision going forward.

5 Year Period to Claim Input Tax Repealed?

When the Minister of Finance announced in the 2016 budget speech that the ability to claim input tax credits within 5 years will be revisited, taxpayers and tax practitioners alike waited with great anticipation to see if the proposal found its way into the draft bills so as to comment on why this should most definitely not happen.

When the 2016 Draft Tax Administration Laws Amendment Bill was published for public comment, the Draft Memorandum of Objects on that draft bill indicated that:

“It is proposed that an input tax deduction be limited in certain instances to the tax period in which the time of supply occurred.”

However, most stakeholders were left scratching their heads as the actual draft bill proposed no amendments to the proviso to section 16(3) of the VAT Act and which allows the 5 year time period to claim input taxes. The only proposed changes in the actual draft bill was to reinsert section 44 into the VAT Act.

The confusion was however eventually put to rest with the response document from National Treasury and SARS in which the following statement was made:

“The Memorandum of Objects will be amplified to clarify that the proposed amendment does not limit input tax claims to the tax period in which the supply occurred…”

Accordingly, as it stands at the moment the 5 year period to claim input tax is not being changed.

Draft Taxation Laws Amendment Bill, 2016: (second batch) Revisions and Additions for Public Comment

Notable revisions include:

  • Changes to section 7C (trusts and loan accounts) to remove the deemed interest imputation for loans to trust and replacing same with a deemed donation provision and removing the R100 000 annual donations tax exclusion prohibition.
  • Extension of the Employment Tax Incentive to 28 February 2019;
  • Dividends on restricted equity instrument will no longer all be deemed remuneration. The proviso to the income tax exemption for dividends will however still apply in limited circumstances.

For access to the entire revision, please click here.