Managing the VAT function at Local Government Entities (Metropolitan Municipalities & MOE’s, District Municipalities and Local Municipalities) is far more complex than one would anticipate. An in-depth VAT knowledge is required in orderto correctly apply the varioussectionsof the Value-Added Tax Act No.89 of 1991, as amended (the “VAT Act”) applicable to these entities. The VAT treatment of the various grants received by municipalities and municipal entities also differ and will thus complicate matters even further. SARS has issued various Guides and Binding General Rulings to assist Municipalities and Municipal Entities with VAT Compliance, however the comprehensive documentation might still be too complex for interpretation by these entities on their own.
During our involvement with Local Government over the past 21 years we have identified various non-compliance issues and would like to highlight a few:
The incorrect classifications of the various income streams for VAT purposes:
- Municipalities and Municipal Entities receives a vast array of income that is either Standard Rated, Zero rated, Exempt or Non-Taxable/Out of Scope for VAT purposes. The incorrect classifications of the various income streams for VAT purposes impacts the calculation of the Output Tax Payable, the Apportionment Ratio Calculation (utilizing the turnoverbased method of apportionment) & the VAT Codings/Indicators on mSCOA.
Input Tax documentation do not comply with the requirements as set out in VAT Legislation:
- Municipalities and Municipal Entities are still not in possession of Valid Tax Invoices before claiming an input tax and SARS will disallow input tax claimed on documentation that don’t comply with the requirements asset out in the VAT Act. Penalties & interest will also be levied by SARS on these assessments, thus resulting in fruitless and wasteful expenditure
Incorrect treatment of Indigent Credit Allocations by Financial Management System (FMS):
- Output Tax will be over declared if the FMS incorrectly treats the Indigent Credit Allocations (DORA Allocations). An analysis of the “Billing Integration” should be performed to ensure the correct treatment for VAT purposes.
Incorrect treatment of Capex & Opex Grant Funded projects (USDG, HSDG, NDPG, MIG etc):
- The VAT treatment of the various grants & subsidies received by municipalities & municipal entities for various projects could result in a nightmare and the incorrect VAT treatment directly influences the claim ability of the input tax incurred on these projects.
SARS VAT Audits – Not knowing your rights and obligations:
- When SARS performs an Audit, entities must know their rights as well as their & SARS’s obligation in terms of the Tax Administration Act 28 of 2011 (“TAA”). It is important to understand the type, and extent, of the rights provided for, and how to ensure that those rights are protected and enforced to the fullest extent.
About Us
