January 29, 2015 at 4:51 pm #391Marican IncorporatedKeymaster
VAT tips on how to avoid the disallowance of input tax
Recently, the input tax claims of a large number of vendors were disallowed. Tax practitioners and vendors alike responded with considerable displeasure. This is understandable because the volume of disallowed input tax claims is huge.
A calm approach, in some of these situations, is however, more appropriate. It has become apparent that many tax practitioners and vendors are submitting `tax invoices’ with the incorrect vat registration numbers. In other words, the vat registration numbers on `tax invoice’ do not reflect the vat registration numbers of the vendor applying for this input tax claim. In the first, SAIPA officials did not believe such allegations until such time tangible and irrefutable evidence have come before the Institute. Of the six invoices inspected by SAIPA, in four cases, incorrect VAT registration numbers were attached and in the case of the two `tax invoices, no vat registration numbers were recorded. It is quite apparent that the administrative staff at accounting firms processes these claims without paying careful attention to the correctness of the details of the invoices.
These are not good reasons for refund delays because such elementary `mistakes’ are avoidable.
Another reason for the possible delay of vat re-fund is the claiming of input tax when fixed property is purchased and used for the purpose of producing taxable supplies. The Vat Act is explicit that claims for input tax in such situations can only be processed if the claimant of the input tax deduction is also the owner of the property. This implies that the property must already have been transferred to the name of the claimant before the input tax deduction can be claimed, and that evidence is available that the property will be used in making taxable supplies. If the sequence for claiming the input tax deduction is not observed, this implies that the claimant of input tax deduction is not the owner of the property. This is clearly not legal and allegation of fraud could be instituted.
It would be appropriate to briefly explain why vendors fail vat audits. Some the reasons are as follows:
- employers fail to pay over Vat on company car fringe benefits. This mistake can be easily detected with the introduction of the compulsory completion of IT14SD, or a review of the IRP5 certificates for the relevant period..
- Vendors must account for output tax on the short-term insurance compensation received (including 3rd party claims), especially if the vendors have claimed the input tax on the premiums paid for the cost of the short-term insurance.
- Vendors must not claim input tax for non-qualifying items such as motor cars and entertainment (which includes meals and refreshments), as such was not used, consumed, or on-supplied for the purpose of making taxable supplies.
These are some of the major reasons for unsuccessful audits and the list has not been exhausted. In view of our many and various experiences at Marican’s tax help desk, we will share more information with all. It is therefore, essential that all become more acquainted with the Act. Although the Vat Act has been with us for some time, regular briefings on this Act are compulsory since many of the provisions of the Act are complex and consequently require regular discussions.
You should take note domestic air tickets are subject to Vat. A vendor can claim the input tax on these tickets provided that such expenses have incurred in pursuance of making taxable supplies. Be cautious with domestic air-travel tickets, as it includes airport taxes and VAT is not levied on the full consideration paid.
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