It’s hunting season! Are you ready?

Tax , ,

As the traditional winter hunting season approaches and South African borders are (somewhat) more open after the stricter COVID-19 lockdown, it is important revisit the Value-Added Tax (VAT) impact of the various goods and services generally supplied to foreign hunters. The general rule is that the supply of goods or services in the Republic by a vendor to a foreign hunter is subject to VAT at the standard rate on the basis that the goods or services are consumed in the Republic. There are, however, certain exceptions to this rule.

Accommodation

The supply of “commercial accommodation” (lodging or board and lodging together with domestic goods and services) by a vendor to a foreign hunter is subject to VAT at the standard rate if the accommodation is supplied in the Republic. The consideration for the supply of commercial accommodation to a foreign hunter for an unbroken period of more than 28 days at an all-inclusive fee is deemed to be only 60% of the all-inclusive charge. The full value of meals, beverages and other entertainment supplied for a separate charge is subject to VAT at the standard rate. The full consideration for commercial accommodation that is supplied to the foreign hunter for less than 28 days is subject to VAT.

Hunting services

The nature of these services is such that the foreign hunter consumes the services whilst being physically present in the Republic. The supply of these services is therefore subject to VAT at the standard rate.

Trophy fee

The trophy fee is consideration for the supply of the hunted animal. This constitutes a supply of goods by the hunting outfitter which may be zero-rated provided that the goods are exported under as a direct export, indirect export (with election), or an indirect export where further work will be required.

Dip and pack and taxidermy services

The supply of dip and pack and taxidermy services may be zero-rated. The zero rate can only apply if the trophy is exported to the foreign hunter after the supply of the services, provided the supplier obtains and retains the required documentary proof. If the foreign hunter collects and subsequently removes the trophy from the Republic, the trophy is not exported to the foreign hunter, and the dip and pack and taxidermy services are therefore subject to VAT at the standard rate of 15%.

Single charge for a hunting safari package

In many instances, the hunting outfitter or another person assembles a hunting safari package consisting of various goods and services (including the trophy) to be marketed to foreign hunters. Even though a single charge may be paid for a hunting safari package, multiple goods and services may be supplied as part of the hunting safari package. The supply of these goods and services cannot be regarded as being merely incidental to the supply of the trophy.

The hunting package must therefore be separated into the various supplies provided such as accommodation, food, refreshments, trophy fee, professional hunting services and taxidermy services. The vendor will then be obliged to allocate a reasonable portion of the all-inclusive charge to each of the supplies of goods and services incorporated in the package and charge VAT at either the zero or standard rate, depending on the nature of the particular goods or services supplied.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Tax oddities and VAT frustrations

Tax , ,

The Tax Administration Act provides for the audit and verification of taxpayers’ tax returns for all taxes administered by the Commissioner for the South African Revenue Service (SARS). In many instances, such requests for information are general, boiler-plate letters received by taxpayers, not indicating specifically what additional information SARS requires in the circumstances and which supporting documents must be provided. In recent times, in respect of both income tax and value-added tax, SARS has taken an arbitrary approach in issuing additional assessments based on information provided by taxpayers in response to the inadequate (or vague at best) requests for information.

Income tax

Many taxpayers (who are natural persons) have recently received a request from SARS in which they list the bank accounts that are registered in the name of the taxpayer, as well as a summary of the total number of credits (deposits) made into these respective bank accounts. SARS then requests the taxpayer to explain why those credit amounts should not all be included in the taxpayer’s taxable income. This is a highly arbitrary approach followed by SARS in accepting that all deposits made into a taxpayer’s bank account constitutes income. There can, of course, be multiple other reasons for such deposits, including donations between spouses, receipt of gifts, loan funding received, prize winnings, transfers between the taxpayer’s own accounts, transfers out of bond accounts into current accounts, et cetera. This approach displays a lack of understanding regarding commercial realities and places the taxpayer on the back foot: having to discharge the onus of amounts that should not be classified as income.

Value-Added Tax

Arguably, no VAT vendor in South Africa has escaped frustration from the administration of the VAT system, particularly as it relates to the verification of VAT returns. A practice that has recently emerged is that if one or two pieces of supporting documents provided to SARS does not meet the requirements of a valid tax invoice, SARS immediately, and without further inquiry, disallows all input VAT claimed by a taxpayer during the relevant tax period. This is a highly invasive approach in which SARS accepts that none of the goods and services received by a vendor during that period is valid, or that they lack supporting documents. Unless SARS is specific in their requests, a taxpayer cannot identify the information that should be provided to them. The blanket disallowance of all input VAT is an irrational practice that should be addressed at the appropriate level.

The examples above merely illustrate some of the arbitrary practices that taxpayers have recently been confronted with – as such, taxpayers are advised to carefully navigate the dispute resolution process, since providing SARS with incorrect information, or making incorrect statements in their correspondence with the revenue authority, may lead to severe prejudice as a result of these unacceptable practices.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Why the POPI Act matters

Business , ,

The right to privacy is enshrined in Section 14 of South Africa’s Constitution and we understand it to be a vital human right. It states:

“Everyone has the right to privacy, which includes the right not to have –

(a) their person or home searched;

(b) their property searched;

(c) their possessions seized;

(d) the privacy of their communications infringed.”

It’s the last part of the abovementioned list that is becoming a growing concern. All around the world more and more focus is being placed on protecting private information as countries and governments are setting new laws to ensure the safety of their citizen’s information online.

In an age where information is growing at an exponential rate, no digital exchange of information can be left unprotected. For this reason, the Protection of Personal Information (POPI) Act comes into full effect from the 1st of July 2021.

Non-compliance could carry hefty fines, but as with most regulatory pieces of legislation, compliance is more than just a box to tick. Let’s consider why personal information should be protected:

  1. It builds confidentiality

Protection of data is very much a protection of the information that people hold as important. By capturing, storing, and processing personal information, you are essentially guaranteeing the confidentiality of your transactions with the other party.

Confidentiality is built upon when you can guarantee that none other than you yourself are able to access and process the information you store. Having a secure database stored with good encryption on your servers is a good way to keep to the promise of security you give to your customers/clients.

  1. It ensures the integrity of information

In a similar vein, data protection ensures that data remains accurate and integrous. Your customers/clients need to be sure that all their data is current and accurate, and that no manipulation of the data can take place.

Furthermore, to ensure the integrity of information, the data needs to be frequently backed up while remaining synchronous (i.e. whenever a change is made that change must reflect in the backup in as little time as possible).

Safeguards can also be put in place to ensure that no data is duplicated or stolen.

  1. It leads to trust

With regard to information storage and access, trust is built when your data subjects know that their data will always be available when and where they need it. Readily available data and the ability to request changes to the data with little to no delay are ways to build trust and assure data subjects that you are handling their data ethically.

At the end of the day, how you handle information is a question of ethics. What the POPI Act brings is a sense of relief in a modern age that there will be repercussions for the mismanagement of data and that there is greater regulation of data management.

Soon the everyday consumer will have a lot more protection against unwanted marketing and unethical data practices — practices that have been allowed to go on for too long. For those who are still lagging behind, the time is ticking and failure to become fully POPI Act compliant could hold serious consequences. Make sure to get your matters in order before 1 July 2021.

References

  • The Constitution of South Africa

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Drafting employment contracts for ad hoc activities

Employee , ,

It often happens that employers give instructions to employees that do not form part of their usual routine. This article will briefly discuss whether employees are obliged to execute all instructions received from their employer or supervisor, even if it is not what the employee was employed to do.

As a point of departure, normally, an employee’s job description will be contained in their employment agreement. However, in practice, you often get scenarios where the employee does not have an employment agreement, or the employment agreement does not expressly provide for the “extra instruction”.  In A Mauchle (Pty) Ltd t/a Precision Tools v NUMSA & others 1995 16 ILJ 349 (LAC) the employer informed the employees of a change in work practice and warned them that disciplinary action would follow should there be a refusal to accept the change. Accordingly, there was a collective refusal from the employees, which resulted in the employer dismissing employees who refused to comply with the lawful and reasonable work instruction. The court a quo held that the instruction was unreasonable, and it was a unilateral change in the terms and conditions of employment. However, on appeal, the Labour Appeal Court, found that the amendment of the conditions did not amount to an extensive change in work and that the change did not involve a term of employment. Accordingly, the court found that a refusal to obey a lawful and reasonable instruction amounts to a serious, deliberate form of insubordination and that it could be a valid reason for dismissal.

Therefore, it is possible that employers can instruct employees to perform duties that are not excessive to their normal working conditions.

It is also important to remember that, in modern times, employment agreements will intentionally be drafted to give employers the freedom to impose various instructions, apart from the “normal” instructions associated with the job description without any restrictions. The said clauses will typically read as follows: “the employee undertakes and will execute any alternative tasks as requested to do so, regardless of whether or not such work falls within the normal scope of the position as set out in this agreement” or “is subject to the provisions of this agreement and is further regulated by the conditions of service of the Employer, as amended from time to time as well as any other applicable labour legislation or regulation.”

Therefore, it can be expected of employees to comply with reasonable and lawful instructions received from their employer, even if it does not form part of their regular duties or job description contained in their employment agreement. Employees should carefully read through their employment agreement before addressing issues with executing instructions, otherwise, it can amount to insubordination.

Reference List:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Budget 2021: What was missing?

Tax , ,

Finance Minister Tito Mboweni delivered his third annual budget address on 24 February 2021. While there was plenty of information on both income and expenditure issues, as well as proposed tax amendments, some aspects were, concerningly so, not addressed at all.

Exchange control

In 2020, the Minister indicated that changes would be made to South Africa’s capital flow system regulated through the South African Reserve Bank’s exchange control regulations. Previously, the exchange control provisions restricted the use of so-called loop structures to protect the tax base. Such loop structures involved South African exchange control residents investing in South Africa from a non-common monetary area. The proposed policy was that, instead of an approval process, all transactions would be allowed unless specifically restricted or regulated. While the Reserve Bank has revised its policy against loop structures from 1 January 2021 and now allows such arrangements, nothing more has been done regarding South Africa’s archaic exchange control system.

Assessed losses

The corporate tax rate reduction from 28% to 27% for years of assessment commencing on or after 1 April 2022 does not come without some trade-offs. One such trade-off includes the limitation on the utilisation of assessed losses. This was the second consecutive year in which the proposed tax amendments have alluded to a restriction on the utilisation of losses. However, taxpayers are still in the dark as to what the exact mechanism will entail and are left wondering if it will be an out and out restriction, or merely the phasing of losses. In the current harsh economic climate where many companies have suffered losses, any limitations imposed by Treasury will be met with fierce push back. It is disappointing that no further information in this regard was supplied by the Minister. We hope to see additional details in this regard come in the Draft Taxation Laws Amendment Bill in June of July 2021.

National Health Insurance

National Health Insurance (NHI) is being implemented in phases over a 14-year period that started in 2012. It will be established through the creation of a single fund that will buy services on behalf of the entire population. The funding for NHI will be through a combination of various mandatory pre-payment sources, primarily based on general taxes. Many tax practitioners were of the view that the NHI will be funded through the removal of the medical schemes tax credit, which taxpayers enjoy for monthly contributions to medical schemes. Surprisingly, not only has the medical scheme credit remained intact, but it has conversely also seen an upward inflationary adjustment.

Given the substantial expected costs of the NHI, it is concerning that the Minister made no further announcements in this regard, and taxpayers should remain hopeful that expectations are managed carefully to ensure that there are no surprises or substantial tax increases to fund the NHI.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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