1955. Importers input tax
May 2011 - Issue 141
Importers using accredited importing agents can sleep well at night in the knowledge that all VAT issues relating to importation are well under control, as the accommodating importing agent has taken care of it. Business as usual, with VAT being claimed once a valid tax invoice is received from the clearing agent. Or so it would seem
Even though a valid tax invoice is generally acceptable to substantiate the claim of input tax in respect of expenses incurred in the course or furtherance of a vendors enterprise, this is not the case with VAT incurred on imports. The VAT Act requires the vendor to obtain and retain the relevant bill of entry as well as the receipt for the payment of VAT on importation, before an input tax deduction is permissible in this respect. Unfortunately, most importers are unaware of this requirement and claim input tax based on the tax invoice received from the clearing agent. Consequently there may be a timing difference between when the input tax was claimed (the invoice date) and the date the vendor is entitled to claim the input tax (the date the clearing agent pays SARS).
This problem is exacerbated when the clearing agent makes use of the so-called deferment scheme, i.e. it only pays the VAT on importation 30 days after the goods have been cleared for home consumption (the bill of entry date). In many instances, the vendor might not even be aware of the fact that the clearing agent is using a deferment scheme and that VAT had not been paid over at the date the clearing agent issued the invoice, resulting in a potentially costly tax exposure.
SARS has recently started to raise assessments where vendors claim input tax in respect of imported goods before the VAT has been paid over to SARS by the clearing agent, and to levy penalties and interest. Depending on the level of imports, this amount may be quite significant. To mitigate the risk, importers should request clearing agents to supply proof of the VAT on importation being paid, before the related input tax is deducted.
Although there is ultimately no VAT loss to the fiscus, SARS is chasing the penalties and interest on these timing differences. Also important to note is that SARS will raise assessments for a period of five years, despite the fact that the vendor might have been subjected to VAT refund audits on a regular basis.
This is another area where a taxpayer may use the recently introduced Voluntary Disclosure Programme to disclose these timing differences to SARS before they have been audited, thereby mitigating its exposure to the penalties and interest.
Ernst & Young