In our Tax Alert on 18 September 2010, we highlighted the fact
that the sale of prospecting rights carried many tax consequences
and in the case of Value-Added Tax (VAT) would generally constitute
a taxable supply at 14% where the holder of the right is a
registered vendor. We emphasised that a further more difficult
question is whether the sale of a prospecting right could be
regarded as that of a going concern and therefore falls to be
zero-rated for VAT purposes.
This question has been answered to an extent, as we are aware of
a recent VAT ruling issued by the South African Revenue Service
(SARS) to the effect that the supply of a prospecting right is the
supply of a right and nothing more, concluding that it is not the
supply of an enterprise or part of an enterprise. This means that
the supplier is not entitled to zero rate the transaction under
section 11(1)(e) of the VAT Act. Obviously every case needs to be
looked at on its own merits, but it does place into question the
application of the zero rating provisions for the holder of a
prospecting right. The ruling further highlights the importance of
building sufficient protection into a contract the event that the
zero rating does not apply, by way of making the purchaser liable
for the additional VAT. On the basis that the purchaser is
conducting an enterprise and acquired the prospecting rights in the
course of making taxable supplies, an input tax deduction would be
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Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
In response to information provided by FIRS, NSE has sent letters to publicly listed companies, who were purportedly identified by FIRS as non-compliant.
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