Below, please find issue 72 of ENSafrica's tax in brief, a snapshot of the latest tax developments in South Africa.

case law

Supreme Court of Appeal | Mukuru Africa (Pty) Ltd v Commissioner for the South African Revenue Service (Case no 520/2020) [2021] ZASCA 116

  • On 20 February 2017, the appellant applied to the South African Revenue Service ("SARS") for a ruling under section 41B of the VAT Act, No. 89 of 1991  ("VAT Act") wherein it requested approval for the use of a transaction count  method to apportion its mixed-purpose expenditure for the tax periods  commencing 1 February 2014. SARS approved the transaction count method  for use by the vendor but only for the period commencing 1 March 2016.
  • Issue:
    • The primary issue in the appeal was whether SARS (as it contended and the Tax Court held) was precluded from granting approval for use  of the transaction count ratio by vendor in respect of the period 1  March 2014 to 29 February 2016.
    • Section 17(1) of the VAT Act provides that the extent to which a vendor may deduct tax payable on goods or services acquired partly  for the purpose of making taxable supplies and partly for some other  purpose is determined by means of a ratio determined by SARS in  terms of a ruling contemplated in Chapter 7 of the Tax Administration  Act, 2011 (that is, a binding general ruling) or section 41B (that is, a  VAT class ruling or a VAT ruling).
    • The standard turnover-based method set out in Binding General Ruling 16 ("BGR 16") is the only ratio available to a vendor until SARS  has issued to them a VAT ruling.
    • Proviso (iii) to section 17(1) of the VAT Act states that an apportionment method approved by SARS must relate to a time in  the future or, if it is to be retrospective, for a period not exceeding  the income tax year during which the application is made for a  change in the apportionment method.
    • The vendor argued that given the nature of its business, it was not "fair and reasonable" for it to use the method as per BGR 16 and that  on this basis BGR 16 was not applicable to it.
  • SARS argued that the only approved method that may be used to apportion VAT incurred for mixed purposes without specific prior written approval from the Commissioner is the turnover-based method. This method applies by  default in the absence of a specific ruling obtained by the vendor to use  another method. The ratio in BGR 16 thus applies to all vendors to whom  section 17 of the VAT Act finds application and had not applied for and been  granted an alternative ruling by the Commissioner. The vendor fell within  that category until such time as the Commissioner granted approval for use  of the transaction count method.

Download - Tax In Brief | Issue 72

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