Below, please find issue 72 of ENSafrica's tax in brief, a snapshot of the latest tax developments in South Africa.
Supreme Court of Appeal | Mukuru Africa (Pty) Ltd v Commissioner for the South African Revenue Service (Case no 520/2020)  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.
- 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
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.