Application of Value Added Tax (VAT) in a computerised accounting package 7.5 VAT concepts
Zero-rated items
Zero-rated supplies are taxable supplies on which VAT is levied at a rate of 0%. These are generally exported goods and services. Certain basic foodstuffs, such as milk powder, brown bread, maize meal, samp, lentils,
dried beans, tinned pilchards, rice, raw vegetables, raw fruit, eggs, vegetable
cooking oil (excluding olive oil), are also taxed at zerorate. The supplier of a zero-rated supply is entitled to claim input tax on the goods or services purchased.
VAT-exempted items
Tese items involve services that are not subject to VAT at either the standard rate or zero rate, e.g. childcare services, educational services, etc. These goods or services are called non-taxable, and include the following: •
financial services, such as interest for the provision of credit, life insurance, services of benefit funds such as medical schemes, provident, pension and retirement annuity funds
• donated goods or services sold by non-profit bodies, such as religious and welfare organisations • residential accommodation in a dwelling (but not holiday accommodation) • passenger transport in South Africa by taxi, bus or train •
• childcare services provided at crèches and after-school care centres. Standard rate
A standard-rated supply is a supply of goods or services which is subject to VAT at the rate of 14%. The following are some examples of standard-ratessupplies: • land and buildings (fixed property) • fees for professional services – construction/building, estate agents, consultants, architects, engineers, project managers, doctors, private hospital services, lawyers, plumbers, electricians and accountants
• household consumables and durable goods – most grocery items and foodstuffs, such as meat, fish, white bread, snacks, most canned foods, cigarettes, perfume, medicines, cool drinks, cleaning material, clothing, footwear, microwave ovens and other household consumables and appliances
• municipal goods and services, such as the supply of electricity, water and refuse removal • accommodation, hospitality, tourism and entertainment – restaurant meals, hotel accommodation, liquor sales, arcade amusements, casino slot machines and gambling services, entrance fees to sporting events, theatre performances and film shows, guided tours, game drives and game hunting expeditions
• capital assets, such as furniture, production machinery, installations, motor vehicles and equipment
• local transport of goods and transport of passengers by air or sea • telephone, Internet, computer and other telecommunication services • rental of goods and commercial property, such as office space, and • motor vehicles, repair services, lubrication oils and spare parts.
VAT output VAT input VAT control
VAT paid on items purchased and that can be claimed back from SARS. It is VAT which your company would charge on items that are sold. Tus, a company could wish to sell an item and added to the amount a standard rate tax would be charged.
VAT on sales and income and that must be paid over to SARS. It is VAT that you pay on all your business expenses and for which you have a tax invoice. It also relates to VAT that is paid on other goods and services bought or rented for the business.
Tis is a summary of the VAT input and output and shows whether the business owes SARS money or whether SARS owes the business money.
7.6 VAT calculations (VAT standard rate is 14%) Price exclusive Price inclusive
VAT (14%)
or Get the multiplier 14 ÷ 100 0.14 + 1
100% 14%
114%
0.14 1.14
FutureManagers 87
educational services provided by recognised educational institutions, such as primary and secondary schools and technical colleges and
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