Aantekening: Denkbeeldige insetbelasting op tweedehandse vaste eiendom: Te goed om waar te wees, of nie goed genoeg nie?

Abstract

While it might sound too good to be true, an input tax deduction may in certain circumstances be claimed even where no value-added tax (VAT) is paid. To prevent double taxation in respect of second-hand goods, a VAT vendor who purchases such goods without paying VAT may make a deduction of notional input tax of, generally speaking, the trapped VAT portion of its purchase price. As only its margin (namely the difference between its purchase and selling prices) will, effectively, be subject to VAT, this also ensures that VAT is levied only where value is added by a VAT vendor. However, the entitlement to a deduction of notional input tax has resulted in unacceptable VAT avoidance and evasion by way of the creation of artificial structures to qualify for the deduction or to fraudulently inflate the amount of the deduction. Although the incentive for such structures relating to fixed property has largely been eliminated by various VAT amendments, exploitation has also been experienced in respect of other second-hand goods. On the one hand, this raises the question whether the policy objectives are worth the inherent risk of non-compliance and the effort to protect the integrity of the VAT system and the fiscus. On the other hand, when a VAT vendor has to pay transfer duty, it is not allowed to take the transfer duty into account when calculating its notional input tax. The purpose of this note is to provide an overview of the circumstances when notional input tax may be claimed, to reflect on the policy objectives thereon, the exploitation thereof and the sanctions imposed to protect the fiscus, in order to evaluate whether the concession is too good to be actually true and, should it be justifiable, to call for an interpretation in line with the policy objectives and to submit that amendments should be introduced to ensure that the concession is good enough.