Laws change frequently. Such changes are routinely brought to your attention via your professional advisory team. Sometimes, however, it’s not the change to the laws that gives rise to problems, but a change in the farmer’s operation. So the prudent farmer will consult his advisors before making any change to his operation.
When it comes to Value Added Tax (VAT), certain rebates are given to farmers who deal primarily in agriculture. In terms of the VAT regulations, the rebates operate as input taxes. In other words, if a farmer sells certain produce or services and has to charge VAT under the Value-Added Tax Act, such VAT (termed “output VAT”) must be paid to the Receiver of Revenue.
However, the amount is reduced by the amount of “input VAT” the farmer has paid in the VAT period to which the output VAT corresponds. Input VAT is the VAT that is paid by a purchaser when they pay for goods that are not exempt from VAT. Should input VAT be claimed in error, the VAT lost by the Receiver of Revenue will be reclaimed. Interest will be charged on the amount that has to be repaid, thereby compounding the problem.
Fuel levies and Road Accident Fund refunds on diesel fuel are claimable by farmers only if the farmer operates within South Africa and produces primary agricultural produce. That is, the farmer doesn’t add value to the primary produce by, for example, making wine or raisins out of grapes, or making biltong out of the beef produced.
According to the SARS quick reference guide, the farmer may obtain a diesel refund on the diesel fuel used in his home generator. Any transport operation run by the farmer, however, doesn’t qualify for the refund. (Note that transport of cut timber from a plantation does qualify the user of the diesel for a rebate under certain conditions.)
The danger faced by a farmer who changes his operation is that the changed operation may not meet the requirements of the statute with respect to certain refunds such as the diesel and Road Accident Fund levy refund. The conditions under which these are claimable as input VAT are very narrow as it is.
If an audit is conducted, the amounts claimed can and will be clawed back by the Receiver of Revenue. Farmers who wish to avoid problems with the Receiver would do well to ensure, from time to time, that their activities are still within the parameters under which levies and rebates are claimable.
The VAT Act provides for interest to be claimed by the Receiver of Revenue upon amounts that are clawed back. But interest isn’t payable by the Receiver upon unclaimed inputs. The farmer therefore must make sure that the correct amount of inputs are claimed at the correct time intervals.
Peter O’Halloran is head of tax at BDO, Gaborone. Contact Peter on [email protected]. Please state “Tax” in the subject line of your email. •FW