. . . as SA vigorously enforces 2014 export regulations

Double VAT jeopardy for Lesotho traders


MASERU – The South African Revenue Service (SARS) is vigorously enforcing a 2014 regulation compelling Basotho exporting goods exceeding M10 000 to produce proof of payment at borders.Lesotho Revenue Authority (LRA) spokesperson Pheello Mphana last week told the media SARS dusted off the regulations to stop possible haemorrhaging of funds from their system.

This, Mphana said, is to ensure Basotho do not pay VAT twice and save funds crucial for financing development programmes. “This is a South African regulation for which we understand one of the reasons was to ensure that indeed they refund what was paid not just on assumption that payment was made,” he said. Clarifying a statement released last week on the issue, Mphana said: “It would affect Basotho in the sense that if they don’t comply Lesotho will lose revenue that is so needed for developmental initiatives. It can also have a negative impact in the sense that they would have to pay VAT twice if they can’t provide proof of payment.”

The four-year-old regulation was “just an amendment to a regulation that governs the ports and exports,” Mphana said. According to a statement released by the commissioner general of LRA Thabo Khasipe one of the requirements regulating refund of VAT on goods exported out of South Africa is that in cases where the invoice value of the goods is at least R10, 000, it is required that proof showing that the said goods were actually paid for is provided, hence the need for proof of payment.

Khasipe said whereas the regulation was publicised in 2014, this requirement was not strictly adhered to by SARS until in recent months when SARS began enforcing and emphasising that it had become a legal requirement from the date of publication in 2014. “The Value Added Tax (VAT) Mutual Assistance and Cooperation Agreement entered into by the Governments of the Republic of South Africa and the Kingdom of Lesotho in 2014 lay foundation for administration of a VAT Refund system with regards to movable goods purchased in South Africa and indirectly exported to Lesotho.

“Agreement further directs that the tax authorities of the contracting parties to the agreement will develop a Memorandum of Understanding (MoU) to set out operational procedures for the refund system while ensuring that the system is operated in conformity with all relevant laws,” he said. According to the 2014 RSA VAT refund regulations, evidentiary documents for cash transactions may be made through credit or debit card receipts or slips.

Khasipe noted that: when credit or debit cards are used to pay, a point of sale slip should be attached as proof of payment. He said copies of the credit or debit card used and ID copies should be attached to prove ownership of the card. “Invoices of purchases made through cards held by South African citizens do not qualify for claims of refunds, even if such goods are exported by non-South Africans.

“Another document is the Electronic Funds Transfers (EFT) which should be attached as a proof of payment in case it is used. Also bank withdrawals/transfers where the cash was withdrawn in RSA, the ATM slip should be attached as a proof of source of funds. This is in addition to the point-of-sale slip. If the cash withdrawal was done inside a bank, a bank or credit card statement is required.

He further noted that, the regulation requires travellers to declare cash upon entry into South Africa of which 15% VAT is charged on any amounts above R25, 000.00 declared.Different methods of payments like a combination of liquid cash and bank card is to be proven through the attachment of all methods utilised. “Even for the lottery/casino winnings, still the proof of earnings is required. This is one of the ways of eradicating money laundering,” he added.

He further noted that businesses which send their personnel with cash to South Africa have to attach a letter as evidence for such an instruction, the letter together with TC-01 Form will be attached to the invoice claim upon importation. Many established Lesotho businesses have built relationships with their suppliers in South Africa over time.

This has enabled them to obtain goods for resale on credit and pay the supplier over an agreed period ranging from 30 days to even longer time frames. In many of these transactions, the suppliers made indirect export of the goods thus allowing the Lesotho business to fetch the goods themselves and ability to pay for import VAT immediately by surrendering such tax invoices to customs while settling their accounts with the suppliers in line with their credit agreements.

“Introduction of proof of payment is disrupting the above pattern of business in the following manner and therefore adversely impacting Lesotho traders: All goods obtained on credit now need to be zero-rated because PoP cannot be provided at the time of importation since payment has not been made. This requires the importer to pay (to LRA) import VAT in cash at the borders.

Goods can only be supplied zero-rated if the supplier or his contractor is delivering such goods to the importing country; referred to as a direct export from RSA. While many RSA suppliers trusted Lesotho businesses with goods on credit, such suppliers feel that the magnitude of their business with their Lesotho clients is too small to warrant the trouble of delivering to Lesotho and keeping the necessary paper work to prove export to SARS in justifying zero output tax in their returns to SARS.

Making cash import VAT at the borders in the case above leaves the importer still owing a VAT inclusive amount to their supplier despite having paid VAT to LRA. At some point between importing and having paid cash at the borders and after settling their supplier account, the Lesotho business would have paid the same tax twice while waiting for a refund from LRA after providing PoP to Customs.

This presents negative cash flow issues on the side of the traders. The regulation has brought some inconvenience of having to make payment or present a deposit slip at the border. “Declarants will have to travel to customs offices at the border to either make cash payment or present deposit slips before goods can be called to the border.

This is not the sort of service aspired to by LRA,” Khasipe said. Another challenge for LRA are arguments with officers due to lack of understanding, traders find it unfair and crippling to their business if they are made to pay VAT twice while they have already been “charged” VAT in South Africa. Traders feel as if LRA does not know what they want and this has often resulted in angry exchanges.

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