COVID-19: VAT AND CUSTOMS RELIEF

In the previous article dealing with the impact of the Covid-19 pandemic on South Africa we dealt with the relaxation of certain legislated time frames. In this article we deal with the relief that the South African consumer can expect from a VAT and Customs Duty perspective. Don’t hold your breath; there is not much coming your way! 

Introduction 

There appears to be mounting confusion with regards to the VAT and Customs Duty relief that consumers of essential goods can expect during the Covid-19 lockdown period (and likely for some time thereafter).  

The confusion seems to emanate from different rules applying to goods that are subject to Customs Duty on importation and duty free goods. 

Confusion also reigns with regards to the VAT treatment of goods imported under COVID-19 rules and then subsequently sold to another person in South Africa; is the subsequent sale of such goods by the importer to the person in South Africa also exempt from VAT?

In this article we shall provide you with crisp answers to these question.

The importation framework

Goods imported into South Africa must be cleared with Customs and Excise before it may enter South Africa. The goods must be cleared under a Customs Tariff Heading. Nothing new thus far!

If the goods qualify to be cleared under Customs Heading 412.11, the goods may enter South Africa free of Customs Duty. Customs Heading 412.11 includes goods imported for the relief of distress of persons in the case of, amongst others, a national disaster. For goods to be imported free of Duty under Customs Heading 412.11, the International Trade Administration Commission of South Africa, better known as ITAC, must issue an import permit for each importation. 

So far, so good …

The VAT Act allows goods that are cleared under the above heading to be imported free of VAT, on the condition that the importer complies with the ITAC rules. 

And this is where the issue arises…

ITAC does not issue import certificates for goods that are not subject to Customs Duty as ITAC’s mandate only covers Customs Duty (being part of the international trade regulatory framework). SARS is however dependent on ITAC certificates to allow essential goods to be imported exempt from VAT as the VAT exemption only applies if supported by an ITAC import certificate.

See the problem …

What are essential goods?

Before we examine how the above conundrum has been addressed, let’s have a quick look at the meaning of “essential goods” as this contributes significantly to the confusion.

There are two categories of essential goods. The first category is contained in Regulation R. 398 (issued in terms of the Disaster Management Act) and the other is contained in a list published on ITAC’s website.

The essential goods listed in the Regulation are stratified in broad categories and include food, cleaning and hygiene products, medical products, fuel and basic goods. The purpose of the Regulation is to regulate which goods may be sold in South Africa during the lockdown period and is completely unrelated to the potential VAT exemption applicable to the importation of such goods.

The essential goods listed on the ITAC website are the goods for which ITAC may, on application, issue rebate permits under Customs Heading 412.11. This list is product specific. 

In the absence of an ITAC import permit the normal Duty and VAT rules will apply to the importation of such goods.

How the conundrum was resolved 

Duty free goods

With regards to duty free goods, ITAC issued a blanket certificate on 30 March 2020 confirming that essential goods listed in the Regulation qualify to be imported free of VAT under rebate heading 412.11. No ITAC certificate is required for the exemption from VAT on the importation of such goods by any person.  

The conundrum was effectively resolved by creating the link between the ITAC mandate and the Regulation issued by the Minister of Cooperative Governance and Traditional Affairs. But this only solved half the problem. The link created was between two bodies of law, but the detail at product level still needed to be addressed. 

To create the links between the broad categories of goods published in the Regulation and the detail Customs Tariff Headings in the Customs and Excise Act, ITAC published  an example of a document demonstrating how the mapping can (and should be) done. It is available on the ITAC website. 

Goods subject to Duty

With regards to goods listed in the Regulation that are not duty free, an import permit must be obtained from ITAC. A permit will only be issued if:

• The applicant is registered with SARS Customs as an importer.
• The applicant is a company incorporated in terms of the Companies Act and registered with SARS. It must also be registered as an approved operator during the national disaster period.
• If VAT registered, the VAT registration number of the company.

Based on the ITAC permit issued, goods covered by the permit may be imported free of Duty and VAT.

Need to know more?

The following documents are available on the ITAC website www.itac.org.za. The documents contain the information, forms and processes to apply for an import permit.

• List of relevant tariff codes
• ITAC blanket certificate issued for the importation of duty free goods
• Mapping of essential goods to the Regulation
• The ITAC Rebate Item 412.11 Standard Operating Procedure
• ITAC Guidelines and Conditions – Rebate Item 412.11 permits
• Import Duty application form

How does the local consumer benefit?

Where essential goods are imported free of Duty, the landing cost of such goods would be reduced by the Duty that would otherwise be payable on the importation of such goods. Hopefully the savings will be passed on to the final consumer. 

With regards to the exemption from VAT on the importation of essential goods, the exemption only applies to the importer of the goods. The normal VAT rules apply to any subsequent on-sale of such goods. The benefit of the VAT exemption on importation does not flow through to the final consumer and merely represents a cash flow benefit for the importer of the goods. 

Where the importer of the goods is also the final consumer (e.g. a PBO that imports goods to be distributed free of charge), the VAT exemption will benefit the final consumer.

Summary

The purpose of the relaxed Customs Duty and VAT rules applicable during the Covid-19 period is not to benefit any business or beneficiary other than those experiencing the hardship. 

The legislation has accordingly been drafted in such a manner to ensure that maximum checks and balances are in place to ensure that the benefits indeed reach those they are intended for. Unfortunately this comes with what could be regarded as unnecessary red tape. For now, it is what it is; extraordinary circumstances calling for extraordinary measures!