Article by: Sibongile Jembula

Senior Manager: VAT

Several changes have been made to section 72 by Act 34 of 2019. The reason for these changes has been explained in the Explanatory Memorandum to the Taxation Laws Amendment Bill, 2019 as follows:

Background

When VAT was introduced in South Africa in 1991, the VAT Act contained provisions in section 72 that provide the Commissioner with the discretionary powers to make arrangements or decisions as to the manner in which the provisions of the VAT Act shall be applied or the calculation or payment of tax or the application of any rate of zero per cent or any exemption from tax provided for in terms of the VAT Act, provided that the Commissioner is satisfied that as a consequence of the manner in which any vendor or class of vendors conducts his, her or their business, trade or occupation, difficulties, anomalies or incongruities have arisen or may arise in regard to the application of the VAT Act.

The arrangement or decision by the Commissioner as provided under section 72 of the Act must have the effect of assisting the vendor to overcome the difficulty, anomaly or incongruity without having the effect of reducing or increasing the taxpayer’s ultimate liability for VAT.

 

 

In 1996, the Constitution of the Republic of South Africa (‘Constitution’) came into effect

The introduction of the Constitution in 1996 came after the introduction of the VAT Act in 1991. Over the past years, challenges arose regarding the application of the mandatory wording of the other provisions of the VAT Act versus the discretionary wording of the provisions of section 72 of the VAT Act.

Since the provisions of the VAT Act are mandatory, to address the above-mentioned anomaly, it is proposed that changes be made in section 72 of the VAT Act to align the provisions of this section with the spirit of the other provisions of the VAT Act. It is further proposed that transitional measures be introduced to deal with the consequences of the proposed amendments on existing rulings.

As a result, any arrangement or decision made in terms of section 72 of the VAT Act which constituted a binding general ruling and ceases to be effective on or after 21 July 2019 or does not specify an effective period, shall cease to be effective on 31 December 2021.”

 

The changes in section 72 limit the extent of the Commissioner’s discretion in deciding under this section

By clarifying that a decision under section 2 cannot:

  • have the effect of reducing or increasing the liability for VAT; or
  • be contrary to the construct and policy intent of the VAT Act as a whole, or any specific provision in the VAT Act.

In addition, the Commissioner must be satisfied that similar difficulties, anomalies or incongruities have arisen or may arise for any other vendor of a class of vendors (other than the applicant) of the same kind or who make similar supplies of goods or services.

Whilst the application for a decision under section 72 will be facilitated through the ATR system, the decision will be under section 72. In this regard, certain provisions of the TA Act relating to advance tax rulings were introduced in the amended section 72 to align with the process of application and issuing of decisions under section 72.

These include, amongst others
  • A fee of R2 500 that is payable in respect of applications for a decision under section 72 in accordance with section 81 of the TA Act read with Public Notice 299; and
  • The issuing, in accordance with section 90 of the TA Act of procedures and guidelines in the form of binding general rulings (BGRs) for the implementation and operation of the process to obtain a decision under section 72. In this regard, see BGR 56 that sets out certain requirements and conditions relating to an application for a decision under section 72.

In addition, under section 72(3) read with Public Notice 300, the Commissioner may decline to decide in respect of the list of transactions set out in the said Public Notice.

Transitional rules were also introduced to deal with vendors that have an existing arrangement or decision issued under section 72 before 21 July 2019, which expires on or after that date. In certain cases, these decisions or arrangements can be reconfirmed.

Section 72 application process

Valid Section 72 application

In respect of all applications submitted from 1 April 2021, the application must contain the minimum information prescribed under section 90 of the TA Act read with BGR 56.

Requirements of the application letter

(a) The applicant’s name, VAT registration number (if applicable), postal address, e-mail address and telephone number.
(b) The name, postal address, e-mail address and telephone number of the applicant’s representative, if any.
(c) The relevant statutory provision(s) or legal issue(s) applicable in the circumstances
(d) A full and accurate description of the transaction (including financial implications) for which the decision is sought.
(e) A complete description of any other transaction entered into by the applicant or class member before the application was filed or that may be undertaken after filing the application, if that other transaction may have a bearing on the tax consequences of the transaction, or may be considered to be part of a series of transactions involving the transaction in respect of which the decision is sought.
(f) Specify the relevant provisions in the VAT Act that result in difficulties, anomalies or incongruities.
(g)

A concise description of the difficulties, anomalies or incongruities that have arisen or that may arise when applying the aforementioned provisions of the VAT Act.

This means that the difficulty arises in connection with the application of the VAT Act itself. For example, a request will not be accepted if it is intended to merely be an arrangement to resolve a past non-compliance with VAT laws or to address issues that arise in the business because of a lack of capacity.
(h) The applicant’s interpretation of the relevant statutory provisions or legal issues, as well as an analysis of any relevant authorities7 that the applicant considered or is aware of, and whether or not those authorities support or are contrary to the specific section 72 decision the applicant is seeking.
(i) The reasons why the applicant believes the specific section 72 decision should be granted.
(j)

A complete description of the impact the transaction might have upon the tax liability of the applicant or class member or if relevant, any connected person in relation to the applicant or class member. A decision under section 72 cannot have the effect of reducing or increasing the liability of tax under the VAT Act.

(k)

An explanation to support the view that the decision (if granted) will not reduce or increase the liability for the tax levied under the VAT Act. A decision under section 72 cannot have the effect of reducing or increasing the liability of tax under the VAT Act. 

(l)

An indication of how the difficulties, anomalies or incongruities that have arisen or that may arise, will apply equally to other vendors or a class of vendors that may face the same or similar business circumstances

(m)

An explanation to show that the decision (if granted) will not be contrary to the construct and policy intent of the VAT Act as a whole or any specific provision in the VAT Act.

(n)

A statement that none of the grounds for the rejection of the application under section 72(3) of the VAT Act read with Public Notice 300 apply to the application.

(o)

In the case of a class of vendors –

  • a description of the class of vendors; and
  • the impact the transaction might have upon the tax liability of the class of vendors or, if relevant, any connected person in relation to the applicant or class of vendors.

A decision under section 72 cannot have the effect of reducing or increasing the liability of tax under the VAT Act.

(p)

A statement confirming that the applicant(s) have complied with any registration requirements under a tax Act with regard to any tax for which the applicant(s) is or are liable unless the application concerns a section 72 decision to determine that a person is not required to register under the VAT Act.

(q)

A statement confirming that all tax returns required to be rendered by the applicant under a tax Act have been rendered and tax has been paid or arrangements acceptable to SARS have been made for the submission of any outstanding returns or for the payment of any outstanding tax. In the case of a class of vendors making application, the class of vendors’ representative should provide the statement on behalf of the class of vendors.

(r)

Consent to the publication of the section 72 decision (positive and negative).

(s)

A description of the information that the applicant believes should be deleted from the final section 72 decision before publication in order to protect the confidentiality of the vendor or class of vendors.

The applicability of a section 72 decision
A section 72 decision only applies to the vendor or a class of vendors persons if –
  • The vendor is an applicant or an affected class member identified in the section 72 decision.
  • the provision(s) of the VAT Act at issue is or are the subject of the section 72 decision.
  • the set of facts and circumstances of the transaction presented by the applicant is or is the same as the set of facts and circumstances or the particular transaction specified in the section 72 decision.
  • the applicant’s set of facts and circumstances or transaction falls entirely within the effective period of the section 72 decision; and
  • any assumptions made or conditions imposed by SARS in connection with the validity of the section 72 decision have been satisfied or carried out.

A third party can therefore not rely on a section 72 decision issued to another party, even where the facts of the transactions are the same. A section 72 decision may also not be cited in any proceeding before SARS or the courts unless that proceeding involves the applicant or class member.

Negative section 72 decisions- no objection or appeal process

SARS will provide an applicant with an opportunity to make representations, before issuing a negative section 72 decision. The purpose of these representations is to allow the applicant to clarify any facts, or to provide additional information supporting the facts originally given, which may result in a different interpretation of the VAT consequences.

If during these consultations, it becomes apparent that the facts are different from those originally submitted during the section 72 application process, the applicant may be required to submit a new section 72 application and pay the application fee. The original application will accordingly be rejected on this basis.

The negative section 72 decision will be issued subsequent to the aforementioned representations.

A person cannot object or appeal against a negative section 72 decision. If you are not satisfied with the section 72 decision, you may under the Promotion of Administrative Justice Act 3 of 2000 request the Commissioner to provide written reasons for the decision. If, after receiving the Commissioner’s reasons, you are still dissatisfied with the outcome, you may approach the High Court.