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Input Tax Without Valid Tax Invoice

The South Atlantic Jazz festival case (“Jazz festival case”) put into a motion a series of changes to the VAT legislation, more specifically, as to when an input tax claim can be made without a proper tax invoice. In short, the taxpayer in the South Atlantic Jazz festival case was successful in a dispute against SARS to claim an input tax credit without a valid tax invoice.

It came as no surprise when the legislation was subsequently changed in 2015 by section 25 of the 2015 Taxation Laws Amendment Act to effectively delete the provision successfully relied upon by the taxpayer in the Jazz Festival case. Not all was however lost – consolation was left for taxpayers seeking the same relief as was offered to the taxpayer in the Jazz Festival case. The consolation, however, came on SARS’ terms as taxpayers seeking an input tax deduction without a valid tax invoice can continue to seek an input tax deduction, provided:

• Certain circumstances prescribed by SARS exists; and
• The taxpayer is in possession of certain documents prescribed by SARS.

During 2016, SARS published two draft binding general rulings setting out (a) what the circumstances are that must be present and (b) what the prescribed documents are to claim an input tax credit without a proper tax invoice.

The circumstances under which taxpayers could seek this special relief would, based on the draft binding general ruling exist if:

• The taxpayer exhausted all remedies to obtain a valid invoice;
• All taxes and returns must be up to date; and
• The period in which the claim is sought falls on or after 1 April 2016

The documents prescribed per the other draft binding general ruling were essentially documents allowing all elements of a valid tax invoice to be identified.

The 2016 Draft Tax Administration Laws Amendment Bill however proposed to delete the above consolation and replace it with, what is arguably, a more restrictive one.

Per clause 24(1)(b) of the Draft Taxation Laws Amendment Bill, a taxpayer seeking an input tax deduction without a valid tax invoice must apply for a ruling from SARS before the taxpayer can claim an input tax credit and further states that SARS can only issue a ruling if:

• The taxpayer has taken reasonable steps to obtain a valid tax invoice; and
• No other provision in the VAT Act allows a deduction of the input VAT.

If the proposed change makes it into the final Act, which seems likely at this stage, it is evident that taxpayer’s will, with effect from 1 April 2016, need to apply for a ruling to get an input tax deduction if not in possession of a valid tax invoice.

Comments submitted on the proposed section to the effect that rulings are often administratively burdensome and the ruling process takes long were met with reassurance in the SARS and National Treasury Response Document that SARS has capacity to deal with applications in this regard. In addition, it would appear that rulings of this nature will be processed by SARS within 2 months, a somewhat shortened period.

Given our experience with ruling applications, we are skeptical that a ruling process will be practical in this space, however, we understand the policy rationale for the proposed change.

Taxpayers will be well advised to seek professional advice should they wish to rely on the new provision going forward.