ISSUES concerning Sars’ inquiry
into how the travel industry has
been applying the VAT Act in terms of
zero-rating on international air travel
is heating up.
Asata reports that several of its
members have now received audit
findings from Sars. Industry experts
also confirm that currently the Act is
open to interpretation with no clear rule
on how it should be applied in terms
of rebates, overrides and commissions
received on international air ticket
bookings.
The ‘arrangement’ of international
travel (as stated in the Act) is zero-rated
in terms of section 11(2)(d) of the VAT
Act, which says a supply of services
would be charged with “tax at the rate
of zero per cent where the services
comprise the insuring or the arranging
of the insurance or the arranging of the
transport of passengers or goods” on
international travel.
Asata says, based on the Sars audit
findings its members have received,
Sars believes that the service of
arranging international transport is
provided to the traveller, not the airline,
and that all commissions,
overrides and rebates
received from airlines are not
considered part of “arranging
international transport” but for
a separate supply, being the
selling of tickets.
According to Asata, Sars is of
the opinion that commissions,
overrides and supplier rebates
received, do not fall within
the ambit of “international
transportation” or “arranging”
thereof and therefore cannot
be zero-rated.
Sars told TNW that, although
the supply of arranging
international transport may
be zero-rated, “whether or not
the supply is that of arranging
international transport
depends on the facts of
each case.”
Ceo of Asata, Otto de Vries,
says the association’s opinion
is that commissions, overrides
and supplier rebates in the
case of international travel
are also zero-rated because
these are not two separate
supplies and the arranging of
international transport and
the selling of tickets is the
same thing.
Otto says that in 2005 Sars
provided Asata with a ruling
stating how the industry was
expected to address zerorating
on international travel.
In 2011 Asata was aware
that Sars had withdrawn a
number of rulings, including
this one, but Sars had not
provided Asata with any
formal communication on
the matter. Sars also didn’t
provide the industry with any
clarification or new ruling on
how to approach the zerorating
on international travel
going forward. “As a result, the
industry continued to approach
the zero-rating on international
travel as it had for the last 15
years,” says Otto.
Trudie Botha, tax expert of
Zeelie Auditors, says currently,
section 11(2)(d) of the Act is
open to interpretation. And
until Sars issues a practice
note on how the Act should be
applied, agents have the right
to dispute any audit findings
on how zero-ratings should be
applied to international travel.
“Individual agencies should
go to their auditors, legal
counsels, or find an HDip tax
specialist to assist them with
a formal dispute by following
Sars’ Dispute Resolution
process. They should lodge
a completed ADR1 (notice of
objection) of which the wording
is of utmost importance as it
should refer to all the relevant
sections in the Act that would
support their case.” If Sars
disallows the ADR1, agents
can then file an ADR2 (Notice
of Appeal) and this might go to
court, says Trudie.
If Sars wants to implement
a specific application of
zero-rating on international
transport for the industry it
would have to issue a binding
ruling, she says.
In the meantime, Asata has
taken a consultative approach
with its members by assisting
them with what it deems
the most appropriate way
for individual businesses to
respond.
