Section 16(2)(a) of the Value-Added Tax Act (VAT Act) states that “No deduction of input tax in respect of a supply of goods or services, the importation of any goods into the Republic or any other deduction shall be made in terms of this Act, unless a tax invoice or debit note or credit note in relation to that supply has been provided in accordance with section 20 or 21 and is held by the vendor making that deduction at the time that any return in respect of that supply is furnished”.
In many instances registered VAT vendors still claim VAT input deductions without being in possession of a valid tax invoice, contrary to section 16(2)(a). This exposes the vendor to numerous tax risks including administrative non-compliance penalties, understatement penalties, interest, fines and even the possibility of imprisonment for up to two years.
Before a document qualifies as a valid tax invoice (the term “tax invoice” is defined in terms of section 1 of the VAT Act), it must comply with a list of requirements as specified in section 20(4) or section 20(5) (in the case of an abridged tax invoice) of the VAT Act. Even if only one requirement is not met, the invoice will be disqualified as a tax invoice (as defined) and the vendor will be exposed to aforementioned risks.
The section 20(4) requirements are the following:
- The words ‘tax invoice’, ‘VAT invoice’ or ‘invoice’ in a prominent place
- The name, address and VAT registration number of the supplier
- The name, address and VAT registration number (if also VAT Vendor) of the recipient
- An individual serialized number
- The date upon which the tax invoice is issued
- Full and proper description of the goods or services supplied
- The quantity or volume of the goods or services supplied
- Either-
- the value of the supply, the amount of tax charged and the consideration for the supply; or
- where the amount of tax charged is calculated by applying the tax fraction to the consideration, the consideration for the supply and either the amount of the tax charged, or a statement that it includes a charge in respect of the tax and the rate at which the tax was charged
- Must be in South African currency (Rand)
In an instance where the value of the invoice does not exceed R5 000 an abridged tax invoice may be issued in accordance with section 20(5) of the VAT Act with the following particulars:
- The words ‘tax invoice’, ‘VAT invoice’ or ‘invoice’ in a prominent place
- The name, address and VAT registration number of the supplier
- An individual serialized number
- The date upon which the tax invoice is issued
- A description of the goods or services supplied
- Either-
- the value of the supply, the amount of tax charged and the consideration for the supply; or
- where the amount of tax charged is calculated by applying the tax fraction to the consideration, the consideration for the supply and either the amount of the tax charged, or a statement that it includes a charge in respect of the tax and the rate at which the tax was charged
- Must be in South African currency (Rand)
It is therefore essential that vendors ensure that invoices in their possession comply with all the necessary requirement specified in section 20(4) or section 20(5) of the VAT Act, before they claim any input tax deductions in relation to that invoice.
If you have any enquiries, please contact Petri Westraadt at pwestraadt@fhbc.co.za
Source Reference:
Value-Added Tax Act No 89 of 1991