Title page for ETD etd-04092010-170309

Document Type Master's Dissertation
Author Smit, Hendrik Jacobus Albertus
Email hennie.smit@za.pwc.com
URN etd-04092010-170309
Document Title An in-depth study of input tax apportionment methods for value-added tax in South Africa
Degree MCom
Department Taxation
Advisor Name Title
Prof M Cronje Supervisor
  • SARS
  • VAT
  • South Africa
  • value-added tax
  • South African Revenue Service
Date 2009-09-01
Availability unrestricted

The general mindset of most vendors is that if they have a valid tax invoice, they can claim all their input VAT. They are, however, not aware of the requirements of section 17(1) of the Value-Added Tax Act. Section 17(1) explains that vendors cannot claim all their input tax if their expense relates to both taxable and non-taxable supplies and that, consequently, input tax need to be apportioned in some or other way.

There are several methods of apportionment available to vendors of which the turnover-based method is the only approved method by the South African Revenue Service (SARS) for which no ruling is necessary. This study investigates the most common methods used by vendors, how these methods function and also under which circumstances these methods are recommended.

The sectors that are influenced the most by this provision in the Value-Added Tax Act are banks, universities and municipalities. These sectors have large amounts of exempt supplies but also taxable supplies with expenses incurred that cannot be allocated specifically to a certain income. Therefore, a method of apportionment should be used to allocate the input VAT. Information was obtained through financial reports and questionnaires from 29 entities in South Africa. The information was used to calculate an average percentage of apportionment in each sector and also to establish which method of apportionment is the most commonly used method of apportionment in each sector. The conclusion was drawn that there might, under certain circumstances, be uncertainty on whether some income should be included or excluded in the apportionment calculation. Under these circumstances, it is recommended that a ruling should be obtained from SARS to avoid problems in the future.

Copyright 2009, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria.

Please cite as follows:

Smit, HJA 2009, An in-depth study of input tax apportionment methods for value-added tax in South Africa, MCom dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-04092010-170309/ >


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