The type of supply made by the vendor determines the VAT treatment, as well as whether input tax is deductible in respect of costs incurred to make the supply.
Taxable supplies include both standard-rated (15%) and zero-rated supplies. A vendor is required to issue a tax invoice within 21 days from the date of making the taxable supply. While no VAT is payable on zero-rated supplies, it is still a taxable supply, and the vendor is still required to declare the zero-rated supply in its periodic VAT return. Input tax is deductible by a vendor to the extent that goods or services are acquired for making the taxable supplies. Zero-rated supplies include, amongst other things, exported goods, international transport services, services physically rendered outside South Africa, and services rendered to a non-resident customer.
Exempt supplies do not fall within the South African VAT net and are thus not subject to VAT. No input tax may be deducted on goods or services acquired to make exempt supplies. Exempt supplies are declared on a vendor’s VAT return but has no impact on its ultimate VAT liability. Exempt supplies include, amongst other things, financial services, the supply of a dwelling under a rental agreement, and educational services.
Out-of-scope supplies are the supplies which are not regulated by the VAT Act and include penalties, fines, and dividends. No input tax may be deducted in respect of making these supplies.