Archive for month: October, 2016

South Africa could add pure fruit juices to the list of drinks expected to face a levy under a proposed tax on sugary drinks, the Treasury has said, in a country where more than half of adults are overweight.

In his budget speech in February, Finance Minister Pravin Gordhan proposed the tax on sugary drinks to be implemented in April next year, aimed at fighting growing obesity in the continent’s most lucrative market for Coca-Cola.

Health campaigners have welcomed the tax, citing obesity in South Africa, where 42% of women and 13% of men are categorised as obese.

The proposal initially exempted beverages containing natural or intrinsic sugars found in unsweetened milk and milk products and 100% pure fruit juices from the 20% tax, but officials have recently reconsidered their decision citing similar health risks to drinks with added sugar.

“Many health experts argued that 100% fruit juice should also be subject to the tax, as the natural sugar level it contains has the same or very similar negative health consequences as that of sugar added in soft drinks,” the National Treasury said in an emailed response to Reuters.

Chairman of South African Fruit Juice Association, Johan de Kock, said the big difference between fruit juices and some of the other beverages is that fruit juices contain a lot of nutritional value in vitamins and minerals.

“We believe the health benefits of 100% fruit juice outweighs the fruit sugar that it contains,” De Kock said, adding that his group had not been formally informed about the tax on pure fruit juice.

The Treasury said it will debate the proposed tax, including the inclusion of pure fruit juice, during a meeting in November.

The proposed tax on sugary drinks has been opposed by business lobby groups who argue that the tax will impact the economy by hurting soft drink producers and cutting jobs.

If the proposed law is passed, South Africa will join Mexico, France and Hungary in introducing taxes on sugary drinks to fight obesity. Britain also plans to launch the tax.

Source – www.engineeringnews.co.za

A recent case before the Supreme Court of Appeal (CSARS v Marshall NO and Others (816/2015) [2016] ZASCA 158 (3 October 2016)) involved the question of whether or not actual supplies by a designated entity to the Western Cape Department of Health qualified for the zero rating under section 11(2)(n) read with section 8(5) of the VAT Act. The court, in arriving at its decision that the actual supply does not qualify for the zero rating and that only unrequited or gratuitous payments could qualify, refers to SARS’ Interpretation Note 39 which explains the reasoning behind section 8(5) and section 11(2)(n) of the VAT Act.

After quoting extensively from the Interpretation Note, the following statement is made Dambuza JA in delivering the unanimous decision of the SCA (at 33):

“These Interpretation Notes, though not binding on the courts or a taxpayer, constitute persuasive explanations in relation to the interpretation and application of the statutory provision in question. Interpretation Note 39 has been in circulation for years and has not been brought into contention until now.”

It is unclear what exactly is meant with the words “persuasive explanations” but at the very least, it suggest that SARS’ Interpretation Notes does carry some form of weight in legal proceedings. The exact legal basis for this is, however, not clear from the judgment, despite the footnote reference to “P de Koker and RC Williams Silke on South African Income Tax [Service Issue 57, 2016] at § 18.270”. It may be argued that this statement by the Supreme Court of appeal does to some extent elevate a SARS opinion on the correct application of the law in the form of an Interpretation Note above that of, for example a taxpayer.

There definitely appears to be a trend in our courts to place reliance on SARS’ Interpretation Notes. This year alone, the Tax Court in ABC (Pty) Ltd v C:SARS (13539/ 13673) (dealing with the income tax treatment of grants) and RTCC v C:SARS VAT1345 (dealing with input tax claims on a motor vehicle) placed reliance on SARS’ Interpretation 59 and Interpretation Note 82 respectively in delivering judgment.

While it is accepted that SARS’ Interpretation Notes indeed go out for comment by the public and before they are published, it begs the question as to whether what is in essence a peer review process is sufficient to elevate an opinion to have weight in law.

It is, further, trite that SARS is not bond to their own Interpretation Notes. Taxpayers are accordingly in a very uncertain position as to whether or not , when and to what extent reliance should be placed on SARS’ interpretation notes.

Taxpayers would be well advised to exercise caution when relying on SARS’ Interpretation Notes.