A value-added tax (VAT) is a flat tax levied on an item. It is similar in some respects to a sales tax, except that with a sales tax, the full amount owed to the government is paid by the consumer at the point of sale. With a VAT, portions of the tax amount are paid by different parties to a transaction.
VAT On Financial Services In South Africa
Basic Exemption
Description
The difficulty with identifying the value of intermediation services and other financial services with implicit fees has led most countries with a VAT to adopt the exemption approach. Under this approach, financial services are generally exempt from the VAT, except that limited fee-based services rendered by financial institutions are taxed, and exported financial services are zero rated.
Reduced Exemption
Description
South Africa follows the EU approach in exempting core financial services but goes beyond it by taxing (since October 1996) almost all explicit fee-based financial services, including nonlife insurance (see below), that are supplied to domestic customers (exported financial services remain zero rated). To effect this outcome, South Africa’s Value-Added Tax Act exempts the supply of any financial services (Sect. 12(a))—unless zero rated (Sect. 11)—but defines most of such services as those supplied without explicit fees (Sect. 2(1))
Exemption with Input Credits
Description
Singapore, like the EU, exempts a broad range of core financial services if supplied domestically (and zero rates them if exported).12 However, such services are taxable when arranged, brokered, underwritten, or provided with advice in return for a brokerage fee, commission, or other similar consideration.
Taxing Gross Interest
Description
Argentina imposes the VAT on gross interest on loans. Lenders cannot reduce the taxable interest charged by the interest they pay on deposits. Argentina’s decision in 1992 to tax gross interest was designed to reduce inflation by curtailing consumer demand.18
The standard VAT rate in Argentina is 21 percent. However, interest on loans made by financial institutions covered by the Banking and Financial Institutions Law (BFIL) is taxed at a lower rate of 10.5 percent. Unlike the Israeli approach (see below), Argentine businesses that use loan proceeds in their taxable activities can claim input credit for the VAT imposed on their taxable interest.
Addition Method
Description
While difficult to ascertain directly on a transaction-by-transaction basis, the value added of financial services contributed by a financial institution can nevertheless be calculated by the sum of its wages and profits (the so-called “addition” method of determining value added). The VAT can then be applied directly to this sum.
Do you pay VAT on financial services in South Africa?
1.6 What supplies are not covered by the finance exemption
In general, financial services are exempt from VAT. investment, finance and taxation advice (see paragraphs 6.10 and 6.14. management consultancy.
Why are financial services exempt from VAT in South Africa?
The primary reason for the exemption is purely technical practical difficulty in measuring the value of considerate rendered by banks. not to tax explicit fee transactions ! not to tax explicit fee transactions !
Is there VAT on bank charges in South Africa?
Generally speaking Bank Charges do incur Input VAT and your bank statement is seen as a Tax Invoice.
Can you claim VAT on bank charges in South Africa?
Banks are entitled to deduct input VAT incurred in providing the taxable services and other VAT registered persons are entitled to deduct the VAT charged by the banks on financial services, subject to the general VAT deductibility rules.