SayPro What are the requirements for exemption from or zero rating for VAT and which governmental body makes this decision?

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  1. What are the requirements for exemption from or zero rating for VAT and which governmental body makes this decision?

The terms Public Benefit Organisation and Public Benefit Activity which are used in the Income Tax Act are not used in the VAT Act.

The VAT Act creates certain benefits for organisations that are defined as ‘associations not for gain’ and/or ‘welfare organisations’54. The main benefit of inclusion of these two categories of organisations in the VAT Act is that they can claim the VAT they incur as input tax and generally speaking, only levy output tax where there is a charge for the supply of goods and services.

An ‘association not for gain’, is defined as a religious institution or other society, association or organisation (including an educational institution of a public character) which is not carried on for profit and is required to use any property or income solely in the furtherance of its aims and objects. An association not for gain is treated much like any other business if it makes taxable supplies, but the following special provisions will apply:-

· No output tax is payable on any “unconditional gifts” received. For example, where a club member donates money to cover the costs of a new kit and footballs to be used by the club’s soccer side;

· The sale of any donated goods or services, or other manufactured goods where donated goods and services constitute at least 80% of the value thereof are exempt from VAT; and

· Certain subsidies or grants received from National or Provincial Government (public authority) will be zero-rated.

The benefits listed above are available to ‘associations not for gain’ as well as ‘welfare organisations’. In addition to the above benefits, being classed as a welfare organisation brings with it the following additional benefits:-

· Even where no charge is made for supplies, the organisation may still register for VAT and obtain input tax relief on its purchases.

· Subsidies or grants received from the Government (or local authorities) will be zero- rated if it relates to the carrying on of welfare activities.

In order to qualify as a ‘Welfare organisation’ the organisation must:

1. Be an association not for gain;

2. Be exempt from tax in terms of section 10 (1) (cN) of the Income Tax Act ;

3. Must carry on Welfare activities which are catorgorised under the following headings:

(a) Welfare and Humanitarian;

(b) Health care;

(c) Land and housing;

(d) Education and development or

(e) Conservation, enviroment and animal welfare


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