Exporters face penalties for VAT transgressions

Problems with zero-rating of indirect exports

Joy Orek

Exporters who incorrectly zero-rate goods bound for overborder destinations are facing sti penalties for non-compliance with the VAT law – and according to Value Logistics divisional director Stephen Segal, it’s largely a question of ignorance rather than a conscious effort to sidestep the regulations

“The only time that the goods can be zero-rated is where the exporter is in full control – where they arrange for the goods to move from SA to the overborder destination. They also have to ensure that the transporter who is moving the freight gets the correct clearance documents at the border

“If it’s one of Value’s clients and we do the export for them, they pay us for the freight, we do the export and all the documentation, transport it over the border and bring back proof that it has moved across the border. That’s a direct export where the exporter is in total control of the goods.”

According to Segal, Sars is doing a number of audits and is beginning to penalise exporters for failing to charge VAT.

The problem arises with what are termed indirect exports. “Where the customer collects the goods from the supplier’s warehouse or the supplier delivers them to the customer’s nominated warehouse in South Africa – or that of a consolidator – for export there is no confirmation that the goods have left the country. Zero-rating VAT is therefore totally illegal. The minute there’s a VAT query by a customer and Sars does a VAT audit, this is the first thing they look at.”

Segal said most buyers out of South Africa didn’t want to pay VAT. “If they can prove to Sars that the goods have crossed the border they are entitled to claim back the VAT, but it’s a process.”

Exporters also often mistakenly believe that the UCR number exonerates them. “When you export you quote this number and when the goods are paid for the same number is quoted so that Sars can verify what’s gone out and what’s come in – and this is all done electronically.”

The problem is that for every export that has been zero-rated, the VAT has to be brought to account. “The exporter would also have to pay interest on the VAT – and for them to then claim it back is virtually impossible because they would have to track down the export documents.”

The issue was brought to Segal’s attention during regular client visits. “More than 90% of the time exporters are selling out of their factories and zero rating – which opens them up to signicant penalties.”

The only time that the goods can be zero-rated is where the exporter is in full control. – Stephen Segal

They’re also often unaware that there is a 90-day time limit from the time a consignment is invoiced until it leaves the country.

“You can’t invoice it today and ship it in six months’ time. And if they don’t get their money on time they have to bring the VAT to account.”

The regulations are less onerous for air and seafreight where goods are required to be delivered to one of the designated harbours or airports. “You don’t physically have to pay the freight which is the ruling for road transport.

“The exporter is liable for the cost of moving cargo from the warehouse to the port or airport. Then they can zero-rate it.”

The bottom line is – if you want to avoid paying the penalties, make sure that you have the rules at your fingertips.