South Africa’s National Treasury released a memorandum on a domestic VAT reverse charge for valuable metals. Government is proposing the VAT reverse charge regulations in response to ongoing VAT fraud in the precious metal industry, notably the supply of Kruggerands and illegal gold.
According to the memorandum, the scheme is broadly similar to measures undertaken in the UK and Australia. The proposed rules would be effective from 1 January 2022.
How the valuable metals reverse charge would work
Under the proposed domestic reverse charge mechanism, the recipient and the supplier of the valuable metals must both register as vendors.
The proposed regulations include the following stipulations:
In the case of a sale, the recipient (the acquiring vendor) becomes liable to account for the relevant VAT.
Moreover, the recipient can only deduct input VAT if they have accounted for and paid the VAT charged by the supplier under the reverse charge rules.
Note that if the recipient fails to account for the VAT, the supplier and recipient shall be held jointly and severally liable. However, authorities will not be hold the supplier liable if they follow appropriate measures, including “taking reasonable steps to verify the recipient’s VAT registration status”.
Combatting VAT fraud in South Africa
The South African government designed the proposed regulations to combat VAT fraud. According to the memorandum, fictitious vendors are registering for and creating fake documentation. Those unscrupulous vendors then acquire Krugerrands, illegal gold and similar items.
Ultimately, there is a significant disparity between the VAT returns submitted and the large VAT refunds claimed. According to the government, the vendors misrepresent the nature of the goods involved.
“These vendors utilize “invoice-farms” to create a paper trail to authenticate and re-characterise the supply of Krugerrands, illegal gold, etc.”
The vendors then charge VAT at the standard rate. “A deliberate and purposeful misrepresentation of the nature, type and origin of the Krugerrands, illegal gold”
With the proposed domestic reverse charge on valuable metals, the government thus aims to crack down on the fraud.
All that glitters is gold (for VAT purposes)
Note that the reverse charge will apply to gold items. The memorandum says that while an applicable “gold bar or similar item may have traces of other metallic materials” the regulations are concerned with “the supply of a gold bearing bar or similar item or ancillary supplies thereto.”
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