The existence of invoices was ‘the fatal point in the chain of evidence’ since ‘one does not invoice for a grant’. Picture: AdobeStock The fine line between supplying a service to the state and receiving grant funding is critical in determining the correct value-added tax (Vat) treatment – and misjudging it can be extremely costly. A welfare organisation is paying the price for getting it wrong, nearly 20 years after the fact.
The courts have confirmed assessments from the South African Revenue Service (Sars) for the 2006 to 2015 period. The matter between Sars and a non-profit company referred to as SLGGM centred on when funding from a public authority qualifies as a zero-rated grant, and when it is regarded as payment for taxable services at a standard rate. The company entered into a memorandum of agreement with the Gauteng Department of Education (GDE) in 2006 to improve the quality of education in schools through better management and governance skills.
In March 2015, Sars assessed the company for the nine-year period and: ENSafrica Vat specialist Charles de Wet says a concerning issue is the time it took to get a decision in this matter. Despite the five-year prescription period for Vat, the assessment was only made after nine years – and the final decision only came in 2025. SLGGM objected to the assessments, arguing that it is a welfare organisation and the money it received was a grant as defined in the Vat Act, hence it should be zero-rated. Sars stood by its assessments, arguing that the company was not a welfare organisation and that the funding received from the department was payment for “actual supplies”, therefore attracting Vat at the standard rate.
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