Mail & Guardian 24 November 2000.
Lloyd's of London is not at present a VAT Vendor and it is not liable for VAT as the VAT Act in 1991 deemed Lloyd's not to be carrying on an enterprise in South Africa. In its decisions register SARS confirmed in 1991 that Lloyd's is deemed not to carry on an enterprise in South Africa. SARS, however, advised in a further general ruling in 1994 that foreign short-term insurance constitutes an imported services.
This does not mean that a Lloyd's insurance policy taken out by a South African is not subject to VAT. When someone in South Africa makes use of Lloyd's insurance, it becomes an imported service in terms of the VAT Act. Because VAT is a consumption based tax, the Act requires VAT to be levied on imported services. In terms of sections 7(1)(c) and 14 of the Act, persons paying premiums to Lloyd's are therefore required to declare and pay VAT on the premiums. On an offshore cell-phone insurance premium of, say R 40,00 per month, the insured would have to go to the Receiver of Revenue every month to pay R4,91 VAT
Because of the impracticalities in making these payments, an arrangement was made by SARS with M-Tel under section 72 of the Act, in terms of which the service provider could charge and account for VAT. This arrangement with M-Tel was subject to the fact that the consent of the subscriber had to be obtained. The purpose of the arrangement was to facilitate better administration of the VAT Act. However, even if M-Tel did not have the consent of the subscriber as far as this arrangement is concerned, the subscriber remained liable for the VAT. This arrangement was later extended to The Trafalgar Underwriting Group.
Section 72 of the Vat Act allows SARS to make special arrangements to prevent absurdities, such as thousands of cell-phone users having to pay such small amounts every month. The arrangement also ensures that SARS officials also do not have to follow up cell-phone users who have failed to pay over the VAT on imported services.
Where a business uses cell-phones for business purposes, the VAT charged to it is deducted as input tax.
The position in regard to Lloyds will, however, change from January 2001, when an amendment to the VAT Act, which will deem Lloyd's to be carrying on an enterprise partly in South Africa, comes into effect. Lloyd's will then be required to account for VAT on the supply of its services.
SARS wishes to remind all persons who import services for purposes other than the making of taxable supplies that they must declare and pay VAT thereon. This includes private households downloading software, which they purchased over the Internet, and premiums paid to foreign insurers.
ISSUED BY THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE
PRETORIA