Valuation under GST/VAT- Some preliminary findings from a comparative study of Australia and South Africa

This article was written by Prateek Singh, a student of Glocal Law School.

The good and services tax bill which is hold in government desk from last 15 year is now again in the chance of commencement. This paper attempts to contribute to this small body of literature by investigating the comparative GST/VAT avoidance approaches in Australia and South Africa. The two chosen countries are contrasting in many interesting ways.

The Goods and Services Tax (GST) or Value Added Tax (VAT) has been the most significant development in taxation around the world over the past 60 years. First implemented in France in 1954,[1] the expansion of GST/VAT was limited to less than 10 countries in the late 1960s. It is now one of the most important sources of government revenue, raising on average 20 per cent of tax revenue, in more than 160 countries worldwide.[2]

The only major exception is the United States (US) although most States in the US impose a broad-based retail sales tax at widely varying rates. The rapid widespread of GST/VAT in both the developed and developing worlds has been due to a number of different factors. They include

• GST/VAT’s powerful revenue yield
• Its ability to raise revenue in a neutral and transparent manner, especially with respect to international trade
• Its pro-growth property relative to income tax[3]
• It’s self-policing property against tax evasion under the credit-invoice method

The two chosen countries are contrasting in many interesting ways. The VAT in South Africa has a much longer history. It was first introduced on 29 September 1991 while the Australian GST commenced almost nine years later on 1 July 2000.

1. Brief Overview of GST/VAT
   • Australia

Australia’s GST has a long period of gestation and a difficult birth. The idea of a broad based consumption tax was first proposed in the 1975 Asprey Report.[4]After several false starts, the GST was finally introduced by the Howard-led Federal Coalition Government with effect on 1 July 2000.

The legislation was passed on 28 June 1999 as A New Tax System (Goods and Services Tax) Act 1999 and came to effect on 1 July 2000. Australia’s GST is based on the destination principle, and utilises the invoice credit method with both cash and accrual basis of accounting. It has a relative wide base (but has a number of zero rates for health and medical care, educational supplies and child care, food and beverages, and some others), a standard rate of 10 percent and a reasonably low registration threshold (currently annual turnover of A$75,000 or about R810,000). The Australian GST Act is quite massive in size.

• South Africa

South Africa first introduced a selective sales tax (upon mostly luxury goods) which was followed by a general sales tax (as it was called) in 1978 (Hanlon, 1986). Resulting from this VAT was introduced in the Republic of South Africa on 30 September 1991 (Botha, 2015: 1) and is largely based on New Zealand’s Goods and Services Tax (GST) Act (141/1985). Section 7 of the VAT Act which is the basic charging provision stipulates that supplies of goods and services by a vendor in the course or furtherance of an enterprise, as well as imported goods by any person, are taxable at 14 percent. Certain supplies of goods or services are also zero-rated (Section 11) or exempt (Section 1 and Section 12) from VAT.

• Comparison

It is apparent that Australia’s GST and South Africa’s VAT are highly similar in terms of registration threshold, tax base and tax rate. This is not surprising because they were both based on the New Zealand’s GST model. GST is a federal tax, the States (and Territories) in Australia not only receive the GST revenue in full but also play an important role in their ability to influence the GST base and rate, Also, the relative importance of the tax is higher in South Africa (26.5 percent) than in Australia (about 12 percent), reflecting South Africa’s wide base and higher rate, and the presence of State taxes in Australia.

2. GST/VAT Disputes
   • Australia

GST disputes may arise at any stage after the disagreement between the tax administrators and business taxpayers. In Australia GST disputes are classified into four broad categories:[5]

1. Complaints;
2. Objections to reviewable rulings;
3. Disputes as to facts or the application of GST legislation by a taxpayer as matters are being assessed (by the ATO); and
4. Objections to assessments (Commissioner Adjustments).

Generally ATO’s internal review (before the dispute is taken further) and the Administrative Appeals Tribunal (AAT), deals with the disputes apart from this the Federal Court of Australia (Federal Court) and ultimately the High Court of Australia (High Court) have jurisdiction to finalise substantive federal GST disputes.

• South Africa

Badenhorst (2016) indicated that the South African VAT legislation has a broad base with relative few exceptions and as a result the compliance to the VAT Act is relatively high. The study indicated that the VAT gap in South Africa is very low (approximately 6 percent) in comparison to international standards. Naturally there are tax agents who go around and do VAT reviews on a contingency basis, i.e. where there is a percentage fee on any savings they find. Considering the VAT court decisions of the past few years, there are no ‘schemes’ that were attacked. The cases mostly dealt with the interpretation and application of the VAT Act. There were of course a number of criminal cases where people were prosecuted for outright fraud.

[1] A Charlet and J Owens, “An international perspective on VAT” (2010) 59(12) Tax Notes International 943.

[2] Organisation for Economic Co-operation and Development (OECD), Consumption Tax Trends 2014 (OECD
Publishing, Paris) 18.

[3] See Charlet and Owens, n 1 at 944.

[4] Australian Commonwealth Taxation Review Committee, Full Report 31 January 1975 (Australian Government Publishing Service, Canberra, 1975) 35.

[5] Commissioner of Taxation, In Search of Solutions (Speech delivered at the Administrative Appeals Tribunal and the ACT Bar Association seminar, Canberra, 26 August 2009)