On the 8th of June 2022, SARS gazetted a new VAT regulation whereby all valuable metal sales and purchases will be subject to domestic reverse charge.
Valuable Metal is defined as any goods containing gold in the form of jewellery, bars, blank coins, ingots, buttons, wire, plate, granules, in a solution and residue. Also included in the definition of valuable metal is all ancillary goods and services relating to the goods containing gold.
Timeframe:
Application of the DRC is optional from 1 July 2022 and compulsory from 1 August 2022. CPM have elected to implement DRC regulations as from 1 August 2022.
What the act hopes to achieve:
The regulations are an anti-abuse measure aimed at foreclosing schemes and malpractices which claim undue VAT refunds by vendors operating in the value chain relating to high-risk goods containing gold. This additional compliance process will make it difficult for registered VAT vendors to claim for VAT that was not actually declared and paid to SARS by the supplier registered vendor in respect of the supply of “valuable metal.” As per SARS, the estimated financial impact of the above-mentioned schemes is estimated at billions of rands per year.
How it works:
The DRC regulations apply between two registered vendors on the sale/purchase of the valuable metal. Entities will be required to verify our counterparts VAT registration status for purposes of applying the DRC regulations. VAT vendors will need to register for DRC if they buy/sell the valuable metal. More information is expected from SARS in due course in relation to the registration.
Payments to VAT registered suppliers for the valuable metal will be excluding VAT and the purchaser of the valuable metal is required to report the purchase in their VAT return.
Invoices to VAT registered customers will be exclusive of VAT and the payment received from the registered buyer will be exclusive of VAT.
Between VAT vendors, there is no cash flow implication for the VAT element on the sale/purchase, essentially the DRC regulations takes VAT implications on gold out of the hands of VAT vendors.
It is our opinion, and that of other large stakeholders in the industry, that the implication of this DRC regulation will mean that there is no cash flow implication in relation to the VAT on the sale and purchase of gold between vendors to SARS. VAT vendors will be in a VAT neutral position. Vendors will be required to report all DRC related purchases and sales on their VAT returns in a separate field.
Normal VAT regulations are applicable when we purchase valuable metal from the public (non-registered vendors) at which point the entity can still claim notional VAT on the purchase. These entities (E.g. second hand dealers) will be in a VAT refund position with SARS. We expect more involvement from SARS in terms of the Second Hand Dealers Act rules and regulations as well as from SARS in relation to requiring supporting documentation for the notional VAT which is claimed.
Similarly, sales to the non-VAT registered public will be subject to normal 15% VAT and this will be included on the invoice and included in payment from the buyer. The entities will be in a VAT payable position at the end of the month in relation to these sales.
Exports and imports are excluded from DRC and normal VAT ruling applies.
For purchases of valuable metals from registered vendors, the purchaser will require a DRC invoice from the seller, or the supplier can opt for self-billing of the DRC invoice from the buyer. The buyer is required to supply the seller with a DRC statement of all valuable metal (including the % of gold contained therein and the full description of the goods containing gold) purchased from the supplier during the previous month. Valuable metal purchases from mines are also excluded from DRC regulations.
CPM will supply more guidelines on the applications of DRC regulations, the reporting obligations, DRC invoices, DRC statements and the effect on the VAT return over the next few weeks.
SARS is hosting a webinar on the application of the new regulation on Thursday 30 June 2022, which will assist with clarifying some questions.