VAT Implications in the Tendering/Bid Process
What is Vat?
VAT (Value-Added Tax) is indirect tax, based on consumption of goods and services in the economy. Revenue is raised for the government by requiring certain traders or vendors to register and to charge VAT on taxable supplies of goods or services.
The essential characteristics of VAT-type taxation are as follows:
- the tax applies generally to transactions related to goods and services.
- It is proportional to the price charged for the goods and services.
- It is charged at each stage of the production and distribution process.
- The taxable person (vendor) may deduct the tax paid during the preceding stages, which means the burden of the tax is on the final consumer.
VAT is only charged on taxable supplies made by a vendor. Taxable supplies include supplies for which VAT is charged at either the standard rate or zero rate, but does not include:
- salaries and wages;
- hobbies or any private recreational pursuits (not conducted in the form of a business);
- occasional private sale of personal or domestic items;
- exempt supplies.
Does a supplier have to be registered for VAT in order to do business with government?
You do not need a VAT number to apply for a tender. A supplier has to have a valid tax clearance certificate (for all procurement thresholds above R 30 000.00) which is confirmation to government that the relevant requirements in terms of tax registration, tax returns and tax payments (income tax, VAT, PAYE and SITE) have been complied with.
According to the Standing Bid Document (SBD 2), it is a condition of bid that the taxes of the successful bidder must be in order, or that satisfactory arrangements have been made with South African Revenue Service (SARS) to meet the bidder's tax obligations.
When do you have to register for VAT?
To register for VAT, the person must carry on a business in addition to the following:
- Persons who make taxable supplies in excess of R1 million in any consecutive 12-month period are liable for compulsory VAT registration, but a person may also choose to register voluntarily provided that the minimum threshold of R50 000 has been exceeded in the past 12-month period. Persons who are liable to register, and those who have registered voluntarily, are referred to as vendors.
- Activities must be of an on-going nature, not once off transactions
- It must be an actual business, not hobbies or private activities
If at the time a bid was awarded, a company was not yet registered for VAT but during the course of the project the bidder becomes VAT registered. Can VAT be claimed and therefore added to the bid price after an award was made, bearing in mind that the company's bid price did not include VAT?
A supplier cannot request the VAT portion from Government as the supplier made an offer to Government for a period during which they were not registered as a VAT vendor. Government is not liable for any VAT as the original offer did not include VAT.
The price that was offered cannot be adjusted after the supplier has indicated in the bid that the offer is firm and a just representation of their offer.
The supplier can only start claiming VAT once they have been furnished with a VAT registration certificate (VAT 103), which normally takes 2 weeks to process.
This scenario is also highly unlikely to occur as SARS indicates a period of 2 weeks for VAT registration and will first want a supplier to have earned the income before they register such a supplier for VAT. SARS will not allow a scenario where a supplier tells them that since they have now won a tender to an amount that will elevate their turnover to be within the threshold, SARS can now register them.