Abstract:
This dissertation paper discusses the relationship between input tax and taxable supplies according to the VAT Act. Value added tax (VAT) is the tax that is charged on each transaction in the production and distribution chain of a manufactured product. VAT was introduced for the first time in South Africa in September 1991 at 10 per cent and is regulated by the Value Added Tax Act 89 of 1991. South Africa is among the many countries in the world that charge VAT. It is the final consumer who carries the tax burden.Output tax is defined as the tax charged by any vendor on the goods or services supplied by that vendor in respect of the supply of goods or services by that vendor in the furtherance of any enterprise carried on by him1. Input tax is defined as the tax payable by a vendor when goods or services are acquired by him wholly for the purposes of consumption, use or supply in the course of making taxable supplies.2Tax has been defined as a fee charged by a government on a product, income or activity.3 VAT vendors need to account for the difference between input tax and output tax to the Receiver of Revenue at the end of each tax period. In circumstances where input tax exceeds output tax, the Receiver of Revenue pays the difference to the vendor. If output tax exceeds input tax, then the vendor is liable to the Receiver of Revenue. There are generally two types of taxes, namely direct and indirect taxes. Direct taxes are thosefor which the tax burden cannot be shifted to another, while indirect taxes can be shifted to the next person who is the final consumer in the distribution chain. This dissertation focuses on indirect taxes, and in particular on VAT. There are various cases that were adjudicated by both the courts in South Africa and internationally, where the parties could not reach an understanding on the input tax deductions. An example would be in ITC 1744 (65 SATC 154), a South African case where it was held that an input tax deduction could only be allowed if the expenditure was incurred in the actual making of taxable supplies by the vendor, not in the preparation stages of the business. Internationally, the case of BLP GroupPLC v Customs and Excise Commissionersis
