Value Added Tax The debt collection industry Presenter: Christo Theron Founder: TradeTaxPlus – Centre of Excellence Email address: christo.theron@tradetaxplus.com Mobile number: 083 283 7242 Website: www.tradetaxplus.com YouTube channel: Tradetaxplus
The debt collection industry Value-Added Tax workshop Agenda • Session 1 - Framework of the VAT Act • Session 2 - Legal framework: The credit industry • Session 3 - Making the links • Session 4 - The missing links 3
Session 1 Framework of the VAT Act
Value-Added Tax The legal framework Basic principle • Input tax and output tax are two fundamentally different enquiries • The fact that output tax is payable does not mean that there is a consequential input tax deduction available to a third person 5
Topic 1 Output tax
Value-Added Tax Output tax Basic rules • Output tax is payable on the supply of any goods or services by any person in the course of a VAT enterprise carried on by the person • The recipient of a supply does not need to be identifiable for the supply to be subject to VAT 7
Value-Added Tax Output tax Basic rules (cont’d) • Output tax is payable on the value of the supply • Value of a supply = the consideration for the supply 8
Value-Added Tax Output tax Goods or For a In a tax Supply services consideration period 9
Value-Added Tax Output tax Definition of “ supply ” “ Performance in terms of a sale, rental agreement, instalment credit agreement, and all other forms of supply , whether voluntary, compulsory or by operation of law ... and any derivative of “supply” shall be construed accordingly .” Goods or For a In a tax Supply services consideration period 10
Value-Added Tax Output tax Meaning of “ performance ” • There must be some positive act on the part of the supplier • Performance normally linked to the supply of identifiable goods or services • Consider deeming provisions Goods or For a In a tax Supply services consideration period 11
Value-Added Tax Output tax Definition of “ services ” “ Anything done or to be done, including the granting, assignment, cession or surrender of any right or the making available of any facility or advantage ” Goods or For a In a tax Supply services consideration period 12
Value-Added Tax Output tax Nature of services - Issues to consider • Very wide definition • Excludes a supply of money • Fines • Statutory fines • Non-statutory fines with additional benefits • Non-statutory fines with additional benefits Goods or For a In a tax Supply services consideration period 13
Value-Added Tax Output tax Definition of “ consideration ” “ in relation to the supply of goods or services to any person, includes any payment made or to be made .... whether in money or otherwise, or any act or forbearance, whether or not voluntary, in respect of , in response to, or for the inducement of, the supply of any goods or services , by that person or by any other person ... ” Goods or For a In a tax Supply services consideration period 14
Value-Added Tax Output tax Meaning of “consideration” • Close nexus required between supply of goods or services and consideration for a supply • Element of reciprocity required • New Zealand principle • Payments must be for a supply, not merely relate to a supply Goods or For a In a tax Supply services consideration period 15
Value-Added Tax Output tax Meaning of “in respect of, in response to or for the inducement of the supply of services” • Late payment fines fall into the above category Goods or For a In a tax Supply services consideration period 16
Value-Added Tax Output tax Time of supply rule • Earlier of invoicing or payment • Definition of “invoice” “ A document notifying an obligation to make payment ” Goods or For a In a tax Supply services consideration period 17
Value-Added Tax Output tax Nature of an ” invoice ” • The obligation to make payment must be: • Enforceable • A present legal obligation • May not be subject to a suspensive condition • Only a contingent obligation • Does not become an invoice once the suspensive condition fulfilled Goods or For a In a tax Supply services consideration period 18
Value-Added Tax Output tax Nature of an ” invoice ” • Letter of demand is not an invoice for VAT purposes • VAT liability (where applicable) will normally be triggered by payment Goods or For a In a tax Supply services consideration period 19
Topic 2 Identification of potential categories of services
Application Identification of potential supplies Potential supply Supplier Recipient Time of supply Commission based Debt collector Credit provider Earlier of invoicing or recovery services payment Cost based recoveries Unknown Unknown Unknown
Topic 3 Input tax framework
Value-Added Tax Input tax Basic principles • Goods or services must be supplied to the vendor • Recipient of a supply must be identifiable to claim an input tax credit • Input tax is claimed on the basis of a valid tax invoice issued by the supplier to the recipient 23
Value-Added Tax Input tax What does “supplied to the vendor” mean? • The “ Grandma’s Flowers ” principle • Legal recipient of goods or services may claim input tax credit • If creditor is not settled within 12 months from date of supply, must repay input VAT to SARS • Anomaly in the VAT Act where service is paid for by a third person • Section 72 ruling may be necessary 24
Application Identification of potential sources of input tax claims Potential supply Supplier Recipient Person entitled to input tax dedction Commission based Debt collector Credit provider Credit provider recovery services Cost based recoveries Unknown Unknown Unknown
Session 2 Debt collection legal framework
Debt collection legal framework Elements of the legal framework • The legal framework consists of: • Primary legislation • Secondary legislation • Inter-party agreements
Debt collection legal framework The governing statutes • Primary legislation • The National Credit Act of 2005 • Debt Collectors Act 114 of 1998 • Secondary legislation • Regulations to the Debt Collectors Act • Regulation No. R. 185 – 7 February 2018 • Regulation No. R. 1141 – 27 October 2017
Debt collection legal framework Purpose of the NCA The NCA: • Regulates the relationship between the credit provider and the debtor • Regulates how much may be recovered by a debt collector from a debtor
Debt collection legal framework Purpose of the NCA The NCA: • Specific to the credit agreement : “ A credit agreement must not require payment by the consumer of any money or other consideration, except ... (f) default administration charges, which ... May be imposed only if the consumer has defaulted on a payment obligation under the credit agreement, and only to the extent permitted by Part C of Chapter 6. ” Comment: Wording seems to suggest that NCA merely regulates the maximum amount that may be recovered from a debtor by a debt collector. It does not contain the charging/recovery authority to quantify and recover such amounts
Debt collection legal framework Purpose of the NCA • Proposed governing principle 1 • The NCA doen not provide the authority to the credit provider to recover debt recovery costs from a debtor • The debt collector in terms of the Debt Collectors Act has the authority to recover regulated debt collection charges from defaulting debtors. The amount that is recoverable is governed by the Debt Collectors Act. The Credit provider only has an oversight function to ensure that the amounts recovered by the debt collector are within the prescribed limited set by the Debt Collection Act
Debt collection legal framework Purpose of the Debt Collectors Act The Debt Collectors Act • Regulates the activities of the debt collection industry • Specific to the recovery of money (Section 19): “ A debt collector shall not recover from a debtor any amount other than – necessary expenses and fees prescribed by the Minister in the Gazette after consultation with the Council ” “ Upon request by a debtor ... The clerk of the magistrate’s court or a cost committee of a provincial law society may tax or assess any account or statement of costs, interest and payments claimed to be owed by a debtor to a debt collector or his or her client”.
Debt collection legal framework Purpose of the Debt Collectors Act Resolved issue The word “ recover ” used in the DCA is problematic as it does not clearly indicate whether the amounts recovered are recovered for the benefit of a third-party creditor, or whether in includes recoveries for its (the debt collector’s) own account. The workshop agreed that it includes both categories of recoveries.
Debt collection legal framework Purpose of the Debt Collectors Act • Proposed governing principle 2 • The Debt Collectors Act contains the operational mechanism to recover amounts due to a credit provider as well as amounts due to the debt collector. • The Debt Collection Act contains the levying power with regards to the recovery of debt collection costs from a debtor by a debt collector. This power vests with the debt collector.
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