Value Added Taxation adjustments in South Africa with reference to the transfer of agricultural land

Abstract

With numerous studies having found that complexities in tax legislation could negatively affect economic growth and taxpayers' willingness to comply with these laws, and against the backdrop of a pressured South African economy and tax collection, it is believed that possible complexities in this legislation should be identified, analysed and discussed with the aim of simplification. The VAT adjustments necessary upon sale or purchase of agricultural land in South Africa, as a result of the residential units situated on these properties, be it either the private residence of the farm owner or the housing provided to employees, constitute such a complication. Not only does the legislation require adjustments by both the purchaser and seller due to the deemed inclusion of these residences in the taxable supply, the basis or valuation of the adjustment also differs for the purchaser and the seller. In the case of the seller, the adjustment should be based on the historical cost of the expenditure, necessitating extensive record keeping to ensure the accuracy of the adjustment together with increasing the room for error. The purchaser, on the other hand, should base the adjustment on the market value of the units and would probably need the assistance of an expert which could not only result in increased cost but also creates room for error and manipulation. The study provides a critical analysis of the South African legislation and highlights the said complexities and provisions in the VAT Act, furthermore identifying possible challenges inherent in the legislation. Based on this analysis possible solutions for the mentioned complexities in the South African legislation are sought through comparison with the Australian and New Zealand legislation. The analysis identified the simplified treatment of similar transactions in other jurisdictions, especially Australia, as a possible alternative to the complexities highlighted. The researcher suggests that the subject of simplification of the South African legislation warrants further research.