A critical evaluation of the VAT zero rating for funds received under national housing programmes in South Africa

Abstract

It is a constitutional right of each citizen of South Africa to have access to adequate housing, with the government providing assistance to ensure this right is realised. Funding is allocated to provincial or local government based on the annual applicable Divisions of Revenue Act. Where government however provides funding and in return receives housing related goods or services, the transaction falls within the ambit of the Value Added Tax Act. In order to diminish the value added tax effect on state funding of housing programmes, sections 8(23) and 11(2)(s) were inserted in the Value Added Tax Act allowing state funding for housing to incur value added tax at a rate of zero percent. Unfortunately, these sections in the Value Added Tax Act incited confusion as to which programmes the zero rating applied, resulting in amendments, repeals and reinsertions of these sections in the Value Added Tax Act. This yielded the research question of whether the proposed repealing of sections 8(23) and 11(2)(s) of the Value Added Tax Act would align with the objectives and fundamental principles of national housing programmes and value added tax systems respectively. A literature review was conducted on the current housing and Value Added Tax legislation in South Africa, and also in considering the fundamentals of Value Added Tax with regards to government funding. The study revealed that inserting sections 8(23) and 11(2)(s) in the Value Added Tax Act effectively increased the budget allocated to the Department of Human Settlements for utilisation in the funding of national housing programmes. Section 8(23) and 11(2)(s) therefore represents an additional budget allocation driven by policy. In conclusion it was found that sections 8(23) and 11(2)(s) of the Value Added Tax Act align with the objectives and fundamental principles of the housing legislation and VAT systems owing to the fact that it supports the objective of ensuring an increase in funding available for utilisation in achieving the housing needs of indigents in South Africa.