Tour operators who are charging zero rated VAT on the supply of goods and services to foreign travellers could land up in hot water with the South African Revenue Service.

An inbound tour operator was recently taken to court for charging zero rated VAT on tour packages to overseas tourists. According to SARS, these items that should have been charged at the standard 14% rating.

XO Africa Safaris supplied a number of services, which were enjoyed by foreign travellers while in South Africa. The packages assembled by XO Africa Safaris included accommodation, travel, restaurant bookings and recreational activities. XO Safaris argued that these services were supplied to a foreign tour operator and were therefore zero rated in terms of the VAT charged. 

An appeal between XO Africa Safaris versus the Commissioner for the South African Revenue Service (SARS) has been dismissed with costs. The appeal centred on whether a local company assembling package tours for foreign tour operators and individuals attracted VAT at the standard rate or if zero rated VAT applied.

According to the recent judgement, XO Africa Safaris provided goods and services to, not directly to the foreign tour operators, but to persons who were in South Africa at the time the goods and services were provided. The judgement also found that services are therefore excluded from the class that enjoy zero rating.

“If you are required to charge VAT and you don’t charge VAT, then SARS is losing out,” said Kevin Black from VAT Claims International. Tour operators who claim input VAT without charging the VAT out is causing SARS to lose out on money, he added.

Where services are supplied to a foreigner by a vendor who is liable to pay VAT in South Africa, and these services are rendered in South Africa with the benefit of them enjoyed in South Africa, these services would not be zero-rated. VAT would be payable at the standard rate.

“There needs to be a level playing field where all tour operators understand the legislation,” said Black.

XO Africa Safaris declined to comment as the matter is still sub judice.