Seeds and VAT
We have had a number of queries recently from customers who have made purchases from us regarding the charging of VAT on vegetable and herb seeds. Our understanding (and the opinion of our accountants) is as follows :
1) Seeds are not zero rated for VAT.
2) As a VAT vendor we are only permitted to NOT charge VAT if the purchaser (our customer) is a VAT vendor and have been specifically exempted from paying VAT on seeds on their VAT registration. We are required to keep a copy of the customers VAT registration certificate (which highlights the exemption) on file. The exemption will only apply to vegetable seeds and cannot be applied to Herb, Ornamental, Flowering seeds etc.
To therefore be clear, we do charge VAT on all seeds as we are a VAT vendor and are legally obliged to charge VAT on all items we sell unless the customer can supply us with their VAT registration exempting them from being charged VAT on certain items.
This brings me to the next point where we have had customers who purchase from other South African seed companies and query why we charge VAT when the other seed companies they buy from do not. I really cannot comment on how other people run their businesses other than to say that we have looked into this issue extensively and that we are sticking to the letter of the law. Possible reasons as to why other South African seed companies are not charging VAT could be a) That they are small companies who are not required to charge VAT as their annual turnover falls below the threshold of being a compulsory VAT vendor or b) That the company has applied to SARS for an exemption from charging VAT (highly unlikely as this form of exemption would typically be granted to a charitable institution only) or c) That they are a VAT vendor and are purposefully evading charging VAT on something that they are legally obliged to. I'm not suggesting that they are collecting VAT and not paying it over to SARS. I am suggesting that they are setting a selling price to the consumer and by not charging VAT they are profiting more over other companies selling the same item who do charge VAT. For example if company A charges VAT and company B does not and they both sell the same item at the same selling price to the consumer, company A realises a smaller profit margin then company B.
UPDATE
To get absolute certainty on this issue we approached SARS for a legal opinion on this issue. SARS have confirmed that our understanding is correct and that if a company is a VAT vendor, the company is legally obliged to charge VAT on seeds unless the purchaser is specifically exempt from paying VAT on seeds and can produce their VAT registration which shows that they are exempt from paying VAT on seeds.