The magnitude and severity of the COVID-19 outbreak led the South African Government to declare a national disaster under the Disaster Management Act 2002 on 15 March 2020. As a result, Item 412.11 of Schedule 1 of the Value Added Tax Act 1991 (VAT Act) came into effect. Item 412.11 provides that goods imported for the relief of distress of persons in cases of famine or a national disaster will be exempt from VAT on importation.  The ultimate question is which goods actually qualify for this exemption.

Regulation R.398, published in Government Gazette 43148 on 25 March 2020 (the Regulation), defines “essential goods” to include the following:

Any food product, including non-alcoholic beverages;
Animal food; and
Chemicals, packaging and ancillary products used in the production of any food product.
Cleaning and Hygiene Products
Toilet paper, sanitary pads, sanitary tampons, condoms;
Hand sanitiser, disinfectants, soap, alcohol for industrial use, household cleaning products, and personal protective equipment; and
Chemicals, packaging and ancillary products used in the production of any of the above.

Medical and hospital supplies, equipment and personal protective equipment; and
Chemicals, packaging and ancillary products used in the production of any of the above.
Fuel, including coal and gas
Basic goods, including airtime and electricity.
In its announcement on 27 March 2020, the South African Revenue Service (SARS) indicated that essential goods, as defined in the Regulation, would qualify for VAT exemption under Item 412.11 of Schedule 1 to the VAT Act.  SARS also indicated that a full rebate of customs duty under rebate item 412.11 of Schedule No 4 to the Customs and Excise Act 1964 (Customs Act) is available where the International Trade Administration Commission (ITAC) has approved the rebate for the goods concerned.

This created confusion in that it appeared that all goods listed as essential goods in the Regulation would qualify for VAT exemption, but that the rebate of duty is only available if approved by ITAC.  However, the exemption under Item 412.11 of Schedule 1 to the VAT Act is also subject to ITAC approval, more specifically, it is subject to an ITAC certificate.  On 30 March, ITAC issued the relevant certificate to certify the list of essential goods that qualify for VAT exemption.  The certificate specifically does not cover the following goods that, accordingly, do not qualify for the VAT exemption:

Goods that are subject to an ordinary customs duty under Schedule 1 to the Customs Act;
Goods that are subject to a trade remedies duty (anti-dumping, countervailing or safeguard duty) under Schedule 2 to the Customs Act;
Goods that are the subject of applications for duty support that are currently pending before ITAC; and
Goods that are currently the subject to anti-dumping investigations.
SARS provided clarity in this regard on Friday 3 April and has indicated that the importation of qualifying essential goods must follow the normal procedure for imports. SARS further indicated that only direct imports would qualify for the VAT exemption, i.e. goods cleared into bond or rebate stores would not qualify.

ITAC has issued a Guideline to provide procedural guidance for the permit applications in terms of item 412.11. A pro forma application form is attached to the Guidelines. Completed original applications for permits may be forwarded to the Senior Manager: Tariff Investigations II (ITAC). Importantly, applications must be made well in advance of the shipment of goods, as rebate permits will not be issued retrospectively.

Cap San Juan
Cap San Juan

It is advisable to apply for and obtain the permit before the goods are loaded for export to South Africa. Applicants are advised to allow a period of 14 days from date of receipt of a properly documented and completed application for a rebate permit to be issued. The application must be accompanied by supporting documents, namely, a written undertaking indicating that the goods are imported for relief of distress of persons in case of famine or other national disaster, i.e. in compliance with the specific wording of item 412.11.

Although the Regulations allow for all goods to be imported into South Africa, only goods which are classified as essential in terms of the Regulations may be removed from the port of entry and delivered to a consignee. All other goods (i.e. non-essential goods) must be removed from the port of entry and stored at a temporary storage facility, premises of a trade intermediary (e.g. a carrier) or any other facility approved by SARS.

Non-essential goods may not be delivered to a consignee until the lockdown period has expired. Non- essential goods will retain their status relating to the suspension of duty and VAT for the period of the lockdown.

To clarify, there is currently no ban on the importation of goods into South Africa, the ban is in relation to the cross-border movement of people, which is in place until further notice.

by Jana Botha , VAT Consultant, and Virusha Subban, Partner and Head of Indirect Tax, Baker McKenzie Johannesburg