No initial VAT registration necessary to tender

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It is not necessary to be registered for VAT in order to tender for government contracts. Newly founded BEE enterprises – or any new enterprise for that matter – should not be excluded from being considered for tenders.

Mr. Narcizio Makwakwa, executive manager of indirect taxes at the South African Revenue services (SARS), said in an interview that many government departments will award tenders to enterprises who are not VAT vendors, on condition that they apply for VAT registration at SARS if the contract amount exceeds R1 million.

The government and large companies are aware of the fact that not every new enterprise automatically qualify for mandatory VAT registration (where turnover is more than R1 million per year).

As soon as an enterprise is awarded a contract to the value of more than R1 million, it must follow the normal application process for VAT registration on the basis of a letter from the contractor confirming that the tender was awarded to the enterprise.

Enterprises  can also apply for VAT if they can prove that they have made taxable supplies of more than R50 000 in the preceding 12 month period, said Makwakwa.

He said the reason why SARS does not automatically register every new enterprise for VAT, is because of the administrative burden it would cause to keep record of enterprises and to deregister them if they do not reach the obligatory annual turnover required for VAT registration.