Introduction
VAT mistakes can haunt organisations for decades, the SLGGM case is proof. Nearly two decades later, a non-profit organisation is paying the price for VAT missteps.
The case of SLGGM v CSARS (Commissioner for the South African Revenue Services)
The issue on this case was whether the amounts received by SLGGM from the GDE (Gauteng Department of Education) constituted grant funding and thus zero-rated or were received for services rendered and thus are subject to VAT at the standard rate SLGGM argued that its funding was a grant (zero-rated) while SARS deemed it standard rated.
- The court ruled that GDE made the payments to SLGGM for services rendered, citing itemised invoices as proof of services rendered.
- SLGGM is now liable for an amount of R93 million in assessments plus penalties, nearly 20 years after the fact.
The court emphasised that grants cannot be invoiced. Invoices are evidence of services supplied, not gratuitous transfers.
Key Lessons for Organisations
This case highlights several critical lessons for non-profits, welfare organisations, and any entity working with government funding:
- Classification matters: Misinterpreting whether funding is a grant or service payment can lead to massive liabilities.
- Documentation is decisive: Courts will prioritise written records (like invoices) over oral testimony.
- Grant vs Service distinction: A grant is a gratuitous transfer with no quid pro quo. If services are supplied, VAT applies.
- Credibility counts: Inconsistent testimony or evasive evidence can undermine a case.
How MaxProf Can Help
MaxProf bridges the gap between legal definitions and practical compliance:
- Documentation Alignment: Ensuring invoices, reporting, and records reflect the right VAT treatment.
- Risk Management: Identifying potential pitfalls early to prevent costly disputes with SARS.
Conclusion
VAT compliance for NPOs is complex, but essential. MaxProf stands ready to guide organisations through these challenges, protecting them from financial risk while enabling them to focus on their mission.
Contact MaxProf today to safeguard your organisation’s compliance.
