When SARS finally issued Binding General Ruling 16 (Issue 3), many VAT vendors breathed a sigh of relief. Several long-standing apportionment uncertainties were clarified.
But don’t be fooled, the new rules introduce fresh technical and compliance challenges that will catch the unwary.
In simple terms, BGR 16 tells VAT vendors how to calculate how much VAT they’re allowed to claim back when they make a mix of:
- Taxable supplies (VATable- you can claim input VAT), and
- Non-taxable supplies (exempt / out of scope – you can’t).
This calculation is called apportionment.
Before BGR 16 (Issue 3), the rules were messy, inconsistent, and often harsh, especially when it came to dividends and interest.
SARS tried to “fix” this. They partly did. But they also made it more technical.
The General Rules – Easier, But Not Effortless
For VAT vendors making only limited non-taxable supplies, the revised apportionment framework is generally more workable.
However, dividends and interest require special attention.
The full amounts are no longer included in the apportionment calculation
Instead, diluted amounts must be included, which involves some serious mathematical gymnastics to calculate correctly.
Simpler in theory, but easy to get wrong in practice.
More Complex Rules for Financial Transactions
BGR 16 introduces far more complex rules for vendors involved in financial transactions.
Entities operating in this space should take note:
Incorrect treatment can materially distort the apportionment percentage
This directly affects input VAT recovery and audit risk
Transitional Rules – A Hidden Risk Area
The ruling includes detailed transitional provisions governing the move from the old apportionment rules to the new framework.
These transitional adjustments are not optional and misunderstanding them can lead to non-compliance and understatements.
New Annual Reporting Requirement (Big Change)
For the first time, VAT vendors applying apportionment must:
Submit the recomputed apportionment percentage annually
Disclose the adjustments made during the year as a result
This is a new compliance obligation and should not be treated as a box-ticking exercise.
Importance of the change
BGR 16 (Issue 3) is not just a technical update, it fundamentally changes how apportionment is calculated, adjusted and reported.
Simple example to tie this together
Before: Almost all dividends and interest were thrown into the apportionment calculation, which badly reduced VAT recovery.
After: Only a portion of dividends and interest is included, but you now have to calculate that portion.
So: less punitive, more complicated.
The facts (same business in both cases)
A VAT-registered company earns the following in a year:
Taxable sales (VATable): R10,000,000
Dividends received: R5,000,000
Interest received: R1,000,000
Total income:
Before: R16,000,000
After: still R16,000,000, but treated differently
BEFORE (old approach)
Dividends and interest were fully included in the apportionment calculation.
Apportionment percentage:
Taxable supplies ÷ Total supplies
= R10,000,000 ÷ R16,000,000
= 62.5%
The vendor could only claim 62.5% of their input VAT, even though dividends required almost no VAT-bearing costs.
This felt unfair and often was.
AFTER
Dividends and interest are no longer included in full.
Instead, SARS says:
Only include the portion of dividends and interest that relates to taxable activities.
That portion is usually very small (e.g. admin, treasury oversight).
Let’s assume a 10% attribution to taxable activities (purely illustrative).
Adjusted inclusion:
Dividends included: R5,000,000 × 10% = R500,000
Interest included: R1,000,000 × 10% = R100,000
Revised apportionment calculation:
Taxable supplies = R10,000,000
Total supplies = R10,600,000
Apportionment % = 94.3%
The vendor can now claim 94.3% of their input VAT instead of 62.5%.
Much better, but only if the calculation is done correctly and justified.
Assumptions must be reasonable and defensible
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