Draft IN: The value-added tax treatment of debt collection
A draft interpretation note (“IN”) has been published in draft by SARS, for public comment. The draft IN provides clarity on the VAT treatment of debt collection activities, whether undertaken by credit providers, in-house or outsourced to external debt collectors.
The IN relating to the VAT treatment of debt collection activities, which has been issued in draft, examines the VAT treatment of the prescribed amounts recovered by the debt collector from the debtor under the Debt Collectors Act, 1998.
The following conclusions, among others, are set out in the draft IN:
- The supply of debt collection services by the debt collector to the credit provider is taxable at the standard rate, therefore, the commission paid for such services is subject to VAT at 15%.
- In the event that the agreed remuneration for debt collection services includes the recovery of the prescribed amounts under the Debt Collectors Act, such amounts retained by the debt collector are regarded as also being for the taxable supply of debt collection services. Accordingly, the prescribed amounts received for these services is also subject to VAT at 15%.
- Debt collection costs incurred by the creditor and recovered by the debt collector on behalf of the credit provider is not regarded as consideration received by the credit provider for any supply that it makes to the defaulting debtor. Since the recovery of such costs by the credit provider is not for any supply made, VAT is not required to be levied by the credit provider.
The draft IN can be accessed here.
The due date for comment is 7 October 2022.
16/09/2022