Taxand South Africa explores the possibility of paying VAT on delivered goods.
It is common practice for suppliers to deliver the goods that they supply at the premises of their customers on the customer’s request. The suppliers then either deliver the goods themselves or they contract the services of third parties to deliver the goods on their behalf, for which they charge a delivery fee.
The question that arises is whether the supplier should charge value-added tax (VAT) on the delivery fee, particularly where the supplier acquires the services of a third party to deliver the goods, and merely recovers the delivery fee from the customer charged by the third party.
The tax court recently considered the VAT status of delivery fees charged by a taxpayer that carries on a fast food delivery business. The taxpayer contracts with fast food outlets to advertise their menus in a booklet, which it then distributes to households in the area in which the taxpayer operates. Customers order fast food from the taxpayer by placing a telephonic order.
The taxpayer in turn places the order with the relevant fast food outlet, dispatches a driver to the outlet to collect and pay for the food, and to deliver the food to the customer.
In determining whether delivery fees are subject to VAT, it is not sufficient to rely only on the agreements between the parties, but the facts and the commercial and economic reality of the tax payer’s business should also be considered.