A Value-added Tax (VAT) Draft Binding General Ruling on the treatment of the supply and importation of various types of frozen potato products was published by Sars on 12 March 2014. The ruling deals with zero-rated supplies and standard rated supplies, specifying the criteria of classification. Comment is due by 15 May 2014.
Imported frozen potato chips are presently subject to anti-dumping measures, with the safeguard measure being suspended.
Zero-rated supplies: The supply of the following frozen potato products is subject to VAT at the zero-rate under section 11(1)(j) read with Item 12: (i) Potato products that are blanched in hot water, steam or oil for the purpose of preserving the product in its natural state. For purposes of this BGR, blanching of potato products in order to – (iA) stop the action of enzymes that can cause loss of flavour, colour and texture; (iB) make the potato product safer for the end user from a microbiological aspect; (iC) brighten the colour and help to prevent the loss of the natural sugars and vitamins present in the potato product; (iD) soften the potato products and make them easier to pack; or (iE) prepare the potato product for freezing, is regarded as being performed for the purpose of preserving the product in its natural state. (ii) Potato products that have been treated with a preservative to prevent the potato product from naturally darkening.
In this regard, section 11(3) requires a vendor to obtain and retain documentary proof substantiating the vendor’s entitlement to apply the zero rate.
Standard rated supplies: The supply of the following frozen potato products is specifically excluded from Item 12 and is subject to VAT at the rate of 14% under section 7(1)(a), irrespective of whether such products have also been treated in the same manner as the products listed in 2.1: (i) Frozen potato products that have been treated with an additive for the purpose of adding colour, such as to darken the product; or adding flavour, such as sweeteners (for example glucose and dextrose) and salt. (ii) Potato products that are coated with a layer of batter in order to increase the crispiness, before being blanched in oil. (iii) Potato products that are produced by forming potatoes into shapes, such as hash browns and röstis.