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Global trends in value-added tax: the inclusion of passive income in apportionment formulae
This dissertation explores the inclusion of passive income such as dividends and interest in the Value-Added Tax (VAT) apportionment methods, from a South African VAT perspective. The study aims to determine whether the current approach is distortive for taxpayers and whether it aligns with the VAT...
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| Format: | Thesis |
| Language: | English English |
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Department of Finance and Tax
2025
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| _version_ | 1867613274097319936 |
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| access_status_str | Open Access |
| author | Seepamore, Tampe Mothibi |
| author2 | Tickle, Deborah |
| author_browse | Seepamore, Tampe Mothibi Tickle, Deborah |
| author_facet | Tickle, Deborah Seepamore, Tampe Mothibi |
| author_sort | Seepamore, Tampe Mothibi |
| collection | Thesis |
| description | This dissertation explores the inclusion of passive income such as dividends and interest in the Value-Added Tax (VAT) apportionment methods, from a South African VAT perspective. The study aims to determine whether the current approach is distortive for taxpayers and whether it aligns with the VAT guidelines provided by the Organisation for Economic Co operation and Development (OECD). The research begins with an overview of the history of VAT and general VAT principles, providing a foundation for understanding the context in which apportionment methods operate. The OECD VAT guidelines are examined in detail to establish the internationally accepted principles of tax policy, including neutrality, efficiency, certainty and simplicity, effectiveness and fairness, and flexibility. Drawing on a comparative analysis of VAT regimes in selected countries, including New Zealand, the European Union (EU), and the United Kingdom (UK), the study evaluates how these jurisdictions handle VAT apportionment and the inclusion of passive income in apportionment formulas. Key insights are gained from examining the methodologies and approaches employed by these countries. The findings indicate that the inclusion of passive dividends and interest in the apportionment calculation causes distortions in the South African VAT system. In contrast, other countries have adopted strategies that reduce the incidence of distortions in their VAT apportionment approaches. For instance, New Zealand focuses on intended use when determining the income to be included in the apportionment formula and excludes dividend income and proceeds from shares from the apportionment calculations as they fall outside the scope of VAT and all distortive supplies. Similarly, the UK determines through case law, how holding companies should incorporate income and excludes distortive supplies in apportionment calculations. Based on the research findings, several recommendations are proposed. The implementation of these will align the South African VAT system with the OECD guidelines and the apportionment approaches in other jurisdictions. 4 They include amending the VAT Act to ensure consistency between passive income and the expenses incurred to earn it, adopting an intended taxable use approach similar to New Zealand, exploring zero-rating options for financial services, excluding distortive supplies from the apportionment methodology and addressing the treatment of holding companies for VAT purposes. These recommendations aim to create a fair and accurate apportionment method in South Africa, aligned with international best practices and promoting VAT neutrality. Continuous research, consultation with stakeholders, and monitoring of global trends are advised to refine and improve the South African VAT system. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/41328 |
| institution | University of Cape Town (South Africa) |
| language | English eng |
| last_indexed | 2026-06-10T12:33:31.121Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2025 |
| publishDateRange | 2025 |
| publishDateSort | 2025 |
| publisher | Department of Finance and Tax |
| publisherStr | Department of Finance and Tax |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/41328 Global trends in value-added tax: the inclusion of passive income in apportionment formulae Seepamore, Tampe Mothibi Tickle, Deborah South African VAT system This dissertation explores the inclusion of passive income such as dividends and interest in the Value-Added Tax (VAT) apportionment methods, from a South African VAT perspective. The study aims to determine whether the current approach is distortive for taxpayers and whether it aligns with the VAT guidelines provided by the Organisation for Economic Co operation and Development (OECD). The research begins with an overview of the history of VAT and general VAT principles, providing a foundation for understanding the context in which apportionment methods operate. The OECD VAT guidelines are examined in detail to establish the internationally accepted principles of tax policy, including neutrality, efficiency, certainty and simplicity, effectiveness and fairness, and flexibility. Drawing on a comparative analysis of VAT regimes in selected countries, including New Zealand, the European Union (EU), and the United Kingdom (UK), the study evaluates how these jurisdictions handle VAT apportionment and the inclusion of passive income in apportionment formulas. Key insights are gained from examining the methodologies and approaches employed by these countries. The findings indicate that the inclusion of passive dividends and interest in the apportionment calculation causes distortions in the South African VAT system. In contrast, other countries have adopted strategies that reduce the incidence of distortions in their VAT apportionment approaches. For instance, New Zealand focuses on intended use when determining the income to be included in the apportionment formula and excludes dividend income and proceeds from shares from the apportionment calculations as they fall outside the scope of VAT and all distortive supplies. Similarly, the UK determines through case law, how holding companies should incorporate income and excludes distortive supplies in apportionment calculations. Based on the research findings, several recommendations are proposed. The implementation of these will align the South African VAT system with the OECD guidelines and the apportionment approaches in other jurisdictions. 4 They include amending the VAT Act to ensure consistency between passive income and the expenses incurred to earn it, adopting an intended taxable use approach similar to New Zealand, exploring zero-rating options for financial services, excluding distortive supplies from the apportionment methodology and addressing the treatment of holding companies for VAT purposes. These recommendations aim to create a fair and accurate apportionment method in South Africa, aligned with international best practices and promoting VAT neutrality. Continuous research, consultation with stakeholders, and monitoring of global trends are advised to refine and improve the South African VAT system. 2025-04-01T11:34:27Z 2025-04-01T11:34:27Z 2024 2025-04-01T11:33:00Z Thesis / Dissertation Masters MCom http://hdl.handle.net/11427/41328 en eng application/pdf Department of Finance and Tax Faculty of Commerce University of Cape Town |
| spellingShingle | South African VAT system Seepamore, Tampe Mothibi Global trends in value-added tax: the inclusion of passive income in apportionment formulae |
| thesis_degree_str | Master's |
| title | Global trends in value-added tax: the inclusion of passive income in apportionment formulae |
| title_full | Global trends in value-added tax: the inclusion of passive income in apportionment formulae |
| title_fullStr | Global trends in value-added tax: the inclusion of passive income in apportionment formulae |
| title_full_unstemmed | Global trends in value-added tax: the inclusion of passive income in apportionment formulae |
| title_short | Global trends in value-added tax: the inclusion of passive income in apportionment formulae |
| title_sort | global trends in value added tax the inclusion of passive income in apportionment formulae |
| topic | South African VAT system |
| url | http://hdl.handle.net/11427/41328 |
| work_keys_str_mv | AT seepamoretampemothibi globaltrendsinvalueaddedtaxtheinclusionofpassiveincomeinapportionmentformulae |