Question NW3164 to the Minister of Finance
25 October 2022 - NW3164
George, Dr DT to ask the Minister of Finance
(1)whether, with regard to the value added tax (VAT) registration status of potential vendors, there is any existing difference in the procurement process with regard to how vendors who are (a) VAT registered and (b) not VAT registered are considered; if not, what is the position in this regard; if so, in what way are they considered differently; (2) whether a VAT-registered vendor has any disadvantage to a vendor who is not VAT-registered; if not, why not; if so, (3) whether any steps will be taken to resolve the disadvantage; if not, why not; if so, what steps will be taken?
Reply:
1. In terms of Regulation 1 of the Preferential Procurement Regulations, 2017 (PPRs, 2017), price is defined as including all applicable taxes less all unconditional discounts. Furthermore, Regulations 6(1) and 7(1) of the PPRs, 2017 state that the formula must be used to calculate points out of 80 or 90 for price (as per definition in the PPR) in respect of tenders with a Rand value equal to or above the prescribed threshold, which price should be inclusive of all applicable taxes.
Therefore, the price used for evaluation of tenders is the price inclusive of all applicable taxes as per regulation 6(1) and 7(1). All applicable taxes certainly will include Value Added Tax (VAT), where applicable, and any other taxes as may be imposed through legislation.
Arising from a simple reading of the definition of price and the provisions of regulation 6(1) and 7(1) as stated above, price used for evaluation of tenders must be total price, inclusive of all applicable taxes. Such “all inclusive” price is what makes the evaluation comparative. There is no breakdown required to indicate the types of taxes that each supplier is paying. Everyone has a right to bid and to be awarded a bid if they comply with all applicable laws.
It is important to emphasize that as a procurement principle, organs of state may not interfere with a price submitted by a bidder. This includes adding / subtracting VAT from the price submitted by a bidder.
It should be stressed that mandatory registration for VAT is a legislative requirement once enterprises exceed a particular threshold in sales within a 12-month period. Other enterprises may elect voluntary registration for VAT even if they do not meet the mandatory threshold for registration. Institutions are encouraged to contact the South African Revenue Services for guidance on VAT registration requirements, should they so require.
2. Enterprises that by legislation are not required to register for VAT may not be unfairly penalized or advantaged in the evaluation and award of tenders on the basis of not being registered as VAT vendors. In other words, if an enterprise is not required by law to register as a VAT vendor, and in submitting a bid or price quotation thus does not include VAT in its price, an organ of state may not subsequently add VAT to the price submitted by the bidder. In a similar vein, the organ of state may not remove VAT from the bids of other bidders for evaluation purposes.
3. The onus, therefore, rests on the bidder to consider what the “including all applicable taxes” entails when determining the bid/ quotation price and to factor such information into the price submitted by that bidder in the quotation or tender document.
4. Please see response to questions 1 and 2 and above