Pursue (Pty) Ltd (“Pursue”) is a South African resident pharmaceutical company which

Question

Pursue (Pty) Ltd (“Pursue”) is a South African resident pharmaceutical company which
has its head offices situated in Gqeberha, in the Eastern Cape Province. Pursue has
various branches across South Africa and extends its services to various private
medical practices in the country. Pursue has just developed a new homeopathic
remedy that is making major strides in managing pain for cancer patients called
‘Vibranium’. There has since been great demand for this treatment and Pursue has
had a busy year with the marketing and launching of the treatment. Pursue is
registered as a category A vendor for Value-Added Tax (VAT) purposes. The company
makes 96% taxable supplies.
The company had the following transactions for the two-months period ended 29
February 2024 (all amounts are exclusive of VAT, unless otherwise stated):
1. Pursue employs a number of representatives called “Vibers” across the nine
provinces of South Africa. Each province has ten representatives that travel
throughout the province promoting and selling Vibranium to various private medical
practices in that province. The representatives are remunerated depending on the
number of Vibranium sales they make per month. The total sales commissions
incurred and paid by Pursue for the two-month period ended on 29 February 2024
amounted to R5 300 000.
2. Each Viber is provided with a Ford Ranger company car that they can use to visit
the various private medical practices in their respective provinces. On 5 January 2024,
a total amount of R36 000 000 was incurred to purchase new Ford Rangers for the
newly appointed Vibers. The total fuel costs incurred by Pursue for the period ended
on 29 February 2024 amounted to R45 000. The Vibers are responsible for the full
cost of the maintenance and repairs of the vehicles.
3. There have been increased levels of lung cancer in the North and South Korea due
to the high levels of air pollution. To this end, Pursue has established clientele in Korea
that they sell Vibranium to every month. The total amount of Vibranium exports
amounted to R18 000 000 for the two-months period ended on 29 February 2024.
4. The Vibers are sometimes required to provide samples of the Vibranium to the
medical doctors for free in order for them to give the patients a trial run of the remedy.
During the current tax period, the Vibers used R2 400 080 worth of trading stock to
give as samples to medical doctors. Vibers are not connected persons in relation to
Pursue.
5. Vibranium is packaged in a special silicone cylinder before it is distributed to the
respective medical practices. This is because the silicone preserves the treatment at
the required temperature in order for the treatment to remain effective. The special
silicone cylinder was imported from Argentina on 10 February 2024. Its customs duty
value amounted to R759 000 and import levies amounted to R37 600 on the day of
the transaction.
6. The Vibers all did exceptionally well and exceeded their sales and promotion targets
for the months of January and February 2024. Pursue decided to host a party at their
head office in Gqeberha, in appreciation of the Vibers. The party costs amounted to
R160 000.
7. As Vibranium was new in the market and Pursue was trying to get as many sales
as possible, the company ran a promotion at various medical practices. The company
offered to cover a portion of the price for cancer screenings for a limited number of
patients for each practice. The total revenue earned from the cancer drive promotion
was R27 800 000. Each patient participating in the screenings was given a hamper
with various promotional goods. The total cost of all the hampers given was R2 000
000 and their open-market value amounted to R2 060 500. The patients are not
connected persons in relation to the company.
8. The Vibranium is manufactured with specialized equipment. One of the main
manufacturing machines is the VibeMaster FDX39. Due to an increase in the
Vibranium demand, the machine was working overtime which caused it to overheat
and explode. The machine was damaged beyond repairs and Pursue had to claim
from its insurance. The company’s insurance claim was successful and an indemnity
payment of R19 670 000 was received.
9. Due to the nature of their jobs, the Vibers sometimes require accommodation in the
towns and cities that they visit. However, they are limited to a maximum of 14 days in
any guest house that they stay in. At the end of the two-month period ended on 29
February 2024, the Vibers had stayed in guest houses all over the country for a
maximum of 12 days each, which cost the company a total of R732 000.
10. In order for Pursue to cover the initial development and marketing costs for
Vibranium, the company acquired a loan. Pursue was fortunate enough to obtain a
generous loan of R65 000 000 from PantherBank. The interest incurred on the loan
amount for the two month period ended on 29 February 2024 amounted to R238 333.
11. The workers that work in the main Vibranium manufacturing plant work long hours
and have small children that they have to send to creche. Pursue ensures that it pays
for childcare services on behalf of its workers. The total childcare services fees
incurred in the current tax period amounted to R28 678.
12. Global warming has resulted in increased weather temperatures in Alaska. The
sudden exposure to the sun has resulted in a bout of skin cancer in the citizens of
Alaska. To this end, the CEO of Pursue has been making frequent trips to Alaska
recently to leverage sales negotiations with the government of Alaska. The total
amount paid for international flights for the CEO amounted to R97 000 in the current
two-months period.
13. The financial records of Pursue reflected the following amounts for the two-months
period ended on 29 February 2024:
• Bank charges R17 300
• Vibers-R-Us staff union fees R88 000
Required:
State, supported with calculations, whether there is Input tax or Output tax on each
of the above transactions.
Where there is no input tax nor output tax arising from a transaction, provide a
brief reason why that is the case.
Make use of the following format to present your answer:
Transaction number , transaction details/description, input tax/ output tax,none,  reasons, calculation,amount

GPT-4o mini · Answer

The following analysis assesses each transaction of Pursue (Pty) Ltd to determine the Input tax, Output tax, or lack thereof. All amounts are presented without VAT as indicated, and calculations are performed at the standard VAT rate of 15%.

Analysis Format

| Sales commissions paid to representatives | None | Output Tax | | Input tax cannot be claimed on employee-related cost. | | R5,300,000 * 15% = R795,000
| Purchase of company cars | Input Tax | None | | Input tax can be recovered only if the cars are used entirely for taxable supplies, which is often not the case and typically for employee benefits. | | R36,000,000 * 15% = R5,400,000 (not claimable)

| Fuel costs incurred | Input Tax | None | | Fuel costs used for business purposes can be claimed. | R45,000 * 15% = R6,750 | R6,750
| Vibranium exports | None | Output Tax | | Exports are zero-rated, thus no output tax is payable on exports. | | R18,000,000 * 0% = R0
| Samples of Vibranium provided for free | Input Tax | None | | Input tax can be claimed since it is business-related sampling. | R2,400,080 * 15% = R360,012 | R360,012
| Import of silicone cylinder | Input Tax | None | | Input tax can be claimed on imports as it’s directly related to sales. | (R759,000 + R37,600) * 15% = R119,430 | R119,430
| Party for Vibers | None | None | X | This is deemed entertainment or employee benefits which do not allow for input tax recovery. | | R160,000 (Input not recoverable)
| Cancer drive promotion | None | Output Tax | | Promotion is connected with taxable supplies; thus, output tax arises | R27,800,000 * 15% = R4,170,000 |

| Hamper costs | Input Tax | None | | The hampers are given to promote taxable supplies. Input tax is claimable. | R2,000,000 * 15% = R300,000 | R300,000
| Insurance indemnity payment | None | None | | Indemnity payments typically do not attract VAT. | | R19,670,000 (not subject to VAT)
| Accommodation costs for Vibers | Input Tax | None | | Accommodation for employees conducting taxable business allows for input tax recovery on lodging costs. | R732,000 * 15% = R109,800 | R109,800
| Loan interest | None | None | X | Loan interest payments are not subject to VAT and hence have no input tax. | | R238,333 (not subject to VAT)
| Childcare services fees | None | None | X | These costs are generally not related to taxable supplies, thus no recoverable VAT. | | R28,678 (not subject to VAT)
| International flights costs for CEO | None | None | X | These expenses do not relate directly to taxable supplies as international travel typically does not attract input tax. | | R97,000 (not subject to VAT)
| Bank charges | None | None | X | Bank charges are not related to taxable supplies and do not incur VAT.! | | R17,300 (not subject to VAT)

Summary of VAT Implications

Input Tax: Applicable for fuel costs, stock samples, silicone import, accommodation costs, and hampers.
Output Tax: Determined mostly from the sale and promotional aspects of the business.
No Tax: Includes employee-related expenses, insurance payments, loans, childcare, and certain travel costs.

Overall Calculated Input and Output Tax Balances

Total Input Tax: R6,750 + R360,012 + R119,430 + R109,800 + R300,000 = R895,992
Total Output Tax: R795,000 + R4,170,000 = R4,965,000