Gold Krugerrands are VAT free. Silver bullion is not. Various organisations have tried to appeal to government to drop VAT on silver, but that is not being considered currently. I suppose it is appropriate to say, “it is what it is!”
Does this make silver bullion an inferior purchase in South Africa?
Mark Twain once wrote that the only difference between the tax man and a taxidermist is that the taxidermist leaves the skin. While the statement is meant to be humorous, the statement rings true for silver investors especially.
Permit me to explain.
While gold investors who purchase Krugerrands can enjoy purchasing Krugerrand VAT free, the government is not as kind to silver investors, as silver carries a standard 15% VAT.
So, vis-à-vis Krugerrand investors, where do the silver investors stand having to pay the additional 15% VAT? Does this mean that investing in silver is more expensive, and that the profits are therefore less by at least 15% when the bullion is off-loaded for profit?
In my opinion, the answer is a resounding no.
The best way to understand my deduction is to view both precious metal purchase categories (i.e. silver and gold) from the perspective of its re-sell value. While purchasing a 1 oz gold Krugerrand does not include VAT of 15%, liquidating that same Krugerrand means dealers will no give you the 15% VAT back (obviously).
For example, (I have chosen a round number), a dealer will sell a 1 oz gold Krugerrand for R70,000.00. When that same coin is sold back to the dealer (provided that the spot price and exchange rates are the same), the buy price will be R70,000.00 minus the buy-sell spread (usually between 3-4%). VAT is not charged when the gold Krugerrand is purchased, or paid by the purchaser, even if the seller or the buyer are VAT registered.
The inverse is true for silver.
While purchasing any silver bullion products does carry a 15% VAT charge, the selling price when an investor sells or liquidates that same bullion product will likewise include the 15% VAT. Ideally! While I cannot comment on the buy-back policy of other dealers, this is certainly true when or if that silver bullion is sold back to us at Silver-Sphere.
For example, let’s assume that the price of a 1 oz Silver Krugerrand is R1,000.00 (incl. VAT). When that same coin is sold back to us (provided that the spot price and exchange rates are the same), the buy price will be around R880.00 (incl. VAT). So, VAT is paid by the investor when a Silver Krugerrand is purchased, and it is paid [back] by the buyer when it is sold.
Essentially, then, the inclusion of VAT on silver bullion products should not be viewed as a problem, since both gold Krugerrands and silver bullion have a market related price within the South African bullion investment market. It is this market related price that is important, not the pricing composition.
