Former Finance Minister Malusi Gigaba announced on 21 February 2018 that South Africans would now be paying 15% Value-Added Tax for standard rated supplies as of 01 April 2018.
This is the first time the VAT rate has increased in South Africa since 1993 and the increase has sparked outrage in certain sectors and a calm resignation in others. The economy is in dire need and this is perhaps the “least” controversial way for South Africa to recover from the cost of corruption, drought and other economic and political factors.
South Africans should consider themselves fortunate as some of the highest VAT rates are in excess of a global average of around 17-20% with countries like Bhutan reaching a staggering 50% VAT rate.
But what does the change mean for the South African taxpayer?
The VAT Act has, in section 67A, certain transitional provisions which stipulate the following:
VAT implications with regards to contracts stretching over the transitional period
Increased VAT must be declared by the supplier and charged to the buyer for periods after 01 April 2018 (Unless agreed otherwise in the contract). The increased amount of output VAT must be declared and paid regardless of whether it is recoverable by the vendor.
VAT implications with regards to goods and services provided before 01 April 2018
The old VAT rate of 14% will apply. It must be noted that should the invoice for services or goods which were provided before 01 April 2018, only be issued after 01 April 2018 and should no payment have been received at that date, the VAT rate of 14% (the old rate) must still be applied.
VAT Implications with regards to goods and services provided over the transitional period
The VAT charged must be apportioned. In other words, services/goods provided before and after 01 April 2018 will be taxable at 14% and 15% respectively.
VAT Implications with regards to goods and services provided after 01 April 2018
The supply of these goods or services are to be taxed at 15% if;
- Goods are supplied and provided within 21 days after 01 April 2018
- Services are supplied after 01 April 2018
VAT Implications with regard to residential property
If the contract is signed by both parties before 01 April 2018 and the time of supply is on or after 01 April 2018, the VAT rate used should be 14%. The price must be stated within the contract and agreed upon. It is clear therefore that the date at which the VAT rate is determined and the date of supply will not necessarily be the same.
The taxpayer will also need to update their accounting system, invoice templates and contracts going forward to reflect the correct VAT rate.
It is important to make the necessary changes and ensure the correct rate is being used before processing a transaction, as small errors can compound easily, making the transition unnecessarily complicated.
Liezl Laughton, Johannesburg
Supervisor | Corporate Tax, Johannesburg
If you would like assistance on the implications of VAT for your business, feel free to contact Liezl Laughton directly.