The value-added tax (VAT) increase from 14% to 15 % effective 1 April 2018 affects just about everything and everyone. Except for 19 zero-rated food items, it is applicable to electricity, medicines, schoolbooks and school uniforms, general household items and service fees whether charged by a plumber or a lawyer.
The Minister of Finance explained in his 2018 Budget Speech that this type of increase is the “least detrimental” and a “certain” revenue generator as R22.9 billion will be raised and will plug the national revenue hole. The R48.2 billion gap in the national purse between income and expenditure was created by a shortfall in tax collection by the South African Revenue Service (SARS), dire financial state of State-owned Enterprises (SoEs) and losses due to government irregular, wasteful and unauthorised expenditure.
Apart from the increase in the VAT rate, vendors are faced with the reality of the transition and SARS has assured us that the VAT201 return will be amended to reflect both the 14% and 15% VAT bracket.
The applicable VAT rate depends on the time of supply rule: the date on which the transaction is deemed to occur according to the VAT Act. The general time of supply rule is the earlier of when –
- an invoice is issued; or
- payment is received.
The general time of supply rule will apply in most cases. However, some transactions have special time of supply rules for example supplies between connected persons, fixed property transactions and supplies made under instalment credit agreements. Contact your tax advisor or bookkeeper to ensure that the correct rate is applied to all transactions.
The Commissioner for SARS has granted a transitional period until end of May 2018 for vendors to display a notice that the prices displayed in store does not include VAT at the new rate of 15% and prices will be adjusted at the point of payment. A notice to this effect must however be prominently displayed at the entrance and point of sale.
We do foresee an increase in VAT audits in the following year and it is vital that VAT transactions are treated correctly to avoid interest and penalties by SARS.
Clients should also ensure that their accounting software is updated as the VAT rate will not necessarily be changed automatically. Accounting software service providers (E.g. Sage or Pastel) should be contacted directly.
This article was published by Tracey Jones, a registered Tax Practitioner and Director of C2M Tax Assurance. Should you require assistance contact Tracey Jones on +27 21 914 0261 or email firstname.lastname@example.org.
View the SARS VAT Pocket Guide or download a copy of the SARS Frequently Asked Questions: Increase in the VAT rate.
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