How Will The Vat Increase Affect My Business?
The VAT increase of 1% is South Africa’s first since its democratic history. As of the 1st of April 2018, VAT is now levied at 15% standard rate on the supply of goods and services by registered sellers. Many raised concerns about the impact this would have on the country’s poor and vendors who may face a decline in sales. With the exemption of basic food products such as rice, milk and vegetable oils; consumers will most likely have to face price increases in all other goods and services.
Although there was some speculation regarding the decision, some predicted that the country would see a VAT increase after government announced a revenue shortfall of just over R50 billion last year. Former Finance Minister- Malusi Gigaba announced that SA’s VAT was “below compared to some of our peers…” and “increasing VAT was unavoidable if we are to maintain the integrity of our public finances.”
As a company who specialises in bookkeeping and accounting services, we thought it would be helpful to provide answers to some of the questions businesses might have regarding the VAT increase.
Q. When will the 1% VAT increase take effect?
It has already been in effect since the 1st of April 2018.
Q. How will the VAT increase affect me if I am registered for VAT?
According to SARS, the increase will not have a huge impact on vendors registered for VAT if you “make taxable supplies as the increased rate of VAT will be charged to your customer and your additional VAT expenses can generally be claimed as input tax.” In other words, if your business sells goods that are taxable, then you will most likely increase the prices so that the impact of VAT can be absorbed by your customers. “However, if you also make exempt or other non-taxable supplies, the increased VAT may become a cost to your business if it cannot be claimed as input tax or the VAT charged is specifically denied as input tax.”
Q. What effect will this have on me if I’m a general consumer or vendor not registered for VAT?
You will still be charged an additional 1% VAT on taxable goods and services which will reflect on tax invoices issued by the vendor to the consumer.
Q. What changes do I need to make if I am using the invoices or payment basis of accounting?
If you’re using the invoice basis of accounting, you will have to charge VAT at the standard rate of 15% as of the 1st of April 2018. This will have to be accounted for on the invoices issued in your VAT201 forms. You will only be able to claim input tax at 15% on any taxable supplies made to you as of the 1st of April, granted you meet the rules and requirements for claiming.
If you’re using the payment basis of accounting, the same applies as above. However, you must remember to check the VAT rate that was charged based on the original supply time when receiving or making payments. As SARS instructs, “if the time of supply for a supply you have made or received was before 1 April 2018, then you must continue to declare output tax or claim input tax based on the VAT rate of 14% that applied at the time the original supply was made.”
Q. How will the VAT increase affect lay-bys?
If the lay-by agreement and payment required for reserving the goods was made before the effective date, then the old VAT rate of 14% will apply even if goods are delivered after the 1st of April 2018.
Q. How will this impact me if I delivered goods or performed services before the 1st of April, but only invoiced and received payment after?
According to the VAT Act of South Africa, vendors registered for VAT have to charge “VAT at 14% even if the normal time of supply for those supplies (invoicing or payment) occurs after the increase in the VAT rate.”
We hope that after reading this post, your VAT increase-related questions were answered and you now have a better insight into understanding how your business is affected. As the accounting specialists, Brendmo Incorporated offers expert audit and accounting services to individuals and SMMEs. Get in touch with us for all your tax-related questions.