Despite rumours of a potential reversal on the proposed VAT increase, businesses in South Africa must prepare for an increase from 15% to 15,5%, effective 1 May 2025.
By Shaheed Patel, senior tax consultant at CMS South Africa
With Parliament only set to adopt the final Budget around 6 May, this creates a legal and operational grey area, which businesses cannot ignore.
As such, system updates, from accounting software to point-of-sale systems, should be prioritised to prevent compliance headaches.
Prices are legally deemed to include VAT, so businesses must clearly set out appropriate pricing in all public-facing materials (reserving the right to apply VAT at the applicable rate or providing VAT exclusive pricing to which VAT will be added at the applicable rate).
A key determinant of the applicable VAT rate is the “time of supply”.
Generally speaking, the applicable VAT rate is determined by whichever occurs first – the issuing of an invoice or receipt of payment. If either takes place before 1 May, the 15% rate applies; if it happens on or after 1 May, the 15,5% rate comes into effect.
Different timing rules apply to goods supplied under rental agreements, ongoing service contracts, and other successive supplies. In such cases, the supplies are treated as being successively supplied for successive periods of the agreement and the time of supply depends on when a payment becomes due or is received (or an invoice is issued in respect of other types of successive supplies, such as those in the assembly, construction and manufacturing sectors).
Certain transitional relief is available in respect of goods actually delivered before 1 May 2025, and in respect of services rendered to customers during the period before the rate change takes effect. In such cases, VAT at the 15% rate may apply (despite the time of supply rules determining the supply to be on or after 1 May 2025).
Where the supply commences before and ends on or after 1 May 2025 a fair and reasonable apportionment may be made such that VAT may be levied at the 15% rate and 15,5% rate.
Contracts concluded before 1 May 2025 are generally entitled to recover the additional VAT, unless agreed otherwise.
Businesses should also audit supplier invoices and apply the correct rate in claiming input tax in VAT returns.