Value-added tax (VAT) was introduced in South Africa on 29th September 1991 to replace GST (General Sales Tax) as an indirect system of taxation. It is levied in terms of the Value-Added Tax Act 89 of 1991. The South African Value-Added Tax Act makes allowance for exemptions, exceptions, deductions and adjustments that effectively lower the VAT liability. VAT was imposed in 1991 at a statutory rate of 10%. The rate was then increased to 14% in 1993, and was increased to 15% on the 1st April 2018 and currently remains the same.
When reading this article keep the following Acts (as amended) in mind:
Value Added Tax Act 89 of 1991
Income Tax Act 52 of 1962
Tax Administration Amendment Act 22 of 2018
How does VAT work?
VAT on sales, or revenue, is called Output VAT.
VAT on purchases is called Input VAT.
A vendor who carries on a business activity making a turnover of R1 000 000 or more in any twelve month period or is likely to exceed R1m in a 12 month period, is obliged to register with the South African Revenue Services as a VAT vendor and submit VAT returns to SARS. A person who carries on an enterprise making a turnover in excess of R50 000 a year may voluntarily register with SARS as a vendor.
VAT is simply defined as the value that is added to goods or services.
Business owners no doubt wish to lower their VAT bills and with the help of business tax services experts you will be able to reduce your VAT implication.
The basic characteristics of VAT are broken down as follows:
VAT applies generally to transactions relating to goods and services.
VAT is proportional to the price charged for these items.
VAT is charged at each stage of the production and distribution process.
Business owners may deduct tax paid during previous stages, however the burden of the tax is on the final consumer.
To reduce VAT costs, items would need to either fall under the exempt categories, or deduct tax that has been paid during previous stages.
There are also additional aspects to reducing the effect of VAT:
Is your business premises also your home?
Do you tax your commercial property?
Does your company deal with overseas customers and export goods and / or services?
VAT is only charged on taxable goods and services made by the business. These supplies do not include goods and services such as salaries, private non-business related goods and services; sale of private items or exempt supplies. As a business owner in South Africa, VAT only applies to items sold within the country or on items that are imported into South Africa.
The current standard rate is 15% on most goods and services and imported items, with certain items exempted or charged at a zero rate, such as exports. Imported items are only charged VAT if the importer of the goods and services is not the business owner, or if the items have been imported for private use or fall into the exempt supplies category. Businesses registered for VAT make VAT payments through a range of channels including posting, SARS branches, EFT, debit orders, e-Filing or any of the major banks. VAT returns are done by completing a VAT201 form as required by SARS.
VAT registered vendors are given a VAT vendor number that must be included on all VAT returns and correspondence with SARS and must also be included on all invoices raised by the vendor.
VAT returns must be submitted within 25 days of the end of each VAT cycle, or the vendor can face penalties and interest on late compliance. Penalties are 10% of the amount payable while interest is levied at a standard interest charge. Vendors must keep all financial records for a period of five years from the date of the last entry in any book.
If vendors have not submitted a return in the past five years, or their VAT201 returns for past 12 months reflect a liability of zero, they will have their VAT registration number suspended.
Vendors with an annual turnover of less than R 1.5 million must submit VAT returns every four months however the vendor may have the choice to stay on the two-monthly return cycle.
Keep the following requirements in mind:
All invoices must reflect correct VAT registration numbers for the supplier and receiver of goods and services.
Turnover and financial statements must tie-up. SARS do check this.
An incorrect input claim could either incorrectly reduce your VAT liability, or result in a refund for an amount far greater than is due to you.
Claim back the VAT paid on bad debts irrecoverable but first ensure that this bad debt has been written off in your books.
All quotes must include VAT – even if the VAT rate is 0%.
Keep documentary proof of zero-rating – if you do not charge VAT, you can still claim for VAT on the items supplied, however you must always keep proof that you are entitled to do so.
Comply with deadline to submit info to SARS and also push for SARS to meet their deadlines; you should receive your VAT refund within 21 business days of SARS receiving your VAT201 return.
Charge VAT on your commission – this is known as output tax and must be paid to SARS on your VAT return. You can then issue tax invoices to the companies that are paying you commission.
Submit returns even if you calculate that you have no VAT liability and no VAT payment due to SARS, as a registered vendor you must still submit your returns.
Tourists and diplomats visiting South Africa can claim a refund of the VAT they paid on goods purchased in the country. To qualify, you’ll need to be a non-resident foreign passport-holder or a South African passport-holder who is now a permanent resident of another country. You can reclaim VAT when leaving the country by declaring the goods in question to a customs official.
The South African government’s guide to VAT refunds for tourists offers further information on how to make a claim.
Several tax related articles may also be found here.
Lastly, remember that professional accountants can handle your all your returns on your behalf and offer valuable tax advice too.
Author Craig Tonkin