How Does VAT Work In South Africa? (2022)

Value-Added Tax (VAT) is an indirect tax that applies to the consumption of goods and services.

With VAT, business are required to pay a sum on the supply of services and goods produced, as well as on the importation of goods and services imported.

How Does VAT Work in South Africa?

South African businesses pay 15% of the product or service as VAT.

This is the main reason why businesses must add 15% VAT to their sales price. If, for instance, you are selling a product for R200 it is necessary to include the 15% VAT on the actual price which should be R30 making the total cost of your product R230.

With this, you won’t have to run into a loss or shortage in profit whenever your business is to pay VAT to the government.

The primary reason for VAT introduction was to eradicate the issue of double taxation, as well as the cascading effect of the taxes on sales. The cascading effect occurs in the case when tax is imposed on a product at every stage of the sale.

Tax is imposed on a price that includes taxes paid by the previous buyer, and the new buyer. There are no exemptions that can be granted within the system of VAT. Taxing at every stage of the production process guarantees more compliance and fewer loopholes that can be exploited.

South Africa VAT returns

Periodic VAT returns are required by every company that has the South African VAT number, including all taxable items (sales) as well as other inputs (costs). Returns are made monthly if turnover exceeds ZAR 30 million. They are also submitted every four months or six months (farming only) in the case of lower than ZAR 1.5 million. Between these dates, businesses must make bi-monthly returns. Additionally, there is an annual return service for trusts that administer administrative funds and businesses that lease property.

The VAT liability payment must be paid before the return deadline, which is the 25th day of the month following the period close. The business can sign up with their Fiscal Representative. The date for filing is the day that falls on the 25th of the month after the date of the end of the period.

Advantages of VAT

Encourage personal savings and investment: A value-added tax encourages personal savings and investment, which is one of the main arguments for introducing one.
VAT is transparent and imposes a low burden on customers because it is collected in small chunks at several stages of production and distribution. VAT is calculated on the basis of the value contributed, not the whole price. As a result, the VAT has no effect on the price.
Economic benefits: Because VAT is applied at the retail level, it provides all of the economic benefits of a tax that covers the full price range while spreading out the direct tax payment.
Governmental opportunity: VAT allows the government to reintroduce all persons and companies who were previously granted tax exemptions in one form or another back into the tax system.

Disadvantages of VAT

Inflationary pressures: VAT raises inflation. Some businessmen in poor countries take advantage of nearly any opportunity to boost prices, and the implementation of VAT is no exception.

It is very difficult to understand, and calculating it at each stage is not a straightforward task.
VAT is a regressive tax: It will have a greater impact on the poor than on the wealthy, because the poor spend a greater proportion of their income.
Consumers must be aware in order for VAT to be implemented successfully; otherwise, tax evasion would be widespread due to phony invoices.

Things to Know About VAT Rates in South Africa

The VAT rate for the standard period is 15%. Exports, certain food items, and other products are tax-free while certain items can be exempt (mainly certain residential housing, financial services, and public transportation).
Particularly excluded from the scope of VAT are the operations of a permanent and separate branch that is located out of South Africa, employment services performed by an employee when the compensation in exchange for services is subject to the employee taxes (unless it is an individual trader) as well as activities that involve the production of exempt supplies.
There is no specific location of supply regulations within South Africa exist, however, those services that are directly related to the land or any improvements to it located within South Africa are taxable in South Africa (hence this would also apply to assembly or installation services for equipment that is connected to the land, or any supervisory activity for construction sites located in South Africa). Additionally, there is no reverse charging system in place concerning services related to land/improvement of land.
VAT is due upon the entry of physical products to South Africa by the importer. The importer can claim import VAT deduction if he’s registered to VAT and has acquired the items to make taxable supply, but the tax authority in South Africa (SARS) demands that the importer have the title of the owner for the imported items.
When the importer is non-resident, and therefore not VAT-registered, the buyer is not able to claim VAT on imports and the buyer may be liable for the cost of the VAT.
When tangible goods are provided it is assumed that the product is consumed wherever they are physically located at the time they are provided. This is why the VAT Act, therefore, allows for the use of zero rates for exports of goods out of South Africa. The vendor who supplies the goods must however be able to prove that he exported the products out of South Africa.

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Closing

As a business owner, its critical you understand what VAT is and how it works, as it may have an influence on your company.

Value Applied Tax should always be added to the price of products or services to generate revenue for the government. VAT must be charged on all goods and services provided by VAT-registered firms.