During his maiden budget speech, (former) Finance Minister Malusi Gigaba made the expected announcement that the value-added tax (VAT) rate will increase to 15% from April 1.
This is the first increase in the VAT rate since April 1993 and the second since its introduction in 1991.
Government is battling an expected revenue deficit of R48.2bn and with the added burden of funding free higher education for students from lower income categories, an increase in at least one of the major taxes was inevitable.
The choice of VAT was justified as an “efficient, certain source of revenue” with “the least detrimental effects on economic growth and employment”. The rate increase is expected to raise additional tax revenue of R22.9bn.
The rate adjustment will result in a 0.88% rise in the price of standard-rated goods and services to the end-consumer.
According to Gigaba, the regressive nature of a VAT rate increase is ameliorated by the zero-rating on basic foodstuffs. An increase in social grants is also expected to mitigate the effect of the rate increase on poor people.
The expected removal of the zero-rating on fuel levy goods was not proposed, but the fuel levy will increase by 52c/l in the form of a 22c/l increase in the general fuel levy and a 30c/l increase in the Road Accident Fund levy. Another justification for the VAT rate increase is SA’s low VAT rate compared with those of other jurisdictions. While this comparison is useful, one must bear in mind that there are variations between the types of goods and services subject to VAT from country to country.
The revised rate of 15% takes effect on April 1, which gives VAT vendors (and particularly accounting and point-of-sale software developers) just under six weeks to ensure that the new rate is implemented.
To ensure the application of the correct rate, VAT vendors are advised to be cognisant of the time of supply rules contained in section 9 of the Value-added Tax Act (89 of 1991). The general rule is that the supply is deemed to take place at the earlier of the time an invoice is issued by a supplier or the time that payment of consideration is received by the supplier.
There are, however, separate timing rules for particular transactions, such as for vending machines, instalment credit agreements and for fixed property.
Expect to see retailers offering “beat-the-VAT-rate” sales similar to what was seen with the UK’s VAT rate increase from 17.5% to 20% in 2011.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
22 February 2018 – 06:10 Herman van Dyk