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Surviving the transition to a 15% VAT rate
- 06 May 2020
- VAT
- Anne Jenkinson and Annelie Giles
Wednesday, 28 February 2018
Important:
This article is based on tax law for the tax year ending 28 February 2018.
Authors: Anne Jenkinson and Annelie Giles
The South African Minister of Finance, Malusi Gigaba, tabled the 2018/19 Budget in Parliament on Wednesday, 21 February 2018. Government announced a lower than predicted 1% increase in the value-added tax (“VAT”) rate from the current 14% to 15% with effect from 1 April 2018.
Leaving aside the raging debates over whether the increase was a good move, the impact on the poor and whether zero rating of additional items should be introduced to assist in poverty relief, the reality is that businesses now have just over a month to “V” day!
Given the extensive systems and documentation changes required, this is an extremely short time frame in which to ensure compliance by 1 April. As a transaction-based tax, the tentacles of VAT reach into virtually every area and system in a business. Obviously, the core accounts receivable and payable systems and the general ledger are key. However, the rate change will affect sub-systems, payroll, invoicing, pricing, bad debts and many other operating procedures.
Financial institutions, residential property developers, certain educational institutions and any other exempt or partially exempt businesses will experience an increase in their base cost as they are unable to claim the full amount of VAT incurred on costs. Annual apportionment calculations will also be more complex, particularly for those businesses that do not have a March year end.
Businesses selling directly to the end consumer will face price pressures to remain competitive, and it will therefore be interesting to see how many retailers and other suppliers will try to absorb part of the additional VAT cost to the benefit of their customers.
This article first appeared on ensafrica.com.