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Tax and Accounting Implications of the Recent VAT Increase in South Africa

The rate of 14% VAT in South Africa has changed to 15% with effect from the 1st of April 2018. This has far-reaching implications for businesses since accounting systems must be changed to reflect the change. With the increase of VAT in South Africa, companies at first have to accommodate two VAT rates. This means one invoice is 14% and another indicates 15%, depending on the date at which the products or services were delivered.

It is important to understand that your VAT invoices may not be valid if such state 14% instead of 15% for goods delivered after the 31st of March 2018. Should you have decided to keep your prices the same, as before the 1st of April 2018, you have to deal with the percentage loss. You cannot decide at a later stage to charge extra VAT on the services delivered. SARS gets their 15%, but you thus have to carry the additional 1% unless you have increased your prices to reflect the 15% VAT now effective.

It is important that you keep in mind that your clients will require correct VAT invoices stipulating the 15%, since incorrect VAT invoices may not be used to claim back from SARS. Even if you decided to absorb the increase, you must still ensure that the 15% VAT is stipulated on your invoices.

All your accounting and tax systems must reflect the increase. Understandably, April is a difficult month since your accounts may show 14% on income and costs, as well as 15% on income and expenses. It is imperative to change your accounting system to make provision for the transition. The sooner you make the changes, the lower the impact. If you struggle with the transition, make use of our tax services, because we can help you to get your books and taxes in order to ensure compliance with the VAT Act.


How Will the Increase in VAT Affect Income in South Africa?

When it comes to business-to-business transactions, the increase is not expected to have a major impact. The only businesses that will feel the increase are those not eligible to register and claim VAT. They must absorb the additional cost. Of course, the increase is the first in a quarter of a century and, understandably, many business owners are not up to speed with the VAT Act. Fortunately, it is our business and as such, we can help any size business to ensure correct tax and accounting practices related to the increase.

If you want to know how we can help you, please feel free to contact our team at Tax Leaders today.