History of Value-Added Tax
Value-added tax (VAT) was introduced in South Africa on 29th September 1991 to replace General Sales Tax (GST) 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.
What is VAT?
Value-Added Tax is an indirect tax on the consumption of goods and services in the economy.
Revenue is raised for government by requiring certain businesses to register and to charge Value Added Tax on the taxable supplies of goods and services.
These businesses become vendors that act as the agent for government in collecting the Value Added Tax.
The Basic Characteristics of VAT
- 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.
Value Added Tax is levied on the supply of most goods and services and on the importation of goods.
The VAT on the importation of goods is collected by customs. There is a limited range of goods and services which are subject to VAT at zero rate or are exempt from VAT.
What is a VAT Return?
A VAT return is a form that shows and calculates how much VAT a company should pay to or be reimbursed by SARS by looking at:
- Your total sales and purchases
- The amount of VAT you owe for sales
- The amount of VAT you reclaim for purchases made by your business
Some Key Elements About VAT
If your business supplies products and services to the public, you will need an accountant to assist you in calculating your VAT that is owed to SARS.
If you don’t have an accountant read our post about questions to ask your prospective accountant during an interview.
Some important points to note about VAT include the following:
- All businesses that have a 12 month period turnover that exceeds R1 million are obligated to register and pay over VAT to SARS.
- If you run a business you are required by law to include 15% on all required prices, this percentage will be paid to the South African Revenue Service.
- You are however entitled to claim back any VAT that has been incurred while running your business, this is referred to as input VAT.
- You can calculate the VAT owed to SARS by adding the VAT that you have added to your invoices and then subtracting the input VAT such as purchases, rent, water, electricity and other costs. The difference in these amounts will then be paid to SARS.
- Businesses with a turnover below R1 million but greater than R50 000 for a 12 month period may register voluntarily.
- Those with a turnover below R50 000 over a 12 month period are not required to register for VAT.
- Most VAT returns need to be completed every two months, summarising the VAT that has been collected as well as the input VAT that your business has incurred.
When You should Submit Returns and Make Payments
A vendor is required to submit VAT returns and make payments of the VAT liabilities (or claim a VAT refund) in accordance with the tax period allocated to the vendor.
The VAT returns and payments are normally submitted / made on or before the 25th day after the end of the tax period.
Late payments of VAT will attract interest & penalty.
eFiling of returns and payment can be made via either SARS eFiling or Electronic Funds Transfer (Internet banking). Your VAT return must be filed/submitted on a last business day and the payment be made also on the last business day.
Failure to comply with deadlines can lead to red flags that will cause SARS to audit your business.
