What will the VAT increase mean for your business?

What will the VAT increase mean for your business?

The South African government implemented a value-added tax (VAT) increase of 1%, from 14% to 15%, effective as from the 1st of April 2018. The increase was widely anticipated in tax circles as it is arguably the most effective way of raising significant amounts of additional revenue. The National Treasury is expecting the increase to raise the majority share (R22.9 billion) of the R36 billion in additional taxes it hopes to collect in 2018/19 to stabilise the country’s fiscal situation. For businesses across South Africa, the VAT increase will have a considerable impact as they take into account the VAT increase’s effect on their customers’ abilities to purchase their goods and services and their own abilities to pay for the products and services essential to their businesses.

How to determine which VAT rate is to be applied

With the new VAT rate coming into effect, the first thing businesses will have to do is update their accounting systems to accommodate the increase. However, there are questions about which VAT rate is to be applied if the transaction took place prior to the 1st of April. Section 9 of the ACT specifies the so-called “time-of-supply” rules that trigger the VAT liability on any supply of goods or services.

The general trigger points are as follows:

  • Supplies of goods (other than the sale of fixed property): On the delivery date of the goods.
  • The sale of fixed property: On the date the property registration is effected in the deeds registry.
  • Supplies of services: The date the services are performed.
  • If the services were performed after the 1st of April, but were invoiced prior to performance at 14%, then a credit note of 14% has to be issued. This also applies to discounts, rebates, and returns where the rule is that the VAT rate applicable to the original supply is evidenced by the original tax invoice and this must be used for any subsequent price adjustments or write-offs.

The impact on accounting systems

These trigger points will not be written into current ERP/accounting systems and will require the installation of new updates or manual record keeping might be required to ensure the correct rate of VAT is charged. Any ERP/accounting system will need to cater for both the 14% and 15% VAT rates for some time into the future. Businesses that have not already implemented changes to their software will need to keep track of everything on a transaction-by-transaction basis. The South African Revenue Service (SARS) has already announced that businesses that are not compliant could be exposed to VAT penalties and interest.

Businesses will also need to adjust their budgets to allow for price increases in operational expenditure, including fuel levies, which will also require software updates.

Helping businesses with the VAT increase

At GGD, our holistic accounting and software services are designed to assist our clients deal with the financial software challenges they face on a daily basis – and this includes the changes to accounting systems that need to made to deal with the VAT transitional rules. For more information about our experienced consulting services, which include software assessments, installations, training and on-going support for all Sage Pastel Products, contact us today.


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