What is VAT?

Value-Added Tax is commonly known as VAT. VAT is an indirect tax on the consumption of goods and services in the economy. Revenue is raised for the government by requiring a business that carries on an enterprise, to register for VAT. In doing so, the business will charge VAT on supplies of goods and services made by it, on the importation of goods and on imported services (subject to certain conditions). 

The business will also be entitled to deduct any VAT charged to it, or under limited circumstances from a business that is not registered for VAT, in respect of a supply made to it. VAT is therefore non-cumulative, meaning that a credit/deduction is allowed for VAT paid in previous stages, within the production and distribution chain. The business is required to pay the difference between the VAT charged by it and the VAT charged to it, or claim a VAT refund where the VAT charged to it exceeds the VAT charged by it.

VAT is therefore, charged at each stage of the production and distribution process and it is proportional to the price charged for the goods and services.

The standard rate of VAT increased from 14% to 15% from 1 April 2018. There is a limited range of goods and services which are subject to VAT at the zero rate or are exempt from VAT.

Who should register for VAT?

Any person that carries on an enterprise, as defined in section 1(1) of the VAT Act, may qualify to register for VAT. A person is a defined term and includes a company, individual, partnership, trust fund, and a municipality.

It is compulsory for a person to register for VAT if the value of taxable supplies made or to be made, is in excess of R1 million in any consecutive twelve month period.

A person may also choose to register voluntarily if the value of taxable supplies made, or to be made, is not in excess of R1 million in any consecutive twelve month period.

When should I submit VAT returns and make payments?

A vendor is required to submit VAT returns and make payments of the VAT liabilities (or claim a VAT refund) on or before the 25th day or the last business day of the month following the month in which the vendor’s tax period ends. If the 25th day is not a business day, the day for submitting a return and making payment will be the business day preceding such day. Late payments of VAT will attract a penalty and interest.