Understanding the Upcoming 0.5% VAT Rate Increase in South Africa. 

The South African Minister of Finance, Enoch Godongwana announced an increase in the Value Added Tax (VAT) rate during the Budget Speech on March 12, 2025. This article clarifies the key details of the increase and its implications for VAT vendors. 

Timeline of the VAT Rate Increase: 

The standard VAT rate will increase from 15% to 15.5% effective May 1, 2025. This 15.5% rate will remain in effect until a further 0.5% increase takes the rate to 16% on April 1, 2026. It is important to note that parliamentary approval of the legislation within 12 months is required for these increases to be permanent. 

Impact on VAT Vendors: 

For VAT vendors primarily making taxable supplies, the impact of the increase should be relatively neutral. The increased VAT will be charged to customers, and the additional VAT paid on expenses can generally be claimed as input tax, offsetting the increase. 

However, the situation differs for businesses making both taxable and exempt or non-taxable supplies. In such cases, the increased VAT may represent a direct cost to the business if the input tax cannot be reclaimed or is specifically disallowed. Careful accounting and planning are crucial in these situations. 

VAT Implications for Ongoing Contracts:  

The application of the increased VAT rate to ongoing contracts depends on the nature of the contract: 

• Successive, Periodic, or Continuous Supplies: For contracts like rentals, maintenance agreements, insurance, subscriptions, and cleaning services, where payments are typically made monthly or in advance, the increased rate applies to any payment due or received on or after May 1, 2025. 

• Progressive Supplies: For contracts such as construction projects or manufacturing agreements where payments are tied to progress, the increased rate applies if the earliest of the following occurs on or after May 1, 2025: payment is due, payment is received, or an invoice is issued. 

In summary, the upcoming VAT rate increase will affect businesses differently depending on their specific circumstances. VAT vendors should carefully review their operations and contracts to understand the implications of these changes and plan accordingly. Professional advice is recommended for complex situations. The About IT Team are available to assist with any queries around the upcoming VAT changes: customercare@aboutitgroup.co.za

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Sourced information from: SARS