Understanding South Africa’s Upcoming VAT Increase: What You Need to Know
.
The South African government has announced a change to the Value-Added Tax (VAT) rate, effective 1 May 2025. This adjustment will see the VAT rate increase from 15% to 15.5%, with a further increase to 16% scheduled for 1 April 2026.
While there is a pending High Court application to stop the VAT hike, as at the time of writing, the implementation date remains in place.
Unless and until the increase is interdicted by the High Court, or a political decision is made to reverse or suspend it, businesses must comply with the new rate from 1 May 2025. We encourage all businesses to ensure their systems are updated accordingly. This includes:
- Updating your invoicing and accounting software to apply the correct VAT rate from the effective date.
- Reviewing any contracts or quotes that extend beyond 1 May 2025.
- Considering necessary adjustments to your pricing structures.
- Communicating changes clearly to clients and suppliers.
Here’s a breakdown of how this rollout will work and what it means for individuals and businesses.
Key Details of the VAT Increase
- Effective Date: The first increase to 15.5% will take effect on 1 May 2025.
- Second Increase: A further adjustment to 16% is planned for 1 April 2026.
- Legislative Process: These changes are subject to parliamentary approval and will be implemented as part of the government’s broader fiscal strategy.
Impact on Businesses
Businesses will need to adapt their pricing, accounting systems, and cash flow planning to accommodate the new VAT rate. Key considerations include:
- Pricing Adjustments: Businesses must update their pricing models to reflect the increased VAT rate, ensuring compliance with SARS regulations.
- Cash Flow Management: VAT-registered businesses should plan for higher output tax, which may affect cash flow.
- Customer Communication: Clear communication with customers about the changes is essential to maintain trust and transparency.
Impact on Consumers
For consumers, the VAT increase will result in higher prices for goods and services. This may lead to adjustments in spending habits as disposable income is affected.
Special Considerations for Transactions
One important aspect of the VAT increase is its application to transactions that span the effective date. If a customer purchases goods before 1 May 2025 but collects them after this date, the new VAT rate of 15.5% will apply. Businesses must ensure their systems and processes are equipped to handle such scenarios to avoid compliance issues.
When updating and using the new VAT code on your accounting systems, such as Xero, QuickBooks Online or Zoho, it is important that you do not just amend the VAT codes already on the system, but to rather create new VAT codes for the 15.5%. The reasoning for this is if you update the old VAT codes, it will update all the old transactions to have the new VAT rate. Creating a new code will ensure your old transactions will not be affected.
Preparing for the Change
To ensure a smooth transition, businesses and individuals should:
- Review and update accounting systems to reflect the new VAT rate.
- Train staff on the implications of the VAT increase.
- Communicate proactively with customers about the changes.
Luke Victor
BA(SA), ICB Financial Accountant
The Tax Shop Alberton
More about Luke Victor
Luke obtained a Diploma as a Financial Accountant with ICB and is a registered member of SAIBA with experience in bookkeeping, debtors, creditors, VAT, payroll, PAYE, UIF, financials, taxation, Workman’s Comp and company secretarial.
Luke has been managing and running The Tax Shop Alberton for 3 years. With his help, we have reached our yearly targets from our head office for the last 2 years. He also has experience working in IT and Software Testing and Training.
Xero & QuickBooks Certified