What is VAT in South Africa: How Does this Tax Work?
VAT stands for Value-Added Tax. It is a tax imposed on most retail sales in South Africa. These sales are subject to a VAT rate of 15% as of 1 April 2018. VAT is not the same as sales tax – it means the same thing, but they work differently. Here we’ll give you an overview of how VAT works in South Africa and how you can reduce your tax burden if you operate a business.
What is VAT in South Africa?
VAT is a tax on the sale of goods and services in a country. It is administered by the government, which collects and then distributes the tax to the businesses required to comply with it. The exact definition of “goods and services” is left to the government’s discretion, meaning that there are no hard and fast rules to guide companies on what is and isn’t subject to VAT. VAT is a tax on the value added (meaning the increase in the price of) goods and services in the country. The tax is levied at a rate of 15% and is not included in the original price of the goods or services. In other words, a business does not record the VAT when selling goods or providing services. Instead, the customer is charged VAT before paying for any goods or services.
How does VAT work in South Africa?
The customer pays 15% of the purchase price of goods and services. The customer then subtracts this amount from their payment amount. For example, if you pay R150 for a packet of Suzan biscuits and Suzan biscuits are subject to a 15% VAT rate, you pay R135. This means that you have effectively paid R15 for each biscuit. VAT is payable on all goods and services purchased.
Essential considerations for businesses operating in SA
Businesses in South Africa must register for VAT and keep records of their transactions for five years. This is to help the government collect taxes and protect businesses from fraud. VAT is subject to many exemptions, meaning you may have to keep records and make declarations if you offer certain goods and services. In addition, some goods and services are exempt from VAT altogether. All businesses selling goods or providing services in South Africa must charge and collect VAT. However, there are some exemptions to this rule.
Rate of VAT in South Africa
The rate of VAT in South Africa is 15%. Generally, most goods and services are subject to this rate of tax. Exempt goods and services include most food and beverages, healthcare, education, some financial services, and some recreational and cultural services. There are some other examples of exempt services that are listed in the table below:
How to pay VAT?
VAT can be paid by credit/debit card, bank transfer, cash, or cash-in-transit. For most businesses, remitting VAT electronically is the fastest and easiest method. A company can submit an electronic VAT payment at any of the following online portals:
Conclusion
VAT is a tax on the sale of goods and services in a country. It is administered by the government, which collects and then distributes the tax to the businesses required to comply with it. This article provides an overview of VAT in South Africa, including how it works, what sales are subject to this tax, and how to pay it. You can learn more about how VAT works in South Africa by reading the article in full.
