VAT is short for value-added tax and it’s a tax that’s applied to goods and services. In South Africa, VAT is set at 14% of the total cost of an item or service—this includes the price before any additional fees or taxes are added on. The most common example of this is when you go to buy an item online: although you’re only paying for one product, you’ll probably be charged VAT because the company selling it must pay VAT on all its sales (as well as other costs like delivery charges).
So why did VAT increase from 14% to 15%? It’s simple really: government needs more money! With growing debt levels within South Africa, they need more revenue streams in order to keep spending within their budgeted limits without having to resort to unpopular measures like raising taxes on individuals instead (like income tax).
The VAT rate increase was announced in the 2018 Budget Review.
The change was arguably the biggest announcement in a tax perspective, as it will impact consumers directly as the cost of goods or services increases.
In his budget speech on February 27, Finance Minister Tito Mboweni said: “We propose to increase VAT from 14% to 15% effective 1 April 2019.”
How does this affect South African consumers?
VAT is a tax on all goods and services.
It is a percentage of the cost of the product or service which means, in layman’s terms, that it will be included in the price of every item you buy.
How does it affect business owners?
For business owners, this means that you will have to pay more VAT on goods and services. This means that you will be forced to increase the cost of your products or services in order to cover your increased tax liability. To avoid paying this extra tax, businesses may have no choice but to lay off workers or cut costs in other areas such as advertising and marketing.
