08/02/2024

What is VAT?
Indirect tax
30 Sept 1991
Initially established @ 10%

THEN Increased to 14% on 7 April 1993

THEN Increased again to 15% on 1 April 2018

Value-added tax (VAT)
Part 1

What is VAT? What is VAT?

Two components: VAT is levied on
supply of
Output tax goods and services
charged on supplies MADE (or SOLD) by a vendor by a vendor
in the furtherance of his enterprise
Input tax
paid on supplies AQUIRED by a vendor @15% or 0%

What is VAT? What is VAT?

Each transaction can be subject to VAT All vendors submit VAT returns at the end of each tax period.

VAT return accounts for all OUTPUT tax (on goods supplied)
Seller (if VAT vendor) has to charge VAT & pay it
over to SARS AND

INPUT tax (on goods acquired)

Purchaser (if VAT vendor) can claim the VAT
Calculate whether VAT is payable to (refundable from) SARS
paid to vendors from SARS
Pay the difference/Claim it back
If purchaser is not a VAT vendor, VAT paid
cannot be claimed back

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What is VAT? Mechanics of VAT

Output Tax on supplies BY vendor during VAT period
Example
• @ standard rate R XX XXX
• @ zero rate 0 Vendor (Pty) Ltd is a general retailer. It
purchased goods from Supplier (Pty) Ltd (also a
LESS Input Tax on supplies TO vendor during VAT period (x xxx)
vendor) for R600 (excluding VAT) and then sold
VAT payable to SARS R X XXX the goods for R1 000 (excluding VAT).

YOU ARE REQUIRED TO calculate the VAT

payable by (or refundable to) Vendor (Pty) Ltd.

Mechanics of VAT Mechanics of VAT

Solution When calculating the amount of VAT on a transaction,
The output tax charged by Vendor (Pty) Ltd is calculated as follows: you must always deduce from the question whether
.............................................................................................................................................
R1 000 x 15% = R150 (the selling price inclusive of VAT charged by the amounts include or exclude VAT.
Vendor (Pty) Ltd was therefore R1 150).
.............................................................................................................................................

The input tax incurred by Vendor (Pty) Ltd when it initially purchased
.............................................................................................................................................
If an amount excludes VAT, simply multiply by 15%
the goods is calculated as follows:
to determine the VAT charged.
.............................................................................................................................................
R600 x 15% = R90 (the cost price inclusive of VAT to Vendor (Pty) Ltd
was therefore R690).
............................................................................................................................................. If an amount already includes VAT, the tax fraction
(i.e. 15/115) is applied to this amount to determine
.............................................................................................................................................
The VAT payable by Vendor (Pty) Ltd to SARS is: the VAT included therein.
Total output tax R150
.............................................................................................................................................
Less: total input tax (R90)
.............................................................................................................................................
(divide by what we’ve got, multiply by what we want)
VAT payable to SARS R60
.............................................................................................................................................

Mechanics of VAT Mechanics of VAT

Example
M (Pty) Ltd, a VAT vendor, purchased materials for R600 (including VAT)
from a vendor. It used the raw materials to manufacture a finished product
which it sold for R1 000 (including VAT). Pay attention to the SOURCE of the information:

Solution:
The output tax charged: R1 000 x 15/115 = R130,43
…………………………………………………………………………………
Trial Balance - ???
The input tax: R600 x 15/115 = R78,26
…………………………………………………………………………………

Total output tax

…………………………………………………………………………………
R130,43 Invoice amount - ???
Less: total input tax (R 78,26)
…………………………………………………………………………………
VAT payable to SARS R 52,17
…………………………………………………………………………………

What was paid - ???

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What is VAT? What is VAT?

VAT

VALUE v CONSIDERATION
Output tax on supplies Input tax on supplies TO
BY vendor vendor

• “Value” or “market value” = EXCLUDES VAT

• “Cost” or “consideration” = INCLUDES VAT
Standard rated Zero‐rated
Exempt supplies
supplies supplies

Supplies Deemed supplies Non‐supplies

Time of supply Value of supply

What is VAT? Definitions (30.2)

Output tax
• Output tax • Consideration
LESS • Input tax • Donation
• Person • Association not for
Input tax
• Enterprise gain
Add or • Electronic services & • Supply
deduct
intermediary • Goods
Adjustments • Adjusted cost • Second-hand goods
Equals
• Connected persons • Services
• Invoice • Vendor
Tax payable/refundable

Registration Separate enterprises of one person

Have to register if • A person who conducts two separate enterprises
• Taxable supplies >R1 000 000 within previous 12 months • automatically registered for both
• Existing or future business with WRITTEN contractual commitments to • Business activities split between two different persons to avoid
make taxable supplies >R1 000 000 within next 12 months registration threshold… sec 50(A)

Voluntary registration
• Can voluntarily register if turnover in a 12-month period >R50 000 • Self study…
• Must initially register on payment basis • separate branches or divisions [30.3.3]
• Must switch to invoice basis once R50 000 reached

Going concern

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Example Example
Mr G is a lawyer who carries on business in his own name. He is Whatsfordinner (Pty) Ltd has three branches that only make taxable
registered as a vendor. He buys a commercial building and earns rental supplies. None of the three branches are independent branches.
from letting it to a firm of engineers. In his capacity as a lawyer, he charges
his clients VAT on his legal fees. Branch 1: Turnover of R360 000 for 12 months (excluding VAT)
Branch 2: Turnover of R340 000 for 12 months (excluding VAT)
Must he charge VAT on the business rental? Branch 3: Turnover of R320 000 for 12 months (excluding VAT)
1 020 000

YOU ARE REQUIRED TO determine whether Whatsfordinner (Pty) Ltd is

obliged to register for VAT purposes if the above information applies to the
twelve months ending 31 December of the current year.

Value-Added Tax (VAT) Value-Added Tax (VAT)

Example Category of Vendor

Paul is a plumber and carries on business as a sole trader. His turnover
(excluding VAT) for the past twelve months ending 31 December
amounted to R550 000. He is also the sole shareholder of a private
company called “Paul’s Plumbing Services” with a turnover (excluding
VAT) of R580 000 for the past 12 months
Category A Category B Category C Category D Category E

YOU ARE REQUIRED TO determine whether Paul is obliged to register

for VAT purposes. Every two months Every two months EVERY month Every six months Once a year
• January • February ‐ > R30 M • February • Sole business letting of
• March • April • August property
• May • June
• July • August • Microbusinesses
• September • October • Farmers
• November • December

Value-Added Tax (VAT)

Refusal to Register Cancellation of Registration

SARS can refuse registration

IF person… Apply in writing

• no longer satisfies requirements for being registered
• no fixed abode/place of business ………………………………………………………………………………………………………………………………………..
• less than R50 000
……………………………………………………………………………………………………………………………………….. ………………………………………………………………………………………………………………………………………..
• no proper accounting records
……………………………………………………………………………………………………………………………………….. ………………………………………………………………………………………………………………………………………..
• no bank account for enterprise
……………………………………………………………………………………………………………………………………….. ………………………………………………………………………………………………………………………………………..
………………………………………………………………………………………………………………………………………..
• if VAT registration previously cancelled due to him not performing
………………………………………………………………………………………………………………………………………..
duties under VAT Act
………………………………………………………………………………………………………………………………………..
………………………………………………………………………………………………………………………………………..
………………………………………………………………………………………………………………………………………..

Value-Added Tax (VAT)

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Registration of e-Commerce suppliers Time & Value of supply

Since 1 June 2014 Time of supply – general rule
• suppliers Value of supply – general rule
• of ‘electronic services’ over internet
• to SA customers
• >R50 000 (not necessarily in 12-month period)
• CHANGED  since 1 April 2019… R1 000 000 12 month period
……………………………………………………
……………………………………………………
……………………………………………………
……..

Time & Value of supply Zero-rating

Time of supply Value of supply Still taxable supplies Export of goods
Rental agreement but subject to VAT at 0%
Connected persons
Instalment credit agreement Commercial accommodation Supply of going concern
Turnover >R1M?
Fixed property - lodging/boarding together – must still register for VAT
with domestic goods & – can claim input tax Fuel levy
Contingent consideration services (see list para 30.5.11)
- unbroken period 28 days Other goods (see list in para 30.6.1)
- VoS = 60% of full value

Example para 30.5.11 Zero-rated services (para 30.6.1)

Value-Added Tax (VAT)

Types of supplies
Exempt supplies
Types of
ONLY make exempt supplies Residential accommodation supplies
cannot register as vendor

Education services
Exempt
Taxable
supplies
Transport by road or railway supplies
30.7, 30.8

Other (see para 30.7.5)

Zero-rated
Standard-rated
supplies
supplies
30.6
Value-Added Tax (VAT)

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Types of supplies Types of supplies

Standard- Zero-rated Exempt Standard-

rated supplies supplies rated Zero-rated supplies Exempt supplies
supplies
Must the •All other • Exported goods • Letting of res
vendor levy Yes, @ 15% Yes, at 0% No supplies • Sale of a going concern accom/land
• Fuel levy goods • Educational services
output tax? • Basic foodstuffs • Transport of pax &
• Gold coins issued by SARB pers effects by rail/road
• Illuminating kerosene • Trade union subs
Yes Yes No • Goods on behalf of non- • Association not for
RSA non-vendor gain
Can the (because (because (because • Internat. Transport and • Supply of goods by a
vendor the input the input the input insurance of pass/ goods. non-resident
claim input tax was tax was tax was not • Services rendered o/s SA • Crèche/ after-school
• Services to non-res non-ven • Sale/lett of land &
tax incurred incurred to incurred to incurred to • Supplies to independent improvements o/s SA
i.r.o. those make make make branches outside SA • Levies to body
• Repair/maintenance/clean corp/HOA
supplies? taxable taxable taxable foreign aircraft or ship • Accom by ER to EE
supplies) supplies) supplies) • Intellectual property rights • Supply by political
used outside SA parties
• Municipal rates • Financial services

Financial services Accounting basis

EXEMPT from VAT Abridged list para 30.8.1 Invoice basis Payments basis
Companies Vendor MAY apply (in writing)
Trusts - public authority
CC’s
- public water board
Other legal entities
- certain municipal entities

Earlier of: - municipality

invoice issued - natural person taxable
payment made supplies <R2.5M

Value-Added Tax (VAT) Value-Added Tax (VAT)

Tax invoices
The word “TAX INVOICE” Individual serialized number
Supplier: Date invoice issued
- name
Description of goods supplied
- address
- VAT reg number Quantity of goods supplied
Recipient: Either
- name - value of supply PLUS tax
- address
OR
- VAT reg number
- consideration with statement
that VAT included @ x%