Modelling value added tax vat in south africa nui galway international microsimulation association. Vat in south africa is levied at the place of destination. What the vat increase means for small business owners cover. Valueadded tax introduction valueadded tax vat is levied at a standard rate of 14 percent by registered vendors on most goods and services subject to certain exemptions, exceptions and zeroratings provided for in the valueadded tax act 1991. Economist dr thabi leoka, nedbank chief economist busisiwe radebe and. South africas transport system has been changed by the bus rapid transport systems brt, with the first of its kind called rea vaya which linked soweto and the centre for johannesburg, which started in 2009 to operate. Returns are monthly if turnover is greater than zar 30 million, and 4monthly or 6monthly farming only if less than zar 1. This means that exports are excluded from vat, while imports are taxed. However, as vat vendors in south africa have not been subject to a vat rate increase for over 25 years, this will likely create certain challenges for many vendors.
In south africa vat is levied on the supply of goods and services. The hike is part of the governments efforts to contain a budget deficit. Vat was originally introduced at 10% and then remained at 14% for a long period of time, a rate that was low by global standards. South africa does not have an efficient public transport system, which remains a huge cost to the south african economy. Vat guidance prepare vat and statutory returns in tandem rather than delivering them.
A tax residents income is taxed in south africa, regardless of the source of the income. Benefit cost ratios for existing zerorated items vat rate 15%. Every person in south africa is affected by the vat increase. To support the progressivity of south africas tax system, the top four personal income tax brackets will not be adjusted for inflation, and ad valorem excise duties for luxury purchases will be increased. Helping you navigate africas vat landscape was put together by vat specialists in the following african countries.
What are the advantages and disadvantages of a vat. For the first time in democratic south africa s history, valueadded tax vat has been raised from 14% to 15%. In south africa, the standard rate of vat was fixed at 14 per cent from 1993 to 2018, and. Higher vat will increase inequality wits research unit fin24. The increase in valueadded tax vat from 14% to 15% along with the 6% to 10% rise in excise duties and the 52calitre increase in the. Mar 11, 2017 is a 2% vat increase necessary in south africa. Higher vat will increase inequality wits research unit. The increase in vat will drive inflation higher and affect. As of 1 april 2018, the effective vat rate will rise from 14% to. There are no budget proposals to increase taxes in any category. The impact of vat compliance on business pricewaterhousecoopers 2 vat is the predominant form of consumption tax system used around the world. The case of kenya 2 executive summary the tax base in kenya, as in most subsaharan african countries, is extremely narrow. National and regional impacts of an increase in value. For the first time in democratic south africa valueadded tax vat is raised by one percentage point to 15% as part of the tough but hopeful budget finance minister malusi gigaba presented on.
Assessing the distributional impact of the recent increase in the vat rate and options for redress through the benefits system. Since vat has not been increased since 1993 and is below the global average, the solution lay therein. Apr 10, 2018 economists discuss the impact on the vat increase on south africans on the eusebius mckiaser show. The south african government should weigh its decision carefully whether to increase value added tax vat as indirect taxes fall most heavily on the poor and the middle class. Prince harry and meghan will stop using sussex royal brand. The jse will be updating the current pricelist and publishing it on the website on 2 march 2018. The unit pointed out that the davis tax committee admits that raising the vat rate would increase inequality in the country. On average it takes the case study company longer to comply with vat around the world, than to comply with corporate income tax. The second vat increase was announced earlier this year, and the vat rate increased to 15% on 1 april 2018. Vat is now levied at the standard rate of 15% on the supply of goods and services by registered vendors. South africas vat rate to increase from 1 april 2018 ey. Through analysis and comment on new law and judicial decisions of interest, they assist business executives to identify developments and trends in. For the first time in democratic south africas history, valueadded tax vat has been raised from 14% to 15%. Was the vat increase from 14% to 15% that came into effect on 1 april necessary and is it inherently regressive or not.
South africa is bracing itself for the first increase in value added tax vat in many years. Addressing the members of federation of unions of south africa, finance minister nhlanhla nene said government will continue to hold talks with stakeholders in a bid to soften the blow for the poor from the impact of the vat increase, which comes into effect in april. Vat is also levied on the importation of goods and services into south africa. Revenue is raised for government by requiring certain businesses to register and to charge vat on the taxable supplies of goods and services. It is also important that all businesses adjust their accounting systems to ensure they are compliant with the new vat rate. South africas vat rate to increase from 1 april 2018. Announcing tax measures to raise an additional r36bn in the 201819 tax year, finance minister malusi gigaba unveiled a one percentage point increase in vat to 15%.
Assessing the impact of sas vat increase cover publications. How the vat increase will affect restaurants eat out. While a 1% increase does not sound like a big deal there are a number of practical issues to think about and it is not as easy or difficult as just increasing your prices. Vat is an indirect tax on the consumption of goods and services in the economy. The impact of increased vat fenns incorporated chartered. Vat stands for value added tax, and it is a consumption tax which is collected incrementally, based on the added value of a product or service. Countries all over the world, look for ways to boost their revenue, this facilitated many nations to introduce value added tax on goods and services. Connecting the dots between the hike in south africas vat. Tax, vat, customs and trade alerts pwc south africa. There are also fears that moodys, the only agency to rate south africa above junk status, may drop its rating and the budget speech will be a key factor moodys will weigh up, as it gives direction on government priorities and. Vat in south africa is levied on the consumption of goods and services.
Mar 27, 2018 pretoria, 27 march 2018 the south african revenue service sars is ready to implement the increase in valueadded tax vat announced by the minister of finance in february. Cape town the hike in value added tax vat from 14% to 15% poses the risk of eroding the spending power of poor and lowerincome households, exacerbating poverty and increasing inequality, according to the corporate strategy and industrial development csid research unit at wits university. In this paper, the authors describe south africa s value added tax vat, showing that 1 the vat is mildly regressive, and 2 it is an effective source of government revenue, compared with. To limit the impact of the hike on poor individuals, this system will. Feb 21, 2018 south africa will increase its vat for the first time in 25 years as part of an attempt to reduce its budget deficit. One of the chief concerns were looking at is that this vat increase may lead to a deteriorating tax regime. Value added tax vat in south africa vat was introduced in south africa in 1991 to replace gst. Jul 23, 2015 there are strong hints that the south africa government will raise the valueadded tax vat rate rather than increase income tax rates following the release of an interim report on vat by a. South africa raises vat for the first time in 25 years. In 1994, excise taxes and vat, combined, comprised 33% of the retail price of cigarettes. An increase in vat is the only certain source of revenue, as demonstrated by tax shortfalls in previous years. South african residents account for tax on their worldwide receipts and accruals, if they are tax resident on the basis of being ordinarily resident or through the physical presence test. The effect of excise tax increases on cigarette prices in. For financial services and those with a stake in them, the vat rise and increase in prices could lead to a drop in value.
Mar 23, 2018 south africa is bracing itself for the first increase in value added tax vat in many years. Closer to home, the debate continues to rage as to whether south africas government will raise the vat rate. Pdf an analysis of south africas value added tax researchgate. Increase in government revenue as indirect taxes are increased. Why the vat increase is the safest way to get sa out of. The impact of vat on the ordinary south african following south africas first vat increase in 25 years, huffpost spoke to deloitte sa and pacsa to get a practical insight into what it means. Closer to home, the debate continues to rage as to whether south africa s government will raise the vat rate. The south african minister of finance announced in the 2018 budget speech that the countrys value added tax vat rate will be increased to 15%, effective 1 april 2018.
Notes on the valueadded tax base of south africa by m. South africa s annual budget, delivered by finance minister malusi gigaba on. Vat minimizes tax evasion due to its catchup effect. There are strong hints that the south africa government will raise the valueadded tax vat rate rather than increase income tax rates following the release of an interim report on vat by a. In this paper, the authors describe south africas value added tax vat. Vat rates, thresholds for 2019 the minister of finance on 20 february 2019 delivered the budget speech for 2019. As compared to other taxes, there is a less chance of tax evasion. Finance minister malusi gigaba announced a proposed value added tax vat increase of 1% during his 2018 budget speech 1 despite massive criticism, the minister, and some economists, have claimed that this increase will not affect the poor 2 because there are 19 basic food items that are zerorated. Johannesburg economists said yesterday that south africans should brace themselves for an increase in vat next month as the national treasury scrambles to meet. Finance minister malusi gigaba has announced that south africa will see its first vat rate increase for the first time in 25 years. In a month your business has to cope with the 1% increase in the vat rate.
South africa needs to raise taxes but a vat increase would. While vat is successful if considered solely from the perspective of revenueraising, and ignoring its potential negative impact on the poor, where other options are available taxes that hit the poor hardest, make the consumption of basic goods more expensive, and increase inequality should not be entertained. It is also widely known that south africas vat rate is low when compared to other african countries, which is why we believe there is. To support the progressivity of south africa s tax system, the top four personal income tax brackets will not be adjusted for inflation, and ad valorem excise duties. The impact of vat on the ordinary south african following south africa s first vat increase in 25 years, huffpost spoke to deloitte sa and pacsa to get a practical insight into what it means. More information on who has to pay is available from the south african revenue service. Of the r36bn that the treasury hopes to raise through taxes to reduce the budget deficit and fund feefree higher education, r22. Johannesburg economists said yesterday that south africans should brace themselves for an increase in vat next month as the national treasury scrambles to meet the revenue shortfall announced in. Mar 01, 2018 while not unexpected, the vat increase to 15% will eat away at consumers disposable income and invariably have a negative knockon effect for small businesses. Indirect taxes such as value added tax vat and fuel duty also apply, as well as contributions towards social security in south africa. The administration of vat is relatively easy, unselective and difficult to evade. South africa will increase its vat for the first time in 25 years as part of an attempt to reduce its budget deficit.
What the vat increase means for small business owners. South africa has been facing high levels of poverty and disparity for years, and this hike will likely exacerbate the problems. South africa s vat system includes 19 basic foodstuffs including samp, maize meal and rice that are zerorated. The estimated compliance gap for vat in south africa between 2007 and 2012 is. The imf report on the vat gap in south africa for the period 2007 to 20123 identifies four important related gap indicators, namely the compliance gap, assessment and collection gap, vat policy gap and the cefficiency ratio. Tax, vat, customs and trade alerts we provide a wealth of publications by pwc south africa providing informed commentary on current developments in the tax arena, both locally and internationally. This newsletter aims to provide a brief overview of some of the challenges that may be encountered by vat vendors as a result of the change in rate. For instance in africa, vat has been introduced in. The reported reason for the increase is a reported r42. As it has been approximately 25 years since we have had a change to the vat rate in south africa these rules do require some detailed analysis to ensure vendors properly account for vat at the correct rate in the appropriate vat period in order to avoid any unnecessary penalties and interest. So, compared to other sources of revenue, the vat hike, it may be argued, may have the least detrimental effects on south african economic growth and employment. While the main sufferers are the poorest the middleclass is.
Pdf in this paper, the authors describe south africas value added tax vat, showing that. Jul 26, 2015 there are strong hints that the south africa government will raise the valueadded tax vat rate rather than increase income tax rates following the release of an interim report on vat by a. The hope is that whilst south africans will feel the pinch now, in the long run, it will lead to longterm economic gains that will benefit us all. Effects of increases in value added tax economics research. Before 1991, south africa used an indirect taxation system, called gst general sales tax. An analysis of south africas value added tax by delfin s. Durban value added tax vat and petrol price increases have left many south africans reeling because of the impact on food costs. South africa vat returns periodic vat returns must be submitted by all companies with a south african vat number, detailing all taxable supplies sales and inputs costs. In the ministers budget speech on 21 february 2018, an increase in the standard rate of vat was. Therefore, although the wits unit admits that increased vat is successful if considered solely from the perspective of revenueraising, it cautions that the potential negative impact on the poor should not be ignored when other options are available. The time needed to comply with vat varies considerably.
The south african government has said it will assess the impact of the vat increase to soften its impact, likely through adding more zerorates and taxfree items. Sep 09, 2019 valueadded tax is commonly known as vat. Jan 01, 2018 advantages of value added tax vat following are the advantages of vat. Apr 16, 2018 south africas vat regulations that cover foreign businesses have been updated as well though, meaning price increases of at least 15 per cent can be expected.
Frequently asked questions increase in the vat rate. Mar 14, 2018 the vat rate increase impacts all taxable transactions, including. South africa needs to raise taxes but a vat increase. Supplies made by vendors the rate at which a vat vendor, and in most cases. To support the progressivity of south africa s tax system, the top four personal income tax brackets will not be adjusted for inflation, and ad valorem excise duties for luxury purchases will be increased. For many years, south africa was regarded as a pioneer in tobacco control among lowincome and middleincome countries, particularly for its use of excise taxes. The impact of vat on the ordinary south african huffpost uk. Vat system is destinationbased, which means that only the consumption of goods and services in south africa is taxed. It should be noted that even after the vat rate increase, the south african vat rate will remain one of the lowest rates globally. He added that we are soon going to see a downturn on consumers pockets.
So far, attempts to increase tax revenue have focused on closing the taxation gap and expanding the tax base. Abstract the south african national treasury expected a revenue. It is also widely known that south africa s vat rate is low when compared to other african countries, which is why we believe there is. Vat in south africa unuwider united nations university. Changes in real gdp when lowering the vat rate to 12. Venter introduction the commission of inquiry into the tax structure of the republic of south africa, popularly known as the margo commission, recommended in their final report of 1987 the introduction of.
1443 296 1218 932 1506 622 1084 1074 395 757 125 593 1114 556 795 917 333 330 1023 661 1258 1233 461 723 1337 1364 11 751 628 1551 1244 403 1139 1170 321 415 1054 294 823 596 539 103 374 1065 226 956