Category: Update Blast | South African Budget Speech VAT RATE INCREASE VAT rate tax fraction 15.5%
VAT RATE INCREASE IN SOUTH AFRICA: WHAT YOU NEED TO KNOW
In the South African Budget Speech on 12 March 2025, the Minister of Finance announced an increase in the standard VAT rate from 15% to 15.5%, which will come into effect on 1 May 2025. This rate will remain in place until 1 April 2026, when a further increase of 0.5% will raise the VAT rate to 16%.
Below, we break down key details regarding the new VAT rate, the tax fraction, and how to determine which VAT rate applies to your transactions.
WHAT IS THE NEW TAX FRACTION THAT APPLIES AFTER 1 MAY 2025?
The new tax fraction is calculated as follows:
- Rate of tax = 15.5
- 100 + rate of tax = 115.5
For example, if the VAT-inclusive price (the final price) is R1,155, the VAT amount is calculated using the new tax fraction:
- R1,155 × 15.5/115.5 = R155 VAT
This means the VAT charged will be R155 on a final consideration of R1,155.
HOW DO I KNOW WHICH DATE TO USE FOR THE VAT RATE?
The transaction date, or time of supply, is crucial for determining which VAT rate applies to a transaction. The general rule is that:
- If the invoicing or any payment for the purchase price occurs before 1 May 2025, the 15% VAT rate will apply.
- If the invoicing or any payment occurs on or after 1 May 2025, the 15.5% VAT rate will apply.
However, there are special rules for certain types of transactions, as discussed further below. It is important to apply the correct time of supply rules to ensure the correct VAT rate is charged.
WHAT IS THE GENERAL TIME OF SUPPLY FOR TRANSACTIONS?
The general time of supply is determined by whichever of the following events occurs first:
- Payment of the VAT-inclusive price (consideration) for the supply.
- Issuance of an invoice in respect of the supply.
For example, if a vendor issues an invoice to a customer on Day 1, delivers the goods on Day 2, and receives payment on Day 3, the time of supply is triggered on Day 1, because the invoice was issued first. In this case, the VAT rate on Day 1 will apply, even if payment was made later.
This general time of supply rule applies unless a specific time of supply rule exists for a particular transaction.
WHAT ARE SOME EXAMPLES OF SUPPLIES WITH SPECIAL TIME OF SUPPLY RULES?
Several types of supplies have special time of supply rules, including:
- SUPPLIES BETWEEN CONNECTED PERSONS
- Specific rules apply to transactions between connected persons, which are governed by special time of supply regulations.
- ONGOING AND PERIODIC SUPPLIES
- These include services like rental agreements, insurance contracts, cleaning contracts, building contracts, and subscription services.
- Special rules apply to such contracts, especially when payments are made over time.
- INSTALMENT CREDIT AGREEMENTS (ICAS)
- This includes instalment sale agreements and financial leases for vehicles and equipment.
- Special time of supply rules govern how VAT is applied to such agreements.
- LAY-BY AGREEMENTS
- For lay-by sales, specific rules determine when VAT is applied to the payments.
- FIXED PROPERTY TRANSACTIONS
- The rules for VAT on fixed property transactions (such as the sale of residential or commercial property) include specific time of supply rules.
CONCLUSION
It is essential for businesses and consumers alike to understand the time of supply rules to determine the correct VAT rate applicable to transactions.
The general rule is that the VAT rate on the date of invoicing or payment will apply, but certain transactions, such as those between connected persons or ongoing contracts, may have special rules.
Be sure to consult the relevant time of supply guidelines to ensure accurate VAT application in your transactions.
DISCLAIMER
Nothing in this article and/or post should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure accuracy, Tax A Sured (Pty) Ltd does not accept any responsibility for consequences of decisions taken based on this article and/or post. It remains your own responsibility to consult the relevant primary resources when taking a decision!
