The new value-added tax (VAT) rate of 15% was announced at the SA Budget Speech in February. The increase of one percentage point up from 14%, will take effect from 1 April.
How is the VAT increase going to affect local businesses?
The South African VAT Act ensures both businesses and consumers, the latter including the lower LSMs and social grant receivers, are not negatively impacted by tax hikes.
For example, the VAT increase triggers support for the grants system and zero-rating for basic food items and other living necessities.
The Act contains a set of rules and good practices meant to protect businesses from the effects of sudden tax changes.
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Overall, the rate hike should not have a major impact on business-to-business (B2B) transactions, according to auditing company KPMG, due to the regressive effects of the VAT included in the South African VAT Act.
The VAT increase could also result in raised business costs which would then be passed onto the end consumers in industries such as transport and tourism, with an impact on VAT return claims.
Business systems would have to be adjusted to deal with the change.The tax adjusting process is going to prove a challenge for most enterprises that have not seen a major tax hike for the past 25 years. The most significant challenge for enterprises remains the implementation of the required VAT changes in their ERP systems before the due date.
Despite the expected VAT increase challenges, business prospects are encouraging this year thanks to the new presidency, the positive sentiment towards investments, the proposed reduction in government debt, and the strengthening of the Rand combined with the lower interest rates.
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