Value-added tax in South Africa

South Africa is Africa’s 2nd largest economy and is arguably one of the most developed countries in Africa. The Southern African nation is home to some of the most successful corporations on the continent with increased production offering the government large income at the end. 

Just like other nations of the globe, South Africa has a structured Value-added tax (VAT) collection practice that cuts across its entire industries, including production, importation, mining and others. The South African government in September 1991 replaced the General Sales Tax with the VAT system, this change began the era of a new tax regime for the African nation. This article offers all there is to know about the VAT collection regime in South Africa.

Meaning of VAT

VAT collection is adopted by almost every nation in the globe. The value-added tax is the monetary value added to products and services offered in the taxing country. VAT is levied on every value derived from a product or service and not necessarily on the cost of the product or service. For instance, if a phone production cost is R40,000 and is sold for R45,000, the value derived from the sale is R5000, which is subject to value-added tax. If the VAT rate is 15% of the value, 15% of R5000 would be R750 payable as VAT to the SARS.

Understanding VAT in South Africa

VAT collection in South Africa began in September 1991 after the enactment of the South African value-added tax Act 89 of 1991, the South African VAT Act recommends that businesses generating an annual turnover of R1,000,000 ($53,243) or above or is even likely to generate a R1,000,000 annually must register for the VAT submission vendor status with the South African Revenue Service (SARS).

The Act also provides that tax returns from the annual turnover must be submitted to the SARS, nonetheless, the Act recognizes small businesses carrying on commercial activities and generating annual turnovers exceeding R50,000, such businesses can register for the VAT collection voluntarily while businesses in South Africa with annual turnovers less than R50,000 are exempted from VAT submission.

Value-added tax rate in South Africa

The VAT Act of 1991 prescribed a 10% VAT payable on taxable goods and services, this figure was increased to 14% in 1993 and then to 15% in 2018, the official VAT rate in South Africa stands at 15% to this day. 

VAT in South Africa applies to all products and services offered in the country, with a few exceptions to the general rule. The VAT is charged on the proportionality to the value derived from the sale of the product or the service offered to the market. The VAT is often charged on every stage of production of the goods or service offering, including the distribution process, in South Africa and most nations of the globe, VAT lies on the final consumer to pay and not from the business’ profits. 

How to register for VAT in South Africa

VAT registration in South Africa is a defined process with varying options for registration. In South Africa, VAT can be made through one of two broad channels that business owners can choose from to undertake registration for their VAT collection. Businesses could either adopt the eFiling or the virtual appointment through the eBooking system. The most complex but most accessible method of VAT registration in South Africa is the eFiling system, we shall seek to explain in detail how to register for the VAT in South Africa using the eFiling method. 

Registering for VAT on eFiling

1. Create an account

Create an account on www.sars.gov.za by filing the necessary information required. 

2. Select SARS registered details

on the platform, click on the SARS registered details section where you would find additional information required for the VAT registration. On the platform, select the add products features for the registration of your product or services on the platform. 

3. Complete the new product registration

While on the new product or service registration field, make sure to complete the required information through the provision of the necessary details. The date of your business registration, the trade name of the business (if different from the registered name), the liability date for the VAT payments and the business activities code from the varying business codes through the classification guide. 

4. Get your VAT number

Once the process is complete and no error is identified, the VAT number would be issued. This VAT number can be used to pay the required VAT collected by your customers or clients. 

How to reduce your VAT submissions in South Africa

The basic concern of most businesses across the globe as it relates to taxes is “how to reduce the official tax payable to the government” The VAT submissions are not left out in this identification, business owners are constantly looking for varying ways to reduce VAT bill payments to the government, especially in trying time when every Rand counts. 

Not submitting tax when eligible can be very risky, businesses could be fined up to three times the original amount of VAT to be submitted. To cut the amount of VAT payable in South Africa, the exemption list is vital. The South African VAT Act lists certain items that are exempt from VAT collection; business owners can also deduct the tax paid on such items during the previous stages of production.

In addition, businesses can avoid VAT payments if they earn less than R1 million on their annual turnover. This entails that small businesses are exempt from VAT registration and submission under the Act.

Conclusion

VAT collection in South Africa is a straightforward process that applies to all businesses having an annual turnover of R1 million. The VAT must be paid at the exact date stated on the document otherwise there would be a penalty for defaulting.

Businesses, especially small businesses can opt not to pay VAT, nonetheless, if they choose to pay VAT they must conform to all the requirements and deadlines as the applicable businesses would be. 

A small business in South Africa’s VAT collection regime earns less than R1 million as annual turnover. Such an amount must be calculated in 12 consecutive months. Small businesses are not obligated to register, collect or pay VAT to the SARS in South Africa.