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Unpacking the VAT rate increase

Monday, 05 March 2018   (0 Comments)
Posted by: Author: KPMG South Africa Blog
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Author: KPMG South Africa Blog

It is by now common knowledge that the standard rate of VAT will increase from 14% to 15% with effect from 1 April 2018. Although some vendors may be aware that certain transitional provisions exist in the VAT Act which deal with the specific rules that apply in the event of an increase in the VAT rate, there was absolutely no need for vendors and their advisors to consider these provisions in the last 25 years, since the last increase in the VAT rate. It is important to note that these provisions do not replace the so-called time-of-supply rules contained in section 9 of the Act. Timing rules function as the event which trigger the VAT liability on any supply of goods or services. These rules consist of general rules, specific rules on certain types of transactions and specific rules on connected person transactions.

The transitional rules, on the other hand, serve mainly to determine whether the old- or the new rate of VAT is to be applied to any transaction. In other words, whether the timing of a supply is triggered before, or after the effective date, does not determine if the old or new rate needs to be applied.  The transitional provisions also deal with circumstances where suppliers may, or may not, recover the additional VAT they are liable to pay, from recipients. In addition, the provisions contain an anti-avoidance provision which is aimed at ensuring that vendors will not, once the increased VAT rate has been announced, endeavour to pre-invoice for goods or services to be supplied after the effective date, so as to take advantage of the lower rate of VAT.

As mentioned, the transitional provisions provide for specific trigger points to determine which VAT rate is to be applied. Where the trigger points occur before the effective date, the old rate applies and if occurred thereafter the new rate applies. 

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