[Image: VAT / Facebook]
During his budget speech, Minister of Finance Enoch Godongwana tabled a proposal to increase South Africa’s VAT rate by 0.5% in 2025/26 and again in 2026/27.
The increase will force businesses to decide whether to absorb the extra VAT cost by lowering their profit margins or passing it on to customers through price hikes. You can guess which way they’re likely to lean.
While the checkout aisle is where the whip cracks hardest, changing the VAT rate goes way beyond just swapping labels on products in the store. Businesses will have to go about adjusting all their systems to absorb the increase, and then there are the pending deals, supply contracts signed before the increase, quotes issued and accepted, and even property deals.
Companies have a month before the new VAT rate takes effect, and many businesses use this time to finalise pending quotes and pro-forma invoices to prevent major price changes and inform customers about the upcoming rate adjustment.
“As seen with the previous VAT rate increase, this can cause some disruption in billing and systems, but it should be manageable,” says Kabelo Moutloatse, senior tax debt and accounting specialist at Latita Africa.
He also emphasised that businesses must ensure that items now zero-rated are correctly classified.
Per Moneyweb, from 1 May, the list of VAT zero-rated food items will be expanded to include edible offal from sheep, poultry, goats, swine, and cattle, along with specific cuts such as heads, feet, bones, and tongues. Additionally, dairy liquid blends and some tinned or canned vegetables will also be exempt from VAT.
Moutloatse also warned that businesses that have entered into long supply contracts and are unable to adjust for the VAT increase might face reduced profitability, especially those with thin margins.
Woolworths is quoted as saying that their teams “are still working on our approach to the VAT hike, and we will need time to establish our approach”. That kind of comment should have most smaller retailers a little worried.
He adds, “With VAT returns filed every two months, businesses must be careful if their reporting period falls during the change. They need to ensure they adjust for the VAT difference when declaring for the May 2025 period.”
Galbraith & Rushby recently published an article on the implications for businesses and individuals, particularly for ongoing transactions that have not yet been completed. It’s an interesting look at how the VAT increase affects everything from property transactions to how it will affect deposits paid on guest house bookings made before May 1.
While businesses will have to wrap their head around the new VAT rate, it will be consumers who inevitably pay the ‘tax on final consumption’.
[Source: Moneyweb]
