What Is VAT in South Africa?

Value Added Tax, commonly known as VAT, is a consumption tax placed on goods and services sold within South Africa. For everyday consumers, VAT is a tax that is automatically included in the shelf price of almost everything we buy.

In this guide, we will explain how VAT works in South Africa, who pays it, the registration rules for businesses, and how you can calculate VAT manually using simple formulas.

What is Value Added Tax (VAT)?

VAT is an indirect tax. This means that instead of SARS collecting the tax directly from you (like personal income tax), businesses collect it on behalf of the government. Businesses acting as "VAT vendors" charge VAT on their sales, collect it from customers, and pay it over to the South African Revenue Service (SARS).

The Current VAT Percentage in South Africa

The standard VAT rate in South Africa is 15%. This standard rate applies to the vast majority of transactions, including clothing, electronics, cars, dining out, and professional services.

The rate was increased from 14% to 15% on April 1, 2018, which was the first rate change since 1993.

How Does VAT Work in South Africa?

VAT works in a multi-stage system throughout the supply chain. At each stage, VAT is calculated only on the "value added" to the product. To understand this, we need to look at two terms: Input VAT and Output VAT.

• Output VAT: The 15% VAT that a registered business charges to its customers on sales.
• Input VAT: The 15% VAT that a business pays when purchasing goods or services for its operations.

Registered businesses do not keep the Output VAT they collect. Instead, they calculate the difference: Output VAT − Input VAT. If Output VAT is higher, the business pays the difference to SARS. If Input VAT is higher, SARS refunds the difference to the business.

A Practical Example of the VAT System

Let's trace how a table goes from a manufacturer to a consumer:

1. The Timber Supplier: Sells wood to a furniture manufacturer for R1,000 (excl. VAT). They add 15% VAT (R150) and invoice the manufacturer for R1,150. Sells supplier pays R150 output VAT to SARS.
2. The Furniture Manufacturer: Builds a table and sells it to a retail shop for R2,000 (excl. VAT). They add 15% VAT (R300) and invoice the shop for R2,300. The manufacturer claims back the R150 input VAT paid on the timber and pays R150 (R300 output − R150 input) to SARS.
3. The Retail Shop: Sells the table to a consumer for R3,000 (excl. VAT). They add 15% VAT (R450), making the shelf price R3,450. The retail shop claims back the R300 input VAT and pays R150 (R450 output − R300 input) to SARS.
4. The Final Consumer: Pays R3,450 (which includes R450 VAT). Since the consumer is not a registered VAT vendor, they cannot claim back any tax. They bear the entire cost of the R450 VAT.

Who Pays VAT?

Ultimately, the final consumer pays the VAT. Businesses merely act as tax collectors for SARS. However, not every business is allowed to charge VAT.

Only businesses registered as VAT vendors with SARS can charge output VAT and claim input VAT. Registration rules are based on taxable turnover:

• Compulsory Registration: A business must register for VAT if its taxable turnover exceeds R1 million in any consecutive 12-month period.
• Voluntary Registration: A business may choose to register voluntarily if its turnover has exceeded R50,000 in the past 12 months. This is often done so the business can claim back input VAT on major start-up costs.

VAT-Free Items in South Africa

To reduce the tax burden on low-income households, the South African government makes certain goods and services VAT-free. These items fall into two main categories under SARS rules:

1. Zero-Rated Items (0% VAT)

Zero-rated items are subject to a 0% tax rate. Because they are technically taxable (at 0%), businesses can still claim back input VAT on the costs of producing them. Examples include:

• Basic foodstuffs (brown bread, maize meal, milk, eggs, rice, dried beans, lentils, and vegetable oil).
• Paraffin and petrol/diesel fuel levy goods.
• Direct exports of goods to foreign countries.

You can read the complete list of these products on our zero-rated items and VAT exemptions guide.

2. VAT-Exempt Items

Exempt items carry no VAT at all. However, unlike zero-rated items, businesses cannot claim back input VAT on any expenses incurred to supply them. Examples include:

• Residential accommodation rentals.
• Public road and rail passenger transport.
• Educational services provided by schools and universities.
• Most financial services (such as interest on loans).

Frequently Asked Questions About South African VAT