The South African Revenue Service (SARS) has issued a cautionary statement to both vendors and consumers regarding the implications of the recently reversed plan to increase the Value Added Tax (VAT) rate by 0.5%. This warning follows a significant ruling from the Western Cape High Court, which set aside the proposed increase scheduled for implementation on May 1, 2025.
SARS Commissioner Edward Kieswetter outlined the ramifications of Finance Minister Enoch Godongwana’s decision to retract the VAT increase, which was originally intended to elevate the VAT rate from 15% to 15.5%. The court’s intervention, encouraged by the Economic Freedom Fighters (EFF) and the Democratic Alliance (DA), has yielded a suspension of this increase, creating a period of uncertainty for tax compliance amongst vendors.
In a response to this judicial decision, Kieswetter assured stakeholders that SARS will make all necessary adjustments to tax regulations swiftly: “As the administrator of all national government tax measures, SARS will ensure that the necessary adjustments are made to accommodate this change.” He emphasised that vendors who have yet to implement the increase must continue to charge VAT at the standard rate of 15% for all relevant goods and services.
For vendors that have already begun applying the new VAT rate, adjustments to their systems may be required to comply with the current statute. Those unable to revert to charging 15% due to complex system constraints are advised to report transactions at the 15.5% rate until they can make the appropriate changes. Kieswetter specified that VAT charged at the 15.5% rate must be documented correctly within the VAT return in fields designated for reporting output and input tax.
Notably, transactions recorded under the 15.5% rate will be scrutinised during verification and audit processes, reinforcing the importance of accurate reporting while adjusting operations. Furthermore, any changes made to VAT returns will now auto-calculate using the 15% rate starting from May 2025.
In light of these developments, vendors who had implemented changes in their pricing structures or applied zero-rating are strongly encouraged to reverse these modifications before the deadline of May 15, 2025. SARS has committed to closely monitoring the implementation process and collaborating with vendors to ensure compliance is met seamlessly.
The finance minister welcomed the court’s reversal of the VAT increase while simultaneously advocating for his original budget proposal, indicating the complicated territory that lies in fiscal policy-making.
As uncertainty lingers for both vendors and consumers, Kieswetter has pledged that SARS will work diligently to provide clarity and guidance throughout this transitional phase, ultimately aiming to stabilise expectations within the marketplace.