tax unit 1

• Tax can be classified into two groups, namely direct taxes, and indirect taxes
• Indirect taxes


  Taxes included in the price you pay for goods or services
• Value-added tax (VAT)


  An example of an indirect tax
• The Value-added Tax Act No. 89 of 1991 ("the VAT Act") contains the details of how VAT works and how it should be applied
• VAT is a separate tax from income tax, and it has its own rules, based on how and when goods or services are supplied
• The VAT rate changed on 1 April 2018 to from 14% to 15%
• Calculating the VAT amount

  Multiply the value of the transaction by the tax fraction
• Tax fraction


  The portion of the transaction value accounted for by VAT
• Calculating the different amounts

  1. Selling price excluding VAT

  2. Add: VAT at 15%

  3. Selling price including VAT
• When an amount includes VAT, the rate will be 15/115
• When an amount excludes VAT, the fraction will be 15/100 or 15%
• VAT vendor


  An entity that is registered for VAT purposes
• VAT process


  1. Goods and services sold → Levy OUTPUT TAX

  2. Goods and services purchased → Claim INPUT TAX
• An entity must register as a VAT vendor before it can charge and/or claim VAT
• Types of supplies for VAT purposes

  • Taxable supplies (standard-rated supplies, zero-rated supplies)
  • Exempt supplies
• VAT calculation


  1. Output tax

  2. less Input tax

  3. add/less Adjustments

  4. equals VAT payable/refundable
• When total output tax payable is > total input tax claimable, VAT is payable to SARS by the vendor
• When total input tax claimable is > total output tax payable, VAT is refundable to the vendor by SARS
• Invoice basis


  Vendors must account for the full amount of VAT included in the price of goods or services supplied in the tax period in which the time of supply has occurred
• Payments basis


  VAT is accounted for when payments are made or received, the invoice date is irrelevant
• All vendors must account for VAT on the invoice (or accrual) basis, unless requirements for registering on the payment's basis are met
• The VAT Act provides for different tax periods to accommodate different types of businesses
• The VAT system is a self-assessment system
• A VAT201 return must be submitted to SARS 25 days after the end of the tax period
• If the input tax exceeds the output tax, SARS will refund the difference to the vendor
• To know the amount of output tax that must be levied, it is important to know the types of supplies the vendor is providing
• d/less Adjustments


  Equals VAT payable/refundable
• Requirements for levying output tax
• For the purposes of our initial discussion, we will assume that the person under discussion is a registered VAT vendor and must charge VAT on sales
• Types of supplies


  • Taxable supplies
  • Exempt supplies
• Taxable supplies


  • Supplies at the standard rate (presently 15%)
  • Supplies at the zero rate (0%)
• Exempt supplies are supplies upon which no output VAT is chargeable
• The VAT system works with two persons (or entities): the person selling and the person buying
• If a person sells goods or services that are subject to the zero rate, the person who is buying the goods or services will also be subject to the zero rate
• The person buying the goods or services therefore cannot claim back input VAT at 15%, as he/she actually paid 0%
• Requirements for output tax to be levied

  • Supply of goods or services
  • By a vendor
  • In the course or furtherance of an enterprise carried on by him
• The list of goods or services that are zero-rated or exempt from VAT can be changed by the Minister of Finance
• The standard rate of VAT (currently 15%) can also be changed by the Minister in his budget speech
• Exempt supplies can never be subject to VAT; however, the Minister can also change these exempt supplies to standard rated supplies
• If the standard rate is changed (for example, from the current 15% to 16%), the tax fraction will change from 15/115 to 16/116