On the 21st day of February 2018, the Minister of Finance announced in his Budget Speech that the value-added tax (VAT) rate will be increasing, with effect from the 1st of April 2018, from 14% to 15%. This increase is applicable to all goods and/or services which is taxable and provided by a vendor on or after the 1st of April 2018.
With the implementation of a new VAT-rate, questions such as “which supplies would be subject to the increased rate?” as well as “when will the increased rate be applicable to a specific transaction?” arose. In this particular instance, section 9 of the Value-Added Tax Act 89 of 1991 (hereinafter referred to as the “VAT Act”) lay down that a supply of goods or services shall be deemed to have taken place at the time that an invoice (or any document – not necessarily a “tax invoice” – notifying an obligation to make payment, such as a quotation or pro forma invoice) was issued by the supplier or the recipient in respect of that supply or service, or at the time that any payment of consideration is received by the supplier in respect of that supply or service, whichever occured first in time.
Therefore, the general rule is of such nature that the supply of goods or services is reckoned to take place at the date upon which an “invoice” is issued or when any payment is received by a vendor – depending on the chronological order of events.
With regards to the question of when the increased rate of 15% would be applicable, one should consider section 67A of the VAT Act. In the event that an invoice is issued or payment is made in respect of the supply of goods or services prior to 1 April 2018, the relevant supply of goods or services will be estimated to have taken place before the increase and VAT at 14% shall apply. On the other hand, the VAT Act also makes provision for the event where goods should be delivered or services ought to be rendered, prior to the 1st day of April 2018, but such goods or services are deemed to have taken place (in terms of section 9 as mentioned above) after the date that the VAT increase took place. Section 67A states that in these circumstances, the original rate of 14% will proceed to apply to the goods provided or the services rendered before the 1st day of April 2018, notwithstanding the fact that the supply of the goods or the services rendered are deemed to have taken place after the 1st day of April 2018 in terms of section 9.
In the event that goods are provided or services are rendered during a period that commenced prior to and ended on or after 1 April 2018, section 67A of the Act requires a “fair and reasonable apportionment” to be made on a fair and reasonable basis for the value of the goods delivered or services rendered before and after 1 April 2018. The value of that portion which falls before 1 April 2018 will be taxed at 14% and the fragment that falls on or after 1 April 2018 will be taxed at 15%.
In the event that an agreement is entered into between parties prior to the effective date of the VAT rate increase, which goods will be supplied on or after the 1st April 2018, the vendor may recover the additional amount of VAT as “an addition to the amount payable by the recipient to the vendor” – save for when the contract/agreement entered into between the parties specifically prohibit such amounts from being recovered.
Unless one of the prescribed “time of supply” rules are applicable as per section 9, VAT ought to be charged at 15%. The latter is relevant for the supply of any goods or services where an invoice is issued, any document is issued notifying payment on or after 1 April 2018, or any payment in relation to the supply of the goods or services is received on or after that date. Where an invoice or any document is issued notifying payment before 1 April 2018, the relevant supply of goods or services will be charged at 14% VAT. In the event that goods or services are provided before the 1st April 2018, but such goods or services are deemed to have taken place after the 1st April 2018, then Section 67A of the VAT Act will make provision for the long-standing rate of 14% VAT to be applicable to the supply of those goods or services.
Should there be any uncertainty regarding the implementation of the increased VAT rate, suppliers of goods or services are advised to obtain advice from a specialised Tax Attorney to ensure that they comply with the relevant provisions of the VAT Act.
Kylie Potgieter is a Junior Associate at Barnard Incorporated Attorneys in Centurion.
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