Following Parliament's approval of the Fiscal Framework and the publication of the notice in the Government Gazette regarding the introduction of the Rates and Monetary Amounts and amendment of Revenue Laws Bill in the National Assembly, the VAT rate increase of 0.5% (from 15% to 15.5%) will apply from 1 May 2025. This gives effect to the announcement by the Minister of Finance, Mr Enoch Godongwana, in his Budget Speech on 12 March 2025.
Despite fierce opposition and a significant amount of uncertainty surrounding the VAT rate will increase, it is set to proceed. With the Fiscal Framework now passed and the Bill being table in Parliament with little prospect of being debated and voted upon in Parliament, it is very unlikely that any legislation will be passed before 30 April 2025 to reverse the increase.
The Value-Added Tax Act, 1991 (“VAT Act”) in section 7(4) already provides that in circumstances where the Minister makes an announcement in the Budget that the VAT rate is to be changed, the change takes effect from the date determined by the Minister. In this case, the increase to 15.5% from 1 May 2025. However, this change is subject to Parliament passing legislation within that 12 months (i.e., by 30 April 2026) to give effect to the announcement.
Even though this section provides the Minister with final legislative powers (as his announcement leads to a change in the legislation) the debate in the public domain and lack of consensus at the Standing and Select Committee of Finance and in Parliament, has been driving uncertainty and creating an unfounded expectation that the rate increase may be delayed or reversed.
Given the remaining time to 1 May and the processes already completed, there is little doubt that the announced new VAT rate will become effective at midnight on Thursday 1 May 2025. The only exception would be the High Court granting an interdict delaying the VAT rate change until the constitutionality of the Minister's powers in these circumstances have been confirmed.
Uncertainty remains regarding the consequences if Parliament fails to pass legislation formalising the rate increase within 12 months, including whether the VAT rate will simply revert to 15% and also the date from which this old rate will apply. It is clear that the legislation does not contemplate a situation where Parliament might not pass an increase within 12 months after implementation of the new rate.
Vendors are thus advised to continue to prepare for the VAT rate increase to 15.5% effective 1 May 2025.
The implementation of a new VAT rate results in a significant compliance cost borne almost exclusively by vendors who have to implement a number of changes in the day-to-day running of their business. These require significant operational changes and subsequent testing to ensure a smooth implementation and accurate application of the new rate. This includes updating accounting systems, sub-systems, operating systems and software; amending invoices, revising product labels and price lists; revision of existing contracts and managing contracts in effect, both before and after the VAT rate increase, to ensure the correct application of the VAT rate.
In this regard, the normal time of supply rules apply to determine when a transaction occurs, and as such, what VAT rate must be declared in the vendor's VAT returns. While these normal rules remain unchanged, there are special transitional rules should be considered as they override the normal rules.
Vendors should carefully assess how the VAT rate increase will affect their businesses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
