Walking away from a till, getting an invoice from a supplier, even your bank statement, these are just some of the places where that little ‘14% VAT’ shows up in our day to day lives. Whether you’re an individual, small business or multi-national conglomerate, there is no escaping the clutches of the V(alue) A(dded) T(ax) Act passed in 1991.
VAT is collected on behalf of the South African Revenue Service by companies and businesses registered as VAT Vendors. Being registered means that on a periodic basis they have to pay over the VAT that they collect from their customers to SARS. Additionally a taxpayer is only required to register once his revenue is expected to exceed R1 million in a twelve month period. The added administration and liability seems like reason enough not to register. On the other side of the coin though, the vendor is allowed to deduct VAT paid to his suppliers, reducing his liability to SARS and which, depending on the period transactions, might even turn his liability into an asset.
In essence then being a VAT vendor means that:
- you can claim VAT charged by your suppliers from SARS because your supplier will be paying it (input tax)
- you are obliged to pay over the VAT portion on your sales and your customer in turn will be able to claim the same amount back (output tax)
Those involved in the manufacturing or development effectively pay VAT on the difference between their sales price and purchase price, in other words the value added by them to the product. Subsequently the person that actually uses the final product or service is charged value added tax for the entire process that created the product. The final user doesn’t need to worry about this tax though, because it has been paid to SARS by the numerous suppliers and manufacturers, developers and wholesalers that brought the product to him.
As a smaller business, that does not have income of a million Rand in twelve months, how does this affect you?
Very important is that the R1 million Rand threshold is a mandatory registration, however SARS allows you to voluntarily register if you will be delivering taxable supplies of R50 000 or more within twelve months after the registration. Recently there have been legislative amendments making this process less taxing on smaller enterprises and allowing these entities to, just like their larger rivals, gain the advantages of being a VAT vendor. Note should be taken that the annual limits are compiled only of taxable supplies as defined in the VAT act.
The whole process sounds quite intricate, especially when concepts like exempt- and zero rated supplies are brought into the conversation, not to mention what the implications are of trade being done with another vendor, a foreign supplier or customer, or a resident not registered for VAT. In truth it needn’t be that hard and with proper documentation, and professional advice from those knowledgeable on VAT matters, any person can understand and manage their own VAT quite successfully.