What is VAT?
VAT was introduced in South Africa in September 1991, replacing a pre-existing regime known as the General Sales Tax (GST). VAT is an indirect tax based on consumption in the economy. This means it is levied on goods and services, not on your personal income or corporate profits.
VAT is currently levied at the standard rate of 15% on most supplies and importations, but there is a limited range of supplies of goods or services which are either exempt or which are subject to tax at the zero rate.
Once you’re registered as a VAT vendor (we’ll deal with when to register in a moment), vendors are charged with the responsibility of levying VAT (output tax) and paying it over to the SARS after deducting permissible VAT inputs and other deductions.
When should you register for VAT?
In the first years of your business, you’ll want to focus on providing an excellent service or product. So, for many budding businesses, registering for VAT is often undesirable. The accompanying administrative responsibilities – like submitting monthly VAT returns – detract from developing the core business product.
The VAT legislation provides some relief in this regard. Your small business is only required to register for VAT if the taxable supplies made or to be made, is over R1 million in any consecutive twelve-month period.
But there are certain instances where you might want to register for VAT voluntarily – the only prerequisite being that taxable supplies made in the past period of twelve months exceeded R50 000.
Some of the primary reasons you may consider voluntarily registering as a VAT vendor include:
· Your business sells mostly zero-rated supplies. Remember that you’ll still be able to claim back the VAT on the standard-rated supplies you buy to make your zero-rated product or service. And with no output tax, you may qualify for a VAT refund from SARS.
· Large capital expenditure is necessary. If your business needs to buy vehicles, equipment, or property, you’ll need a substantial deposit. Being a VAT vendor, you can claim back the VAT charged on those items.