What is it?
VAT is an indirect tax on the consumption of goods and services in the economy. Revenue is raised for government by requiring certain businesses to register and to charge VAT on the taxable supplies of goods and services. These businesses become vendors that act as the agent for government in collecting the VAT.
VAT is charged at each stage of the production and distribution process. VAT is presently levied at the standard rate of 14% on the supply of most goods and services and on the importation of goods. The VAT on the import of goods is collected by customs. There is a limited range of goods and services which
are subject to VAT at the zero rate or are exempt from VAT. One example of exempt items are basic food stuffs.
Any person including individuals, partnerships, trust funds, foreign donor funded projects, and municipalities that carries on a business may register for VAT. In order to register, an application form must be completed and a specific process must be followed.
Who can register for VAT
- If the taxable supplies made or to be made is, in excess of R1 million in any consecutive 12-month period.
- Existing or future businesses that have a written contractual commitment to make taxable supplies exceeding R1 million within the next twelve months.
A person may also choose to register voluntarily if the taxable supplies made, in the past period of twelve months, exceeded R50 000. As from the 1st of March 2012, qualifying micro businesses that are registered for Turnover Tax may also choose to register for VAT provided that all the conditions for voluntarily registration for VAT are met.
The PRO’s and CON’s
- Dependent on the type of business, the claiming of input tax deductions could be regarded as a benefit, as the VAT you pay for goods or services used, consumed, or on-supplied in making taxable supplies is claimed back and this then reduces your cost by the VAT amount
- Another benefit is If your customers are corporates that can claim the VAT you charge back.
- The requirement to file returns on a bi-monthly basis does force compliance and proper accounting records for the business to keep its records in order, which can only benefit them in the long run.
- Many tender processes and large companies require a company / entity to be VAT registered in order to carry out the business.
- The general trend is that SARS is less efficient at refunds or problem solving but this cannot be proven either way.
- Businesses may have to carry the ‘cost’ of the VAT – which must be declared to SARS – until the business receives payment from its customer.
- The cash flow of smaller and newer companies generally does not accommodate the money needed to pay VAT when it is due.
- Business owners may spend too much time on admin – salaries, wages, PAYE, SDL and UIF and bi-annual IRP5 rather than focusing on growing they businesses.
- Once you are VAT registered you incur additional costs as you may need to hire a bookkeeper or an accounting firm to make sure you keep track of accounting and admin to do proper VAT reporting back to SARS.
- In specific companies, mainly service companies, there are few expenses to claim the VAT back from. This is due to the company “selling” a service rather than a product. Eg: an accountant does not have a ‘product’ to sell but rather a service. The main expense in these companies is generally salaries and wages.
The registration for VAT can be a compulsory or voluntary decision. The pro’s and con’s however are narrowed for different industries and specific companies.
If you would like more info or would like to register for VAT, please contact us.
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