What SARS says about the VAT hike reversal

The South African Revenue Service (SARS) has broken down the procedural matters relating to the decision to cancel the VAT hike on 1 May 2025, which it admits has caused great pain in the country. 

Finance Minister Enoch Godongwana’s Budget 2.0 proposed increasing VAT from 15% to 16% by 2026, with a half-percentage-point increase scheduled for 1 May 2025.

Despite receiving support to narrowly pass the budget in parliament, the minister reversed his decision following widespread public criticism of the move and effectively withdrew the budget. 

SARS Commissioner for the South African Revenue Service Edward Kieswetter said the decision to reverse the VAT hike in South Africa will seriously affect VAT vendors. 

Kieswetter said that SARS will make the necessary adjustments to accommodate the change. 

The Commissioner also noted that vendors and consumers have invested in preparing for an increase in VAT during heightened uncertainty from Parliament’s deliberations. 

With Godongwana introducing the Rates and Monetary Amounts and the Amendment of Revenue Laws Bill, SARS said that the following measures apply to VAT vendors with effect from 1 May 2025: 

• As per the VAT Act, vendors are expected to charge 15% and not 15.5% for the relevant goods and services. Vendors may use a limited time to adjust their systems accordingly and report and pay the VAT.

• Should a vendor not be able to revert to the 15% rate due to complex system changes that may be needed, such supplies and purchases must be reported and accounted for at the 15.5% rate until you are able to make the necessary system adjustments, which should be completed by 15 May 2025.

• VAT transactions charged at 15.5% must be reported in fields 12 (for output tax) and 18 (for input tax) of the VAT return.

• Adjustments in the form of refunds of the 0.5% rate to customers and from suppliers must equally be reported in fields 12 and 18, respectively.

• The VAT return declarations made will be considered when verifications and/or audits on the affected VAT tax periods are conducted.

• The VAT returns to be submitted will continue to calculate VAT automatically using the 15% rate from tax periods or months commencing 1 May 2025.

• Vendors who have already implemented both the rate changes and the zero-rating are encouraged to reverse those changes before 1 May 2025.

Kieswetter said that he understands the complexity and the confusion that has resulted from this process. SARS will do its best to provide further clarity to create certainty of obligation for all vendors.

Two ways to stop the hike

Although Godongwana has tabled the Bill retaining the VAT rate at 15%, it is unlikely that it will be approved by Parliament and promulgated before 1 May 2025, which is only two working days away.

Thus, the original announcement of an increase to 15.5% on 1 May 2025 remains in force as per Section 7(4) of the VAT Act until the promulgation of the Bill withdrawing it.

PwC noted that increasing the rate to 15.5% in practice from 1 May 2025 will result in substantial price difficulties.

National Treasury plans to retain the rate at 15% by backdating it to 1 May 2025 once the Bill is promulgated.

“In other words, if the higher rate is now levied from 1 May 2025 and the Bill passed into law, the additional 0.5% levied will have to be refunded to vendors and consumers, resulting in substantial administrative and compliance burdens,” said PwC.

“Levying VAT at the higher rate is also likely to result in significant public discontent in light of the announcement.”

The Big Four accounting firm also noted that the increase is subject to a legal challenge in the Western Cape High Court, with a decision expected to be issued on Tuesday, 29 April 2025.

The government proposed a settlement, which could stop the VAT increase before a new law is promulgated.

Pwc noted that an agreed settlement to set aside the VAT increase made an order before 1 May 2025 will give legal effect to the stated intention.