SARS is getting ready to nail these businesses in South Africa

The South African Revenue Service (SARS) is ready to pounce on any businesses that tried to exploit the confusion around the country’s budget and VAT increases earlier this year.

South African businesses were caught in a storm of confusion between March and May as politicians sowed chaos around a VAT increase in 2025.

In March, the National Treasury tabled its budget 2.0, which included a 0.5 percentage point increase to VAT, taking effect from 1 May 2025.

The fiscal framework containing the VAT hike was adopted by parliament’s portfolio committee with the support of Action SA, and then passed through the National Assembly with additional support from BOSA.

While Action SA purportedly opposed the VAT hike, its deciding vote in support of the framework in the portfolio committee cemented the 1 May implementation date.

Section 7(4) of the VAT Act permits the increase in the VAT rate and allows the Minister of Finance to announce a change to the VAT rate during the national Budget Speech.

Under the current laws, an announced change will take effect on the date specified by the minister, and will remain in effect for a period of 12 months.

Typically, this would give parliament time to adopt and approve it in various budget votes, or to reject and amend it.

The Act makes no provision for the Finance Minister to withdraw or change this date, or to nullify the hike, except in the event that he tables a new budget and makes a new proclamation.

Regarding the May 2025 VAT increase, legal experts noted that there were only two ways to prevent it from happening on the announced date.

Parliament would need to pass entirely new legislation to allow the Finance Minister to change his mind, or the budget would need to be withdrawn entirely and a new process initiated.

The latter could have happened at the portfolio committee level; however, the framework with the VAT hike was pushed through with enough votes in favour.

Had the committee voted to amend the framework instead, the budget process would have reset much earlier.

Regardless of the legal reality, the parties who supported and voted for the framework filled media channels with statements and press releases claiming that the VAT hike would not happen.

At the same time, various companies—bound by law, not politicking—sent out notifications to clients, notifying them of the increase to VAT from 1 May.

This included big banks, mobile operators and other major service providers.

On one hand, politicians promised no VAT hike, on the other, companies were preparing to hike VAT. This confusion persisted until the 11th hour.

The government finally announced on 25 April, days before implementation, that the budget would be withdrawn and the VAT hike removed.

This was given legal backing two days later, when the National Treasury settled with the Democratic Alliance—later made an order of the High Court—to have votes supporting the fiscal framework in the portfolio committee and in the National Assembly set aside.

Penalties for businesses who ignored the call

It was only these dates that SARS stepped in, issuing statements and directives to vendors, ending the VAT hike.

In a media statement on 25 April 2025, SARS specifically advised all VAT vendors that they must reverse their system changes from charging VAT at 15.5% back to 15% with effect from 1 May 2025.

If some vendors could not reverse the VAT rate, they had until 15 May 2025 to affect the systems changes and such VAT must be separately disclosed in specific fields of the VAT return, thereby notifying SARS of any potential risk.

A second media statement on 27 April 2025 provided additional clarity after the High Court judgement suspending the 0.5% increase urging all vendors to readjust their systems back to 15% and urging customers to ensure that they are charged the correct VAT rate of 15%.

SARS also communicated that in the unlikely event that customers were charged 15.5%, customers should bring this to the attention of the vendor and ensure that this was resolved at the point of sale or by mutual agreement.

According to the National Treasury, SARS will now be actively monitoring vendors’ transactions for May 2025 to catch out any and all businesses who did not follow these directives.

“To mitigate risk of non-compliance, SARS’ risk engine will monitor vendors for anomalies for the month of May and will risk profile and select high-risk cases for verification and/or audit to ensure compliance with the legislation,” the Treasury said.

“Any vendor who has not corrected their VAT rate and has not either declared or paid the VAT to SARS and/or not refunded its customer accordingly will be penalised in accordance with the penalty provisions contained in the VAT Act and the Tax Administration Act.”