Value-added tax (VAT)
VAT is an indirect tax that is largely directed at the domestic consumption of goods and services and at goods imported into South Africa. The tax is designed to be paid mainly by the ultimate consumer or purchaser in South Africa. It is levied at two rates, namely a standard rate and a zero rate (0%).
With effect from 1 April 2018, the standard rate of VAT is 15% (prior to that date, the standard rate was 14%).
Very few business transactions carried out in South Africa are not subject to VAT. The tax is collected by businesses that are registered with the SARS as ’vendors’ on all taxable supplies throughout the production and distribution chain. Sales or supplies by non-vendors are not subject to VAT.
VAT registration and administration
All suppliers of goods and services having an annual turnover exceeding ZAR 1 million are required to register as VAT vendors and to charge output VAT. Other vendors may elect to register as VAT vendors, provided their annual turnover exceeds ZAR 50,000. Two exceptions apply. Firstly, non-resident suppliers of electronic services are required to register once aggregate supplies of ZAR 50,000 have been made (this is changed to an annual turnover of ZAR 1 million from 1 April 2019). Secondly, persons likely to make taxable supplies only after a period of time may register if the activities are of a nature set out in regulations. If they do not register, they are prohibited from charging VAT on goods or services they supply and claiming an input tax (rebate of VAT paid) on goods and services that they acquire.
Under the VAT system, vendors normally pay VAT on expenses (input tax) and charge VAT on supplies made (output tax). This mechanism, therefore, ensures that only the so-called ‘added-value’ is taxed. Due to VAT being a self-assessment system, the output tax collected may be reduced by input tax paid. Thereafter, the net amount is payable to, or refundable by, the SARS. The self-assessment returns are due regularly within prescribed periods (tax periods).
Standard-rated and zero-rated supplies are known as taxable supplies. Other supplies are known as exempt and non-supplies.
Goods and services
For a liability for VAT to exist, there must be a supply or importation of goods or services. Goods are corporeal movable things, fixed property, and real rights in such things and property. The meaning of ‘services’ is very broad and includes the granting, assignment, cession, or surrender of any right or the making available of any facility or advantage.
Non-resident suppliers of electronic services are required to register for VAT on the payments basis and account for VAT on supplies of electronic services to SA residents.
Services imported by a vendor and utilised or consumed by the vendor for the making of taxable supplies are not subject to VAT. In addition, the VAT Act has a schedule that lists goods that are exempt from VAT on importation, whether by a vendor or an unregistered person.
The VAT Act contains a list of the supplies of goods or services that are taxed at the zero rate. Most of the items refer to exports and international transport, but other specified goods utilised for farming purposes, the sale of an enterprise as a going concern, certain basic foodstuffs, fuel subject to the fuel levy, and deemed supplies by welfare organisations are also zero-rated.
A zero-rated supply made by a vendor is subject to VAT but at a rate of 0%. Under a zero-rated supply, a vendor does not charge VAT on the consideration for the supply and obtains a refund or credit for the VAT paid on taxable supplies utilised in the making of the zero-rated supplies.
In addition to zero-rated supplies, the VAT Act contains a list of the supplies of goods or services that are exempt from VAT. While all fee-based financial services are subject to VAT, interest charged is exempt. Other exempt supplies include residential rentals, non-international passenger transport by road or rail, and educational services.
In the case of an exempt supply made by a vendor, the vendor does not charge VAT on the supply and is not entitled to a deduction or credit for the VAT paid on goods and services supplied for the making of the exempt supply. Accordingly, vendors treat the VAT paid by them, and for which they do not obtain a deduction or credit, as another cost and recover it in the consideration they charge for the making of the exempt supply.
Customs duties are charged on importation of goods into South Africa at rates ranging between 3% and 45%. In addition, import duties may also include anti-dumping and countervailing duties of up to 150%. No customs duties are charged on trade between South Africa and Botswana, Lesotho, Namibia, and Swaziland, as these five countries constitute the Southern African Customs Union.
Excise duty is levied on certain locally manufactured goods as well as their imported equivalents. A specific duty at a pre-determined amount is levied on tobacco and liquor, and an ad valorem duty (calculated as a percentage of price) on certain luxury goods and automobiles. Relief from excise duty is available for exported products and for certain products produced in the course of specified farming, forestry, and (limited) manufacturing activities.
Local municipalities levy rates on land. These rates are based on a percentage of the municipal valuation of land and improvements and vary from municipality to municipality. Generally, a higher rate is levied on properties zoned for business use.
Transfer duty levied on the sale of immovable property is payable by the person acquiring the property within six months from the date of acquisition at the following rates:
|Purchase price (ZAR)
||Transfer duty rate
|Not exceeding 900,000
|900,001 to 1,250,000
||3% on value above 900,000
|1,250,001 to 1,750,000
||10,500 plus 6% on value above 1,250,000
|1,750,001 to 2,250,000
||40,500 plus 8% on value above 1,750,000
|2,250,001 to 10,000,000
||80,500 plus 11% on value above 2,250,000
||933,000 plus 13% on value above 10,000,000
Transfers of immovable property subject to VAT are exempt from transfer duty.
Securities transfer tax (STT)
STT is levied at a rate of 0.25% of the taxable amount in respect of the transfer of a security. The taxable amount is usually the consideration for which the security is purchased or the market value of the security if the consideration declared is less than the market value or if no consideration was paid. STT is payable by the company that issued the securities in question. However, the company can recover the tax from the person acquiring the shares. Slightly different rules apply in the case of listed securities.
Employers are liable to withhold pay-as-you-earn (PAYE) on behalf of their employees. PAYE is payable to SARS on a monthly basis, calculated on the remuneration paid to an employee. The rates vary depending on the employee’s remuneration.
Skills Development Levy (SDL)
SDL is a compulsory levy to fund education and training. It is payable by an employer and cannot be deducted from the remuneration payable to an employee. Small employers with an annual payroll of less than ZAR 500,000 are exempt from the levy. SDL is levied at the rate of 1% of payroll. It is payable monthly, together with income tax that the employer has withheld on its employees’ salaries.
Unemployment Insurance Fund (UIF) contributions
Employers are required to contribute on behalf of their employees on a personalised basis to the UIF. The rate of contributions is 1% of gross remuneration payable to an employee, with a monthly cap of ZAR 148.72 per employee. Another 1%, subject to the same cap, is payable by the employee and withheld by the employer.
Compensation for Occupational Injuries and Diseases Act (COIDA) fund
Employers are liable for making annual contributions to the COIDA fund. COIDA contributions are a payroll cost that cannot be deducted from the employee’s salary, with a maximum salary cap per employee of ZAR 458,520 per annum. The rates vary depending on the employer’s industry.
Disposals of assets below an adequate consideration are a deemed donations and subject to donations tax. Donations tax is payable by resident companies at a rate of 20% of the value of property donated to the extent that this value does not exceed ZAR 30 million, and at a rate of 25% of the value of property disposed of that exceeds ZAR 30 million. An annual exemption of ZAR 10,000 is available for companies.
Public companies, comprised of mostly listed companies, are exempt from donations tax. An exemption is also available for donations made to certain charities and other non-profit organisations.
Vehicle emissions tax
An environmental levy is levied on new passenger motor vehicles at a rate of ZAR 110 per gram of CO2 produced per kilometre over the first 120g of CO2 per kilometre, and at a rate of ZAR 150 per gram of CO2 produced per kilometre over the first 175g of CO2 per kilometre (in the case of double cab passenger vehicles).
A fuel levy is included in the price of petroleum fuel sold. The general fuel levy for 2019/20 is 352 cents per litre of petrol and 337 cents per litre of diesel. From 5 June 2019, a carbon tax levy of 9 cents per litre and 10 cents per litre will be effective on petrol and diesel, respectively. A refund of the diesel general fuel levy may be claimed in certain industries, such as agriculture, fishing, and mining.
To support energy efficiency, the government has implemented a levy on electricity generated from non-renewable sources at 3.5 cents per kWh. The levy is paid at source by the electricity producer and recovered in the price charged to the consumer.
A tyre levy is applicable at a rate of ZAR 2.30/kg.
A tax on sugar-sweetened beverages, in the form of the Health Promotion Levy on Sugary Beverages, was introduced on 1 April 2018. The base on which the levy is applied is the sugar content of the beverage. The rate of the levy is 2.21 cents per gram for sugar content in excess of 4g/100ml as of 1 April 2019. For powder and liquid concentrates, sugar content is calculated on the total volume of the prepared beverage.
Air passenger tax
Passengers departing on international flights must pay air passenger tax at the rate of ZAR 100 on flights to Botswana, Lesotho, Namibia, and Swaziland, and ZAR 190 on other flights. The tax is added to the price of the ticket.
With effect from 1 June 2019, carbon tax is levied on entities that conduct activities in South Africa and that have 'scope 1' greenhouse gas (GHG) emissions exceeding a certain threshold. Generally, the threshold is thermal capacity of 10MW, but the exact threshold is determined with reference to the activity conducted by the entity.
The tax is levied in respect of the sum of the GHG emissions of a taxpayer in respect of a tax period (i.e. every calendar year, with the exception of the first tax period, which commences on 1 June 2019 and ends on 31 December 2019).
Generally, scope 1 GHG emissions comprise direct emissions, being emissions from owned or controlled sources (as opposed to scope 2 or 3 GHG emissions, which are indirect emissions).
The tax rate for carbon tax is ZAR 120 per ton of CO2 emissions (which would be expressed as 'ZAR120/tCO2e').
Tax-free allowances are available to reduce the carbon tax liability to a maximum of 95% of taxable emissions. Taking into account the allowances, the effective tax rate is much lower and ranges between ZAR6 and ZAR48/tCO2e.
Carbon tax returns are required to be submitted (and any carbon tax due must be paid) in July of the year following the relevant tax period.