So the VAT rate increases from 14% to 15% on the 1st of April. What does this mean for businesses? All other things equal, it means your business will pay an extra 7.14% in VAT each VAT period (why? If your sales and vatable inputs stay the same, your net VAT payable changes by 15/14).
Some businesses have already said they are increasing their prices to account for the VAT increase. This argument is nonsensical! Assuming the value of VAT inputs stays the same, a price increase will only result in a larger VAT output and resultant increase in net VAT payable. Attempting to recover the “lost” VAT from customers will only exacerbate your VAT problem and potentially lose customers. Prices should be adjusted based on normal economic and business considerations and should not use VAT as a ‘clever’ means to push up prices. It’s not clever…Vodacom, MTN.
There is a fair lot to consider, such as: whether your accounting system will accurately account for two VAT rates, how to account for VAT on services that start before 1 April and end after 1 April, updating advertised prices, and rate specific rules.
The most important of these to note is the rule regarding time of supply. Section 9(1) of the VAT act states that “a supply of goods or services…be deemed to take place at the time an invoice is issued by the supplier or the recipient in respect of that supply or the time any payment of consideration is received by the supplier in respect of that supply, whichever time is earlier”.
What this means in terms of the rate increase, is that if an invoice is raised with an invoice date before 1 April, it must include VAT at a rate of 14% and must be captured as such, even if captured in a period after 1 April. The VAT rate depends on the time of supply, not the date you receive and capture an invoice.
VAT inputs can be claimed up to 5 years from the invoice date. This means that systems will need to manage dual rates up to 31 March 2023, or until the VAT rate changes again [excruciating emoticon].
I could go on but in consideration of our sanity, I will just say this: the VAT increase is likely here to stay, and the best way to manage it is to make sure you and your finance team understand the key VAT implications for your business, and how to account for this period of transition.
May Nene be with you.