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14 March 2025

South African VAT rate set to increase by 0.5% from 1 May 2025 and another 0.5% from 1 April 2026

  • The South African Finance Minister has announced that the VAT rate will increase to 15.5% on 1 May 2025 and to 16% on 1 April 2026.
  • Although the Government's approval is uncertain, the increase will be effective unless Parliament passes legislation to prevent it.
  • Vendors will need to assess the likely impact of the increase on their business and make necessary adjustments over a short period of time.
 

On 12 March 2025, while tabling the national annual budget, the South African Finance Minister announced that the value-added tax (VAT) rate will increase by 0.5% to 15.5% on 1 May 2025, and by another 0.5% to 16% on 1 April 2026.

Whether the South African Government of National Unity will approve the VAT rate increase is currently uncertain. However, as per the South African VAT Act, the rate increase becomes effective on the date announced in the national annual budget and lasts for 12 months, provided Parliament passes legislation to confirm it. Therefore, the first 0.5% rate increase will be effective from 1 May 2025, unless Parliament passes legislation to the contrary.

According to the South African National Treasury, the VAT rate increase is expected to have a less-detrimental effect on economic growth and employment over the medium term than would increases in personal or corporate income tax rates. Further, the impact on low-income households will be cushioned by above-inflation increases in social grants, extending fuel levy relief and expanding the list of foods zero-rated for VAT, which will now also include:

  • Edible offal of specific animals fit for human consumption
  • Various classifications of unflavored dairy liquid blends
  • Tinned dried beans and tinned green beans
  • Tinned fresh peas and tinned dried peas

Implications

Vendors will need to assess the likely impact of the VAT rate increase on their businesses and make necessary adjustments over a short period of time. For example, information technology (IT) systems and documentation must be updated; VAT reporting processes will need to be reviewed; contracts must be evaluated for VAT implications; product pricing must be adjusted; and the impact of the VAT transitional rules should be considered.

This rate increase affects many business functions. Below are some of the key aspects that different business areas should consider.

Finance and tax

Sales and marketing

Procurement and supply chain

IT and systems

Legal and compliance

Review and confirm updates to the accounting systems.

Update price lists and product pricing.

Verify supplier invoices, debit notes and credit notes

Modify accounting and enterprise resource planning (ERP) systems and update point-of-sale systems.

Review and update contracts.

Review the VAT calculations and VAT reports. Adjust input and output tax calculations if required.

Communicate price changes to customers.

Adjust purchase orders and contracts.

Review and consider additional tax codes to accommodate different VAT rates.

Advise on legal implications.

Consider whether there will be cashflow implications.

Display VAT adjustment notices.

Ensure cost of sales is correctly reflected. Consider all types of stock (including consignment stock).

Review system controls.

Ensure accurate and compliant VAT documentation.

Manage price adjustments and review the processes for issuing/receiving documents such as tax invoices and debit/credit notes.

Reflect new VAT rate in quotes and contracts.

Ensure correct VAT rate is used for imported goods.

Review system rounding requirements.

Consider whether advance payments, advance invoicing and self-invoicing are impacted.

Review and confirm VAT for imported goods and services.

Manage customer inquiries and disputes.

  

Consider impact on tender documentation submitted.

Consider specific transactions that could be affected, such as connected-person transactions, discounts, rebates and bad debts.

Consider the impact for further marketing campaigns.

   

Manage internal communications, actions and training.

    
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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young South Africa

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

Document ID: 2025-0695

 
 

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