DailySun
Businesses will have to adjust their systems to account for a 0.5 percentage point increase in the standard value-added tax (VAT) rate, and this added expense may be transferred to consumers.
According to Kabelo Moutloatse, a senior expert in tax debt and accounting at Latita Africa, companies should determine if they can absorb the heightened VAT costs by decreasing their profit margins or if they will need to pass this expense onto customers through price hikes.
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“The choice will depend on multiple factors, such as market competition, consumer demand, and the overall viability of the business. Developing a strategic approach to manage the VAT increase will be crucial for companies aiming to remain profitable and competitive,” Moutloatse suggests.
During his budget address, Finance Minister Enoch Godongwana proposed a VAT rate increase of 0.5 percentage points in 2025/26 and again in 2026/27.
Read: #Budget2025 Summary – Godongwana recommends a 0.5 percentage point VAT hike
While the adjustment to the VAT rate may not require regulatory or procedural changes, it will necessitate modifications to systems and processes.
Businesses will have one month before the new VAT rate comes into effect, during which many will finalize outstanding quotes and pro forma invoices to avoid substantial price increases while notifying customers about the impending change in the applicable rate.
“In previous instances of VAT rate increases, we found that this could cause confusion with billing and other systems, but it should be manageable in principle,” Moutloatse states.
He stressed that companies must update their systems for the VAT increase, and those dealing in food products should ensure that items that are currently zero-rated are classified correctly.
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Zero-rated food categories to include offals and canned vegetables
Unsure about the wording of the new VAT zero-rated list? You’re not alone
Effective May 1, the list of zero-rated VAT food products will expand to include edible offal from sheep, poultry, goats, swine, and cattle, as well as specific cuts like heads, feet, bones, and tongues. In addition, certain dairy liquid blends and canned vegetables will also be exempt from VAT.
“For businesses issuing pro forma invoices to clients, it’s essential to ensure that invoices are finalized before the new rate takes effect or adjust their pro forma invoices accordingly. Neglecting to do this may result in either increased costs for clients or diminished revenue for the businesses,” Moutloatse explains.
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Retailers are still assessing their strategies and have refrained from making public statements on the topic.
Woolworths stated: “Our teams are currently determining our strategy regarding the VAT increase, which will require some time to finalize.”
Moutloatse cautions that businesses with long-term supply contracts that cannot be adjusted due to the VAT increase may experience reduced profitability, especially those operating with tight margins.
Read: No budget cuts, just tax hikes: Treasury’s solution to the fiscal crisis
Another expected challenge, aside from potential mistakes when updating systems with the new VAT rate, is that many businesses may forget to implement the necessary modifications.
Moutloatse remarks: “Since most businesses file VAT returns every two months, this presents a notable risk if one’s VAT reporting period aligns with the two months during which the change occurs.
“Businesses must ensure that they accurately account for the VAT difference when filing their declaration for the May 2025 period.”
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