VAT TAXATION 3B
Introduction
VAT is an indirect tax charged on goods and services. Any enterprise registered as a VAT
vendor may claim back VAT it had paid on its purchases from SARS. Government makes
revenue, mainly, through VAT and other forms of tax. It is mandatory for certain businesses
to register as VAT vendors. These businesses act as the agent for government in collecting
the VAT. This study unit provides an in-depth discussion of the major aspects of VAT. VAT
was introduced in South Africa in 1991 to replace the General Sales Tax. It is governed by
The Value Added Tax Act 89 of 1991. The VAT rate was 10% from 1991 to 1993 and
increased to 14% from 1993 to 31 March 2018. On the 1st of April 2018, the it was increased
to 15%.
1.2 Calculation of VAT
1.2.2. The accounting basis (section 15)
The timing at which VAT is payable to SARS or refundable to the enterprise (VAT vendor)
depends on the type of VAT accounting basis chosen by a vendor. The accounting basis
determines the time or period of supply for VAT purposes. The following are two types of
accounting bases that a VAT vendor may use to account for VAT:
The invoice basis; and
The payment basis.
, 1.2.3. The invoice basis
On the invoice basis, VAT is accounted for when:
The invoice is issued (given or received), usually when buying on account (credit); or
A payment is received usually when buying for cash.
1.2.4. The payment basis
With the payment basis, VAT is based on actual payments made and received by the vendor.
A vendor who wishes to use the payments basis must apply in writing to SARS. The
application can be made either on registration or at any subsequent time.
Vendors (except for public authorities, municipalities and municipal entities) that account
for VAT on the payments basis are required to account for VAT on the invoice basis on the
supply of any goods (other than fixed property) or services for which the consideration in
money is R100 000 or more (including VAT).
Note: Any VAT vendor with a value of taxable supplies not exceeding R50 000, may register
voluntarily. Such a vendor will be registered on a payment basis until the value of taxable
supplies exceeds R50 000. Once the value of taxable supplies exceeds R2.5 million, such a
vendor (under payment basis) must inform the commissioner in writing, since they will now
account for VAT on an invoice basis. Although, not compulsory, the reverse situation will
apply. Attempt the following activity to test your understanding of accounting for VAT on a
payment basis.
Introduction
VAT is an indirect tax charged on goods and services. Any enterprise registered as a VAT
vendor may claim back VAT it had paid on its purchases from SARS. Government makes
revenue, mainly, through VAT and other forms of tax. It is mandatory for certain businesses
to register as VAT vendors. These businesses act as the agent for government in collecting
the VAT. This study unit provides an in-depth discussion of the major aspects of VAT. VAT
was introduced in South Africa in 1991 to replace the General Sales Tax. It is governed by
The Value Added Tax Act 89 of 1991. The VAT rate was 10% from 1991 to 1993 and
increased to 14% from 1993 to 31 March 2018. On the 1st of April 2018, the it was increased
to 15%.
1.2 Calculation of VAT
1.2.2. The accounting basis (section 15)
The timing at which VAT is payable to SARS or refundable to the enterprise (VAT vendor)
depends on the type of VAT accounting basis chosen by a vendor. The accounting basis
determines the time or period of supply for VAT purposes. The following are two types of
accounting bases that a VAT vendor may use to account for VAT:
The invoice basis; and
The payment basis.
, 1.2.3. The invoice basis
On the invoice basis, VAT is accounted for when:
The invoice is issued (given or received), usually when buying on account (credit); or
A payment is received usually when buying for cash.
1.2.4. The payment basis
With the payment basis, VAT is based on actual payments made and received by the vendor.
A vendor who wishes to use the payments basis must apply in writing to SARS. The
application can be made either on registration or at any subsequent time.
Vendors (except for public authorities, municipalities and municipal entities) that account
for VAT on the payments basis are required to account for VAT on the invoice basis on the
supply of any goods (other than fixed property) or services for which the consideration in
money is R100 000 or more (including VAT).
Note: Any VAT vendor with a value of taxable supplies not exceeding R50 000, may register
voluntarily. Such a vendor will be registered on a payment basis until the value of taxable
supplies exceeds R50 000. Once the value of taxable supplies exceeds R2.5 million, such a
vendor (under payment basis) must inform the commissioner in writing, since they will now
account for VAT on an invoice basis. Although, not compulsory, the reverse situation will
apply. Attempt the following activity to test your understanding of accounting for VAT on a
payment basis.
