04 April 2025
Dear NADA Members
The Minister of Finance announced a VAT rate increase from 15 per cent to 15.5 per cent during his budget speech on 12 March 2025. Should the Government reach agreement on the implementation of the VAT increase, it will likely come into effect on 1 May 2025. Members should ensure they apply the correct VAT rate, as provided for by the transitional rules as set out in section 67A of the VAT Act, read with relevant general VAT provisions.
This document is not a comprehensive guide and should not be construed as advice but rather seeks to highlight some transactions dealerships should consider and discuss with their tax consultants. We also attach the SARS Frequently Asked Questions documents issued for the rate increase on 1 May 2025.
For most transactions, the following should be considered to establish whether the old (15%) or new (15.5%) VAT rate applies:
- Time of supply. This is generally the earliest date an invoice is issued, or any payment of consideration is received for a supply of goods or services. However, specific time of supply rules may apply.
- The date on which goods are provided, or services are performed. Goods are deemed to be provided when they are delivered to the recipient. Goods supplied under a rental agreement are deemed to be provided when the recipient takes possession or occupation of the goods.
The transitional rules provide for the following scenarios:
- The time of supply is between 12 March 2025 and 30 April 2025 (both dates included), but the goods are provided after 21 May 2025, or the services are performed on or after 1 May 2025. Generally, a supplier must charge 15.5% VAT when this applies. This is an anti-avoidance provision to ensure vendors would not issue tax invoices or receive payment earlier than usual to charge 15% VAT instead of 15.5% VAT. However, this transitional rule does not apply where invoices are customarily issued, or payments are customarily received before the goods or provided or before the services are performed.
- The time of supply is on or after 1 May 2025, but:
- Goods (e.g. vehicles or parts) are provided before 1 May 2025. Generally, a supplier must charge 15% VAT.
- Goods (e.g. a building) are supplied under a rental agreement providing for periodic payments. Each period for which a payment becomes due is seen as a separate period with a separate supply. Generally, a supplier must charge 15% VAT for rental periods before 1 May 2025 and 15.5% VAT for rental periods on or after 1 May 2025.
- Goods are supplied periodically with periodic payments. Each period for which a payment becomes due is seen as a separate period with a separate supply. Generally, a supplier must charge 15% VAT for supplies during periods before 1 May 2025 and 15.5% VAT for supplies during periods on or after 1 May 2025.
- Services (e.g. repairing or servicing vehicles) are performed for a period starting before 1 May 2025 and ending before, on or after 1 May 2025. When the period ends before 1 May 2025, a supplier must generally charge 15% VAT. Where the period ends on or after 1 May 2025, a supplier must generally use a reasonable apportionment method to charge 15% VAT for the period before and 15.5% VAT for the period on or after 1 May 2025. A supplier may issue two tax invoices for these two periods.
- For the sale of commercial fixed property, a supplier must charge the VAT rate applicable on the date on which such property is registered in the Deeds office.
For VAT on expenses (input tax), vendors should claim input tax deduction at the same rate applied by the supplier. For deemed (notional) input tax deductions, dealerships should apply the tax fraction (15/115 or 15.5/115.5) applicable on the time of supply of the purchase of the second-hand vehicle.
For debit and credit notes, the VAT rate will usually be the same as the VAT rate applied on the invoice for which a debit or credit note is issued. However, especially for debit notes, this general rule may not always apply.
We suggest that members should also use the SARS Frequently Asked Questions document to establish which VAT rate applies to specific transactions and for rules relating to prices quoted or advertised and other practical matters.
Sincerely
Gary McCraw
National Director
NADA
