Weekend Argus (Sunday Edition)

VAT vendors scramble to adjust

Experts warn of logistical nightmare as April 1 date for implementa­tion of new 15% rate draws near

- Kabelo Khumalo

VALUE-Added Tax (VAT) vendors are scrambling to find ways to meet Finance Minister Malusi Gigaba’s new adjusted rate of 15 percent.

Experts this week warned that the hike, the first in 25 years, was set to be a logistical nightmare for the vendors.

Mazars tax consultant Marilize Neethling said administer­ing the adjusted amount would increase costs for VAT vendors.

“The increase in the VAT rate from 14 percent to 15 percent is a massive administra­tion headache for VAT vendors,” Neethling said.

Vendors will be forced to, among others, adjust their accounting software, and keep track of transactio­ns and invoices dated before and after April 1, 2018, and change displayed prices in stores and on websites.”

On Wednesday, Gigaba announced that the VAT rate would increase by 1 percentage point to 15 percent in what was viewed as the most controvers­ial announceme­nt in this year’s Budget.

The increase was expected to contribute the lion’s share of the tax shortfall as it was estimated it would generate an additional R22.9 billion.

Other experts said vendors needed to keep track of irrecovera­ble debts and other VAT adjustment­s as the adjustment­s had to be made using the VAT rate that applied at the time the original supply was made.

They said vendors should pay special care with the monthly VAT reconcilia­tions and return completion­s since tax invoices received after April 1 must be distinguis­hed from those received prior to April 1 and invoices must be checked to ensure they reflect the new VAT rate.

SA Chamber of Commerce and Industry (Sacci) chief executive Alan Mukoki said: “The 1 percent increase in VAT may appear marginal.

However, the knock-on effect will impact revenue growth in many businesses and this is something that South Africa should watch closely.”

Economists have largely welcomed the hike in VAT, saying that it was the only hand left to Gigaba to play.

However, Cliff Watson, a director of tax at Grant Thornton, said a 2 percent increase in VAT would have been more profitable.

“We would have expected at least a 2 percent VAT rate increase, taking into considerat­ion the administra­tive burden and business process and system changes VAT vendors will have to endure in their ERP system,” Watson said.

Pierre Moolman, a member of the Value Added Tax Sub-Committee at the South African Institute of Chartered Accountant­s, said business would be unusual unless implicatio­ns are fully understood and properly planned for.

“Those charged with governance must find it an urgent necessity to assess the implicatio­ns of a rate increase to identify changes required and the time frame within which such changes should be implemente­d,” said Moolman.

Tax Ombud Judge Bernard Ngoepe had previously taken a hard stance against the SA Revenue Service, charging that systems unfairly delayed payment of refunds to taxpayers, resulting in financial hardships to businesses.

Ngoepe said in some instances this had resulted in the near collapse of businesses and job losses.

Gerhard Badenhorst, a director in the tax and exchange control unit of corporate and commercial law firm Cliffe Dekker Hofmeyr, said businesses that supplied their goods or services on extended credit terms would experience a negative cash flow impact resulting from the VAT rate increase.

“Unfortunat­ely, the effective date of April 1, 2018 for the rate change does not allow much time for vendors to amend their systems and to implement procedures to ensure that VAT is correctly accounted for from that date,“Badenhorst said.

 ?? PHOTO: ELMOND JIYANE, GCIS ?? Finance Minister Malusi Gigaba flanked by his deputy Fiso Buthelezi, Sars Commission­er Tom Moyane and Director General Dondo Mogajane on his way to delivering his maiden Budget speech in the National Assembly on Wednesday.
PHOTO: ELMOND JIYANE, GCIS Finance Minister Malusi Gigaba flanked by his deputy Fiso Buthelezi, Sars Commission­er Tom Moyane and Director General Dondo Mogajane on his way to delivering his maiden Budget speech in the National Assembly on Wednesday.

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