South Africa: SARS issues guidance on VAT rate increase starting May

The VAT rate in South Africa will increase from 15.0% to 15.5% starting 1 May 2025, with a planned increase to 16.0% from 1 April 2026. The South African Revenue Service (SARS) has released a set of Frequently Asked Questions (FAQs) regarding the increase in the VAT rate. This should be read alongside the Pocket Guide on the VAT rate increase, which also addresses the changes announced in the 2025 Budget.

The VAT Act contains rate specific rules that apply to certain transactions when the VAT rate is increased. If a rate specific rule applies, you must still account for output tax according to the normal time of supply rules, but the VAT rate to be used will be determined under the rate specific rule. Some of these rules are addressed below.

Goods delivered or services performed before 1 May 2025 – VAT at the rate of 15% applies to goods (excluding non-residential fixed property) delivered, or services actually performed before 1 May 2025, even though the time of supply is triggered on or after 1 May 2025. This rate specific rule, however, does not apply if the time of supply has been triggered (for example, by the issuing of an invoice or payment being made) before 1 May 2025.

Supplies starting before and ending on or after 1 May 2025 – Where goods are delivered or services are performed during a period commencing before 1 May 2025 and ending on or after 1 May 2025, the VAT-exclusive price of the supply must be apportioned on a fair and reasonable basis and allocated to the respective periods. The VAT rate is then applied accordingly. That is, the rate of 15% is applied to the value of supplies before 1 May 2025 and the rate of 15.5% is applied to the value of supplies from 1 May 2025 onwards. This rule does not apply if the time of supply is triggered before 1 May 2025.

This rate specific rule applies to –

goods supplied under rental agreements;
goods supplied progressively or periodically;
goods or services supplied in construction activities; and
services rendered over the period concerned,

but does not apply to supplies of fixed property (including residential fixed property).

Goods delivered or services actually performed on or after 1 May 2025 where the time of supply is triggered between 12 March 2025 and 30 April 2025 – Rate specific rules also apply where the time of supply occurs between 12 March and 30 April 2025 (that is, on or after the date of the announcement of the increased VAT rate, but before the effective date of the increased rate). Under this rule, when goods are delivered on or after 22 May 2025, or services are performed on or after 1 May 2025, but the time of supply is triggered between 12 March and 30 April 2025 as a result of any invoicing or payment in relation to the supply, then VAT at the rate of 15.5% applies. However, if the goods are delivered before 22 May 2025 (that is, within 21 days after 1 May 2025), or the services are rendered before 1 May 2025, then the supplies concerned will be subject to VAT at 15%.

These rate specific rules do not apply –

where it is an established business practice for payments to be made, or invoices to be issued before the supplies are made;
in respect of the sale of residential property, certain real rights in residential property and shares in residential share block companies;
to the construction of a new dwelling by a construction enterprise.

The rate specific rules do, however, apply to non-residential fixed property.

Supply of residential fixed property

Even if the time of supply is triggered after 1 May 2025 due to payment or registration of the property in the purchaser’s name in a Deeds Registry taking place, the supply of residential fixed property could be subject to VAT at 15%.

This rate specific rule only applies if –

the contract for the supply was concluded before 1 May 2025; and
both the payment of the purchase price and the registration of the property will occur on or after 1 May 2025; and
the VAT-inclusive purchase price was determined and stated as such in the agreement.

For purposes of this rule, “residential property” includes a dwelling and certain real rights and shares in share block companies relating to a right of occupation of or interest in a dwelling. The construction of a new dwelling by a construction enterprise is also included.

Lay-by agreements

The VAT rate of 15% applies in the case of goods supplied under a lay-by agreement if that agreement was concluded before 1 May 2025 and the lay-by amount to set aside the goods was also paid by that date. The supply of goods under lay-by agreements concluded on or after 1 May 2025 is subject to VAT at 15.5%.

If the lay-by agreement is later cancelled or terminated, the supplier must account for VAT on any amount retained in the VAT reporting period concerned. The old tax fraction of 15/115 must be used where the agreement was concluded and the amount to set aside the goods was paid before 1 May 2025. Otherwise the new tax fraction of 15.5/115.5 must be used.

Earlier, South Africa’s Finance Minister, Enoch Godongwana, presented the 2025 Budget Speech on 12 March 2025 proposing increased VAT rate. VAT was levied at the standard rate of 15% on the supply of goods and services by registered vendors. The rate was proposed to be increased to 15.5% from 1 May 2025 to 16% from 1 April 2026.