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How VAT (Value Added Tax) Works

How VAT (Value Added Tax) Works

When it comes to VAT, many businesses and consumers are still not fully aware how business tax services such as this actually work. PATC offers a guide that helps you to understand the VAT process, and also offers full accounting and business tax services assistance for those needing to register Value Added Tax for their business.

The definition of VAT is given by SARS (South African Revenue Services) as follows:

VAT (Value Added Tax) is an indirect tax based on consumption of goods and services in the economy. Revenue is raised for the government by requiring certain traders or vendors to register and to charge VAT on taxable supplies of goods or services.

The basic characteristics of VAT are broken down according to the following points:

  • � VAT applies generally to transactions relating to items and services.
  • � VAT is proportional to the price charged for these items.
  • � VAT is charged at each stage of the production and distribution process.
  • � Business owners may deduct tax paid during previous stages, but then the burden of the tax is on the final consumer.


VAT is only charged on taxable items made by the business. These supplies do not include items such as salaries, private non-business related items; sale of private items or exempt supplies.

As a business owner in South Africa, VAT only applies to items sold within the country or on items that are imported into South Africa. You are obligated to register at SARS if you make taxable supplies in excess of R1 million (from 1 March 2009) over the course of any 12 month consecutive period. You may also choose register on a voluntary basis (from 1 March 2010) if a minimum amount of R50, 000 has been exceeded within the past 12 months.

The current standard rate is 14% on most items and imported items, with certain items exempted or charged at a 0% rate, such as exports. Imported items are only charged VAT if the importer of the item is not the business owner, or if the items have been imported for private use or fall into the exempt supplies category.

Registering for VAT is done in person in order for SARS to verify the business owner's identity and ensure that other details are correct. The VAT 101 - Application for VAT Registration form will be completed and submitted to SARS with supporting documents. PATC simplifies the process by offering a complete range of business tax services, allowing you to focus on running your business without the stress of added paperwork.

Contact PATC today to learn more about the business tax services on offer for VAT registration and other related tax areas.