Value-Added Tax (“VAT”) is a destination-based-consumption-type tax. It means that VAT is payable on the final consumption of goods and services in the jurisdiction where that consumption occurs. This is achieved by levying VAT at the standard rate (15%) on local supplies and the importation of goods and services, and zero-rating exported goods and services.
The collection of VAT takes place by every vendor in the supply chain, levying VAT on the supply (output tax) and deducting the VAT incurred in respect of making that supply (input tax). The vendor will only pay the difference between the VAT charged by it and the VAT charged to it over to SARS.
The following practical example can be used to illustrate this:
Vendor B acquires raw materials from Vendor A for R 115 (R 100 plus VAT of R 15). Vendor A pays output tax of R 15 over to SARS. After manufacturing the goods, Vendor B sells the goods to its customers for R 345 (R 300 plus VAT of R 45). Vendor B have a net VAT liability of R 30 due to SARS (output tax of R 45 less an input tax deduction of R15 in respect of the acquisition of the raw materials). In the end, SARS received R 45 VAT (R 15 from Vendor A and R30 from Vendor B). The end-user carried the VAT cost of R 45.