Big VAT Changes on the Cards for South Africa in 2025

South Africa is gearing up for major reforms to its value-added tax (VAT) system in 2025, with proposals that could impact households and businesses nationwide.

Expanding the Zero-Rated Food Basket

To alleviate financial pressure on South Africans, the government is considering expanding the list of VAT-exempt food items.

• Currently, basic food items like brown bread, maize meal, samp, and eggs are VAT-exempt.
• The government is exploring whether additional essential items could be added to this list.

President Cyril Ramaphosa highlighted this initiative in his 2024 Opening of Parliament Address, reiterating the government’s commitment to making essential goods more affordable.

However, Deputy Finance Minister David Masondo cautioned that expanding the zero-rated basket could reduce VAT revenue, potentially affecting pro-poor programs.

Challenges in Defining Zero-Rated Items

Tax experts, such as Charles de Wet from ENS Africa, note the difficulty in precisely defining items to avoid abuse. For example, while chicken is a staple in South African diets, its inclusion on the VAT-exempt list has been hindered by definitional challenges.

Shortened VAT Claim Periods

A major change proposed in the Draft Taxation Laws Amendment Bill for 2024 would reduce the period for businesses to claim VAT refunds.

• Currently, businesses have five years to claim VAT paid on purchases.
• The new proposal would require claims to be submitted during the same tax period in which the purchase was made.

This change could streamline VAT administration but may place additional pressure on businesses to manage their documentation and cash flow.

E-Commerce VAT Reforms

South Africa is revisiting its VAT rules for cross-border electronic services to simplify compliance.

• The 2019 regulations required foreign suppliers to register and collect VAT for both B2B and B2C transactions.
• The proposed changes would limit VAT collection to B2C transactions only, reducing the administrative burden for non-resident suppliers.

This adjustment aligns with global practices and aims to boost VAT compliance in the rapidly growing e-commerce sector.

Revisions for Donor-Funded Projects

Another proposed change involves simplifying the VAT process for foreign donor-funded projects (FDFPs). The goal is to improve efficiency and ensure these projects are not hindered by complex tax procedures.

These VAT changes are part of a broader strategy to enhance South Africa’s tax system while addressing economic challenges.

• Zero-Rating Expansion: Aimed at supporting low-income households.
• Streamlined VAT Claims: Designed to improve efficiency but may create short-term hurdles for businesses.
• E-Commerce Revisions: Reflect the growing importance of digital transactions in the global economy.

As discussions progress, the balance between providing financial relief to households and maintaining tax revenue will remain a central theme.

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