As far as can be discerned, it seems unlikely Parliament will decide on whether to adopt the VAT rate increase announced in the National Budget on 12 March 2025 and indeed approve the announced effective date of 1 May 2025, before 1 May 2025.
Not much has been said about what the administrative impact will be on VAT-registered entities and, indeed, consumers if Parliament were to reject the announced increase after 1 May 2025.
Let’s start at the beginning:
In 2016, when the ANC held majority, amendments were made to the most taxing acts, including the VAT Act, to allow the Minister of Finance to amend tax rates, such as the VAT rate, by announcement in the National Budget. The original proposal read as follows:[1]
“If the Minister makes an announcement in the annual national budget contemplated in section 27(1) of the Public Finance Management, 1999 (Act No. 1 of 1999) that the VAT rate specified in this section is to be altered, that alteration will be effective from a date determined by the Minister in that announcement, and continues to apply for a period of 12 months from that date unless Parliament passes legislation giving effect to that announcement within that period of 12 months.”. (My underlining).
At the time, the tax industry expressed concern about such an amendment. The concern being along the lines that allowing such an amendment would result in the interference with the principles of separation of powers and will be unconstitutional.[2]
The original wording of the 2016 amendment was then changed to read as follows:[3]
“If the Minister makes an announcement in the national annual budget contemplated in section 27 (1) of the Public Finance Management, 1999 (Act No. 1 of 1999), that the VAT rate specified in this section is to be altered, that alteration will be effective from a date determined by the Minister in that announcement, and continues to apply for a period of 12 months from that date subject to Parliament passing legislation giving effect to that announcement within that period of 12 months” (My underlining).
What’s in a word?
The change, although subtle, is critical to understanding how all this will pan out from an administrative perspective if the rates bill is rejected after 1 May 2025 (i.e. if Parliament does not pass legislation to give effect to the announcement).
By replacing the word “unless” with the words “subject to”, the legislature clearly intended to leave the power to increase the VAT rate ultimately in the hands of Parliament. This is because the use of the word “unless” created a default position that the law is set by announcement in the budget while the words “subject to” creates the default position that the law is set through proper procedure.[4]
The change then from “unless” to “subject to” could be interpreted as meaning that if, come the 1st of May 2025 and the rates bill is not passed, the increased VAT rate does not apply because the condition (Parliamentary approval) is not met. But, alas, that could not have been the purpose of the amendment. The legislature clearly envisaged an announced effective date that precedes the Parliamentary approval date.[5] So then, the argument goes, come the 1st of May 2025 and the increase is not yet approved by Parliament, the increased VAT rate nevertheless applies.
But, failure by Parliament to approve it within 12 months from the announced effective date means it would then, at that point, never actually have been 15.5%.
That means the VAT rate never actually increased even though VAT vendors would have been forced to pay VAT to SARS at a rate of 15.5% in the period between 1 May 2025 and 30 April 2026 (being the 12-month period between the announced effective date and Parliament’s failure to approve). This will also be the case despite the fact that the ultimate consumer would have paid the higher cost. So how is this situation catered for? How does the “system” then make people whole for complying with something that, turns out, was never the law to begin with?
Does the “system” cater for such an “absurd” possibility?
It has been suggested that there is no mechanism to allow consumers and VAT vendors to be reimbursed. It won’t be the first time where the legislature could not have foreseen something to play out in the way it did and so, therefore, did not make provisions for it (think about the most recent election results). Indeed, back in 2016 when the VAT Act, amongst others, was changed to allow rate increases “by announcement”, the ANC ruled by majority. Why then, would you think, as legislature, Parliament will not approve the rate changes announced in the budget? Such a thought would obviously have been absurd or academic, at best.
But, it turns out, there is a possibility that the increased rate may not be approved by Parliament and therefore, the question becomes: Can it be that there is no mechanism available to taxpayers for the reimbursement of the VAT paid but, which it turns out, was never due? As a tax dispute resolution specialist, I won’t easily be persuaded that such an absurd conclusion can stand.
For VAT vendors
If the rate bill is rejected after 1 May 2025,[6] then, quite simply, VAT was overpaid by vendors because, by law, it turns out the rate was never 15.5%.[7] Vendors, having declared and paid to SARS VAT at 15.5% will be aggrieved by their own assessment and can, object thereto in terms of section 104 of the Tax Administration Act, 28 of 2011 (“the TAA”) on the basis that VAT was overpaid or can submit a request for a reduced assessment in terms of section 93(1)(d). Or, better still, SARS can (and arguably will have to in some cases)[8], on their own volition, issue a reduced assessment under section 93(1)(d) of the TAA.[9] This ought to take care of reimbursements to VAT vendors. But what about the consumer?
For Consumers
Remember that VAT is a consumption-based tax borne by the final consumer. That’s you and me. To use a rudimentary example by way of illustration: If you buy a chocolate and you paid R115.50 for it when you “ought” to have paid only R115 for it, who is going to pay you back the difference if Parliament does not pass legislation within the 12- month window period?
Perhaps the answer to that must be sought with due regard to the fact that the VAT Act does not regulate the relationship between VAT vendor and consumer. It regulates the VAT required to be charged and paid over to SARS by the VAT vendor because of an agreement between the VAT vendor and the consumer. [10] Indeed, if the supplier and recipient were to agree that the price charged changed, then section 21 of the VAT Act allows for credit notes and concomitant refunds or credits to the consumer, but the driving force is an agreement between the parties. Arguably, then, the solution lies in the principles of the law of contract – not in the VAT Act per se.
On this interpretation then, the consumer’s right to reimbursement of any “overpaid” VAT will be dictated by what the supplier and the recipient may be willing to agree on after the fact. I would imagine that some suppliers may find themselves in a stronger negotiation position than some consumers.
But, what about section 44(3) of the VAT Act? That provision prohibits SARS from paying out a refund of overpaid output tax to a vendor, unless SARS is satisfied that the refund will in turn be refunded to another person where that other person bore the overstated VAT.
In the case of a supply to final consumption (i.e. where the recipient cannot claim the VAT paid as an input tax credit), the consumer did bear the VAT liability. So then, on this interpretation, the VAT Act does in fact make provision for consumers to be reimbursed. This is so because, if a reduced assessment is issued to a vendor (either as a result of a successful dispute by that vendor or by SARS’ own volition) a refund is likely to arise. Payment of that refund may then arguably only be released if SARS is satisfied that the VAT vendor will in turn refund it to the consumer. So then, on this approach, SARS is to a certain degree, required to monitor repayments to the consumer.
On this approach and interpretation, there is nothing to stress about: consumers and VAT vendors will be made “whole” if the increased rate is not adopted. Apart from, potential cashflow problems (which is not important to businesses and consumers)[11] and an “admin hassle”, all is well and good…
But that’s no solution
I would imagine that the potential admin problem will be slightly bigger than one might think. Imagine, if you will, a large retailer that sells thousands of items a day to final consumption. On the above interpretation, when a consumer walks out the door with his chocolate that they paid for in cash, how will the retailer in this scenario even begin to track that person down to pay him or her the, call it R0.50, that he or she overpaid in VAT. [12] How then, could that retailer satisfy SARS that they will reimburse the consumer? I would venture to guess that in many cases, there will be no way to ensure that overpaid VAT gets back to the consumer.
This, in turn, would arguably mean that the overpaid VAT remains in the pockets of the fiscus because SARS would not be able to satisfy itself that the amount overpaid will be refunded to the consumer.[13]
So, the “admin hassle” then stands in the way of what may appear to be a solution on paper. One often finds that, when one stops to think something through to completion and practical application, that on-paper solutions do not always translate into actual solutions.
While it will probably be widely celebrated by taxpayers if the increased VAT rate is not approved, the possible admin problem, if rejected after 1 May 2025, may result in some transactions effectively having been subjected to VAT at the higher rate and that preventing the higher rate from having been paid anyway is going to most likely be one massive admin problem. Fortunately, businesses have loads of time waste on admin and red tape. [14]
[1] Clause 83 of the 2016 Draft Taxation Laws Amendment Bill (“draft 2016 TLAB”).
[2] See the 2016 Final response document to the Taxation Laws Amendment Bill 2016, and Tax Administration Laws Amendment Bill 2016:
“Comment: The draft 2016 TLAB contains proposed amendments that seek to align the tax charging provisions of the tax acts. The intention is to enable the Minister of Finance to change (whether it is for purposes of an increase or decrease) the tax rates in all the tax acts administered by SARS. As the proposal currently stands, the rate changes announced by the Minister of Finance in the annual Budget apply from the effective date announced by the Minister subject to Parliament passing the legislation giving effect to that announcement within 12 months of that announcement. This amounts to a delegation by Parliament of its legislative power to the Minister of Finance. In terms of section 77 of the Constitution, a money bill is required to be passed by Parliament.
Response: Accepted. The intention of the proposed changes is to give effect to any rate changes announced by the Minister of Finance with effect from the date of the announcement, which is normally the day of the Budget. In order to be in line with the constitutional requirements, the wording of the charging provisions will be amended to provide that the rate changes announced by the Minister of Finance may be applied with effect from the date announced by the Minister of Finance subject to Parliament passing the relevant legislation seeking to give effect to that rate change within 12 months of the announced effective date.”
[3] Section 84 of Act 15 of 2016.
[4] “Unless” implies the announced rate stands until something happens. “Subject to” implies the rate only stands if something happens.
[5] In both versions of the 2016 amendment, there is a 12-month window.
[6] and not later, but within the required 12-month period, approved.
[7] This is in stark contrast to what the position might arguably have been if the 2016 amendment kept the word “unless” instead of “subject to”.
[8] Rampersadh and another v CSASRS and Others [2018] ZAKZPHC 36 (“Rampersadh Case”).
[9] Indeed, they can (see Rampersadh case), but then that will result in a decrease in collection numbers which is not something they, in my experience, seem very keen on doing without any element of compulsion underpinning such a reduction.
[10] It is true that the VAT Act deems all prices charged to be inclusive of VAT. But the right to recover the VAT from the consumer is not to be found in that provision – it is to be found in the principles of the law of contract.
[11] I am being sarcastic in case you may be wondering.
[12] I guess if the guy comes back with this slip then retailer can repay him but even that is an admin hassle.
[13] It is worth noting that there is a similar requirement where a solution to the problem is found in section 21 because that section also, requires payment to the consumer. It also worth noting that SARS does not have the power to override a legislative provision and pay out refunds regardless (s72 of the VAT Act aside).
[14] Again, I am being sarcastic.
