VAT Rate Change Poses Minimal Risk to Integrity of SA Companies’ Financial Systems

Since VAT was introduced in South Africa in 1991, the rate has been raised only once: in 1993, government increased VAT to 14%, where it has stayed until former Finance Minister Malusi Gigaba announced during the 2018 Budget Speech that the rate will be 15% effective 1 April.

Will the increase in South Africa’s Value-Added Tax (VAT) rate have a negative impact on companies’ financial processes? According to Tjaart Malan, Director of Digital Business Services at SAP Africa, most companies should have a fairly seamless transition to the new VAT rate. “All companies will be affected by the VAT increase, but in our experience most of our customers have the knowledge and skills to manage the transition effectively”.

VAT can create an administrative burden on companies by complicating corporate processes. According to a 2012 PwC study, it takes a typical company as much as 123 hours to comply with VAT, compared to 74 hours for corporate income tax.

SAP is one of the world’s leading processors of transactions, with 76% of the world’s transaction revenue touching an SAP system. According to Malan, any company using an SAP system should apply the required system changes to ensure that the new VAT value is incorporated in their systems come 1 April. “These changes are applied using simple date driven parameterization of the VAT codes. Customers must also make sure that no developer has hard-coded the 14% VAT rate into their financial systems. Since customers are able to extend our solutions with their own code, there is a possibility that a developer has hard-coded changes in their system. We therefore urge customers to conduct comprehensive testing ahead of the 1 April changeover date.”

Malan says companies’ financial reports will need to allow for two VAT values in their financial year. “The SAP solution will automatically adjust input and output VAT and consolidate the results for an accurate view of what is owed to the SA Revenue Service. As long as testing is conducted, there should be no disruption to their normal financial operations.”

Malan recommends that customers who are encountering any difficulties with their VAT changeover contact SAP. “We have also prepared a guide for customers, which can be accessed by contacting your SAP account executive.”