The one percentage point increase in the value-added tax (VAT) rate, from 14% to 15%, should not have a major impact on business-to-business transactions, says auditing firm KPMG COO Andrew Cranston.

During a post-Budget discussion, he explained that the “regressive effects” of VAT actually allowed for an increase in social grants to ensure that the VAT increase did not further negatively impact on the people who received social grants, while shielding business from tax hikes.

Only businesses that were not VAT-registered, or were not entitled to claim full VAT as input tax, would be negatively impacted on by the higher VAT rate.

Further, the South African VAT Act contained a number of rules which catered for complications that might ensue with an increase in the VAT rate, Cranston noted.

These rules cover, for example, what happens when contracts have been entered into before the date on which the VAT rate is increased but where no invoice has yet been issued or payment received.

As an example of how these rules would work, Cranston explained that, should goods have been provided before April 1, or services performed before April 1, then the current VAT rate (14%), and not the new VAT rate of 15%, would apply.

Should goods be provided on a periodic basis or services be performed over a period which falls before and after the effective date of April 1, then an apportionment must be made on a fair and reasonable basis and the 14% VAT rate will apply to the portion of supply of goods or services before April 1, and the VAT rate of 15% will apply to the portion of the supply of goods or services from April 1.

He said that, given that the VAT rate had not been increased in 25 years, many professionals were not familiar with the contents of the VAT Act, with many vendors battling to implement the required changes.

“Considering the transitional provisions, it’s clear that systems going forward are going to have to be able to manage two standard rates – the old rate and the new rate for quite some time,” he stated.