Value-added tax (VAT) is an indirect tax levied on goods and services consumed within a country. It is a consumption tax that is applied at every stage of the supply chain.
This means that VAT is paid by the final consumer, but it is collected by businesses on behalf of the government. The South African Revenue Service (SARS) is responsible for administering VAT in South Africa.
The current VAT rate in South Africa is 15%. This means that if you purchase a product or service that costs R100, you will pay an additional R15 in VAT.
Businesses that have an annual turnover of more than R1 million are required to register for VAT. However, businesses that have an annual turnover of less than R1 million may also choose to register voluntarily.
This article will provide a detailed explanation of what VAT is and how it differs from the Income Tax.
VAT Exemptions in South Africa
Certain goods and services are exempt from VAT in South Africa. These include basic food items, certain medical services, and educational services. However, businesses that provide exempt goods or services are not entitled to claim back the VAT they have paid on their inputs.
Businesses that are registered for VAT may claim back the VAT they have paid on their inputs. This is known as input tax.
For example, if a business purchases goods or services for R100, and the VAT on those goods or services is R15, the business can claim back the R15 as input tax.
How Does Income Tax Work in South Africa?
In South Africa, individuals are required to pay income tax on their personal income, while businesses are required to pay income tax on their profits. The amount of income tax that an individual or business is required to pay is calculated based on a sliding scale that takes into account their income or profits.
Individuals who earn more than R87,300 per year are required to pay income tax. Businesses are required to pay income tax on their profits, regardless of their turnover.
Differences between VAT and Income Tax
The main difference between VAT and income tax is the way in which they are calculated and collected.
VAT is a consumption tax that is applied at every stage of the supply chain, while income tax is a direct tax that is levied on individuals and businesses based on their income or profits.
Another key difference is the way in which the taxes are collected. VAT is collected by businesses on behalf of the government, while income tax is paid directly by the individual or business to the government.
Additionally, the rates of VAT and income tax are different. In South Africa, the VAT rate is currently 15%, while the income tax rate ranges from 18% to 45%, depending on the individual or business’s income or profits.
While VAT is a consumption tax, income tax is a direct tax that is levied on individuals and businesses based on their income. Income tax is paid by the individual or business directly to the government.