Statistics
• Rates for:
o VAT: 31 States including Union Territories
o Entry tax: 19 States
o Sales tax: 30 States including Union Territories
• Number of commodities identified: 12,500 plus
• Number of Notifications: 3000 plus
• Number of cases (Commodities): 1450 plus
• Time taken to view one commodity in more than 25 States: less than a minute
As per provision for eliminating the multiplicity of taxes, all the State taxes on purchase or sale of goods (excluding Entry Tax in lieu of Octroi) are required to be subsumed in VAT or made VATable.
A provision has been made for allowing 'Input Tax Credit (ITC)' which is the basic feature of VAT. However, since the VAT being implemented is intra-State VAT only and does not cover inter-State sale transactions, ITC is not to be available on inter-State purchases.
Exports to be zero-rated, with credit given for all taxes on inputs/purchases related to such exports.
There are provisions to make the system more business-friendly. For instance, provision for self assessment by the dealers; provision of a threshold limit for registration of dealers in terms of annual turnover of Rs. 5 lakhs; and provision for composition of tax liability up to annual turnover limit of Rs. 50 lakhs.
Regarding the industrial incentives, the States have been allowed to continue with the existing incentives, without breaking the VAT chain. Further, no fresh sales tax/ VAT-based incentives are permitted.
VALUE ADDED TAX (VAT)
What is VAT?
VAT stands for Value Added Tax. Value Added Tax (VAT) is levied on the supply of goods and services by vendors or it is a tax businesses charge when they supply their goods and services. We have to pay VAT on most of the things that we buy.
VAT CONCEPTS
Zero-rated items Zero-rated items are goods or services which are taxed at a rate of 0%, e.g. milk, brown bread, maize, fruit, etc.
VAT-exempted items These items involve services that are not subject to VAT at either the standard rate or zero rate, e.g. childcare services, educational services, etc.
Standard rate In South Africa Standard-rated supplies are taxed at the rate of 14%.
VAT-able items These items are goods or services that are subject to VAT.
VAT Output VAT paid on items purchased and can be claimed back from SARS. It is VAT, which your company would charge on items, which it, sells. Thus a company could wish to sell an item and added to the amount a standard rate tax would be charged.
VAT Input VAT on Sales and income and must be paid over to SARS. It is VAT that you pay on all your business expenses and for which you have a tax invoice. It also relate to VAT that is paid on other goods and services bought or rented for the business.
VAT Control Is a summary of the VAT Input and Output and shows whether the business owes SARS money or whether SARS owes the business money.
VAT CALCULATIONS
How to add VAT (Value Added Tax) to a price (14%)
This is the calculation you need to use when you know a PRICE BEFORE TAX (THE NET PRICE) but want to find out the PRICE AFTER TAX (THE GROSS PRICE).
VAT rate of 14%.
Net price Multiplied by 1.14 = Gross price
Price before tax Multiplied by 1.14 = Price after tax
Calculations:
The VAT standard rate is rate of 14%
First, get the multiplier:
14 100% = 0.14
0.14 + 1 = 1.14
The multiplier is 1.14
So...
Net price Multiplied by 1.14 = Gross price
Price before tax (Net price) Multiplied by 1.14 = Price after tax (Gross price)
E.g.:
R100 Multiplied by 1.14 = R114
R100 + Tax = R114 inc Tax
How to deduct VAT from a price - (14%)
People can often add VAT to a figure, but when it comes to taking it off it is a problem.
So here it is...
Taking-off VAT (Tax) from a price
This is the calculation you need to use when you know a PRICE AFTER TAX (THE GROSS PRICE) but want to find out the PRICE BEFORE TAX (THE NET PRICE).
VAT rate of 14%.
Gross price (price after tax) Divided by 1.14 = Net price
Price after tax Divided by 1.14 = Price before tax (Net price)
Calculations:
The VAT standard rate is rate of 14%
First, get the divisor:
14 100% = 0.14
0.14 + 1 = 1.14
The divisor is 1.14
So the back calculation for 14% VAT is ...
Gross price Divided by 1.14 = Net price
Price after tax Divided by 1.14 = Price before tax
E.g.:
R114.00 Divided by 1.14 = R100
R114.00 inc Tax = R100 + Tax
THREE BOOKKEEPING ACCOUNTS
For the purposes of Value Added Tax (VAT) records, three bookkeeping accounts must be kept.
1. The VAT on inputs account.
2. The VAT on output (transactions) account.
3. VAT Control (Debit and Credit) account.
The VAT on Inputs Account –This account will usually show a debit (the VAT SARS "owe" you money for the VAT you have paid and you are entitled to receive from them).
The VAT on Output (Transactions) Account –This account will usually show a credit (the VAT SARS are "entitled" to receive the VAT from you that you have collected on their behalf. The money is not yours and it is only temporarily in your possession until the due date for the payment of VAT.
The VAT Control (Debit and Credit) Account. This is the account to which the 2 first accounts are posted. The account balance may show a credit, when the periodic report to the VAT is for a payment to be made, or it may show a debit when the periodic report shows that that money is to be returned.
1. The wholesaler sell the product to the retailer at R100 + 14% VAT = R114.00
2. The wholesaler collect VAT of R14.00 from the retailer and pays it over to SARS, thus taking the VAT out of the business (VAT Output)
3. The retailer claims back the VAT (R14) from SARS, thus put it back into the business (VAT Input)
4. The retailer adds a mark-up of 100% to the product and sell it to the consumer for R200 + VAT of R28.00.
5. The retailer collects the VAT (R28) from the consumer and pays it over to SARS, thus taking the VAT out of the business (VAT Output).
6. The consumer cannot register for VAT and cannot claim back the VAT.
7. SARS collected VAT to the amount of R28 instead of only R14 due to value being added to the product in the form of a mark-up percentage.
NB.
Although learners are not required to draw up journals, in this example journal entries are provided for better understanding of the ledger account.
Example 2:
30.1.09 - The total purchases that you made amount to R 1,000 by cheque plus R 150 VAT on inputs.
30.1.09 - The total cash sales you made amount to R 4,000 plus R600 VAT on outputs.
15.2.09 - You paid the balance that was owing to SARS.
• Rates for:
o VAT: 31 States including Union Territories
o Entry tax: 19 States
o Sales tax: 30 States including Union Territories
• Number of commodities identified: 12,500 plus
• Number of Notifications: 3000 plus
• Number of cases (Commodities): 1450 plus
• Time taken to view one commodity in more than 25 States: less than a minute
As per provision for eliminating the multiplicity of taxes, all the State taxes on purchase or sale of goods (excluding Entry Tax in lieu of Octroi) are required to be subsumed in VAT or made VATable.
A provision has been made for allowing 'Input Tax Credit (ITC)' which is the basic feature of VAT. However, since the VAT being implemented is intra-State VAT only and does not cover inter-State sale transactions, ITC is not to be available on inter-State purchases.
Exports to be zero-rated, with credit given for all taxes on inputs/purchases related to such exports.
There are provisions to make the system more business-friendly. For instance, provision for self assessment by the dealers; provision of a threshold limit for registration of dealers in terms of annual turnover of Rs. 5 lakhs; and provision for composition of tax liability up to annual turnover limit of Rs. 50 lakhs.
Regarding the industrial incentives, the States have been allowed to continue with the existing incentives, without breaking the VAT chain. Further, no fresh sales tax/ VAT-based incentives are permitted.
VALUE ADDED TAX (VAT)
What is VAT?
VAT stands for Value Added Tax. Value Added Tax (VAT) is levied on the supply of goods and services by vendors or it is a tax businesses charge when they supply their goods and services. We have to pay VAT on most of the things that we buy.
VAT CONCEPTS
Zero-rated items Zero-rated items are goods or services which are taxed at a rate of 0%, e.g. milk, brown bread, maize, fruit, etc.
VAT-exempted items These items involve services that are not subject to VAT at either the standard rate or zero rate, e.g. childcare services, educational services, etc.
Standard rate In South Africa Standard-rated supplies are taxed at the rate of 14%.
VAT-able items These items are goods or services that are subject to VAT.
VAT Output VAT paid on items purchased and can be claimed back from SARS. It is VAT, which your company would charge on items, which it, sells. Thus a company could wish to sell an item and added to the amount a standard rate tax would be charged.
VAT Input VAT on Sales and income and must be paid over to SARS. It is VAT that you pay on all your business expenses and for which you have a tax invoice. It also relate to VAT that is paid on other goods and services bought or rented for the business.
VAT Control Is a summary of the VAT Input and Output and shows whether the business owes SARS money or whether SARS owes the business money.
VAT CALCULATIONS
How to add VAT (Value Added Tax) to a price (14%)
This is the calculation you need to use when you know a PRICE BEFORE TAX (THE NET PRICE) but want to find out the PRICE AFTER TAX (THE GROSS PRICE).
VAT rate of 14%.
Net price Multiplied by 1.14 = Gross price
Price before tax Multiplied by 1.14 = Price after tax
Calculations:
The VAT standard rate is rate of 14%
First, get the multiplier:
14 100% = 0.14
0.14 + 1 = 1.14
The multiplier is 1.14
So...
Net price Multiplied by 1.14 = Gross price
Price before tax (Net price) Multiplied by 1.14 = Price after tax (Gross price)
E.g.:
R100 Multiplied by 1.14 = R114
R100 + Tax = R114 inc Tax
How to deduct VAT from a price - (14%)
People can often add VAT to a figure, but when it comes to taking it off it is a problem.
So here it is...
Taking-off VAT (Tax) from a price
This is the calculation you need to use when you know a PRICE AFTER TAX (THE GROSS PRICE) but want to find out the PRICE BEFORE TAX (THE NET PRICE).
VAT rate of 14%.
Gross price (price after tax) Divided by 1.14 = Net price
Price after tax Divided by 1.14 = Price before tax (Net price)
Calculations:
The VAT standard rate is rate of 14%
First, get the divisor:
14 100% = 0.14
0.14 + 1 = 1.14
The divisor is 1.14
So the back calculation for 14% VAT is ...
Gross price Divided by 1.14 = Net price
Price after tax Divided by 1.14 = Price before tax
E.g.:
R114.00 Divided by 1.14 = R100
R114.00 inc Tax = R100 + Tax
THREE BOOKKEEPING ACCOUNTS
For the purposes of Value Added Tax (VAT) records, three bookkeeping accounts must be kept.
1. The VAT on inputs account.
2. The VAT on output (transactions) account.
3. VAT Control (Debit and Credit) account.
The VAT on Inputs Account –This account will usually show a debit (the VAT SARS "owe" you money for the VAT you have paid and you are entitled to receive from them).
The VAT on Output (Transactions) Account –This account will usually show a credit (the VAT SARS are "entitled" to receive the VAT from you that you have collected on their behalf. The money is not yours and it is only temporarily in your possession until the due date for the payment of VAT.
The VAT Control (Debit and Credit) Account. This is the account to which the 2 first accounts are posted. The account balance may show a credit, when the periodic report to the VAT is for a payment to be made, or it may show a debit when the periodic report shows that that money is to be returned.
2. The wholesaler collect VAT of R14.00 from the retailer and pays it over to SARS, thus taking the VAT out of the business (VAT Output)
3. The retailer claims back the VAT (R14) from SARS, thus put it back into the business (VAT Input)
4. The retailer adds a mark-up of 100% to the product and sell it to the consumer for R200 + VAT of R28.00.
5. The retailer collects the VAT (R28) from the consumer and pays it over to SARS, thus taking the VAT out of the business (VAT Output).
6. The consumer cannot register for VAT and cannot claim back the VAT.
7. SARS collected VAT to the amount of R28 instead of only R14 due to value being added to the product in the form of a mark-up percentage.
NB.
Although learners are not required to draw up journals, in this example journal entries are provided for better understanding of the ledger account.
Example 2:
30.1.09 - The total purchases that you made amount to R 1,000 by cheque plus R 150 VAT on inputs.
30.1.09 - The total cash sales you made amount to R 4,000 plus R600 VAT on outputs.
15.2.09 - You paid the balance that was owing to SARS.
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