VAT is short for Value-Added-Tax. SARS describes VAT as an indirect form of tax that is added to the price of consumable goods or services. This tax is usually added to every step of the production and trade process. Currently, the VAT in South Africa is generally 15% for most goods and services.
When a company adds 15% VAT to a product’s cost, this implies the product costs is 115% rather than 100%. The additional 15% is a form of tax that goes to SARS. With cross-border-trade, Customs may also be involved.
You can refer to this helpful VAT Legal Counsel Guide from SARS for extensive details on VAT in South Africa for Vendors (Businesses who are eligible for mandatory Tax Registration).
Here’s a general example.
When you buy a burger at a well-known South African restaurant, it’s pretty likely you’re paying 115% of the cost rather than 100%. The restaurant pays the additional 15% to SARS. The restaurant can also claim back the VAT they’ve paid on most of their business expenses.
If the amount a business owes SARS is less than the amount paid in VAT, SARS will pay you the difference.
Unfortunately, you as a South African consumer, cannot claim back VAT on goods and services in South Africa. There is an exemption that applies when you’re a tourist. Companies who aren’t registered for VAT, cannot claim back VAT either.
It’s also important to note that not all items or service have value-added-tax. Some things are exempt in South Africa and some things are taxed at 0%. Take a look at our “Do all goods and services have VAT in South Africa?” section.
Here’s another example of how VAT works (with a pricing example).
A VAT-registered company, called Buono Gelato, sells one of their ice creams for R10. R10 is 100% of the price. However, Buono Gelato is registered for VAT which means they need to add 15% VAT on top of the R10 cost to its clients.
That means the ice cream now costs R11.50 (or 115% of the original price) to any client. The additional R1.5 (or 15%) does not belong to the company; it’s a tax that’s owed to SARS.
On the flip side, when Buono Gelato uses any services or buys any goods, like ice cream cones, from VAT-registered companies, Buono Gelato can claim back the VAT paid from SARS. This means on an R1.15 cone, Buono Gelato, can claim back 15 cents (or the 15% paid additionally to the 100%). In fact, Buono Gelato can claim back the additional 15% paid on most of its business expenses from SARS.