On the 1st of February 2021 the Minister of Finance & Economic Development, Hon Dr. T Matsheka presented the national budget speech. In his address, the minister touched on various proposed tax changes, the most controversial of which was the VAT rate increment.
The proposed change is that from the 1st of April 2021 the VAT rate shall be increased from 12% to 14%. An important question arises as to how transactions that were finalized based on the old VAT rate are to be treated post-April 1st
The VAT Act Cap 50:03 at Section 70 requires that whenever a VAT rate changes, two VAT rates must run concurrently on certain transactions.
In relation to property sales, if a contract of immovable property was concluded before the 1st of April and the transfer occurs after the 1st of April the VAT rate that shall apply is 12%.
The key dates to consider are the dates of sale. It is our understanding that the tax invoice can then be issued after the date of transfer, as that is when the transaction is complete, and the funds will be due under the agreement of sale. For all sales concluded after the 1st of April the new rate of 14% shall apply.
The same principle applies to all other transactions that have been concluded prior to 1st April 2021 but which payment has not yet been made for the services or movable goods supplied. Invoices raised thereafter with respect to such services and/or movable goods will be subject to VAT at a rate of 12% and not 14%. For all services rendered and completed after the 1st of April the VAT rate applicable shall be 14%.
Akheel Jinabhai and Associates in association with McKee Commercial Law, and in particular Obakeng Mothusi Andreck, Partner and Head of Administration of Estates and Tax Advisory, have the necessary skills to assist and advise on all Tax related matters including VAT.