South Africa’s VAT System Well Administered

South Africa has a well-administered VAT system that is in line with international norms, according to a Pricewaterhouse Coopers report.  “The Value Added Tax (VAT) rate of 14 percent has remained unchanged since 1997 and is significantly lower than the global average rate of between 20 to 25 percent.  The administration of tax acts is mainly regulated by the Tax Administration Act of 2011,” said PwC’s Head of Indirect Tax for Africa, Charles de Wet.

de Wet also stated, “In Africa, 42 of the 54 countries have a VAT system but only three, South Africa, Mauritius and Tunisia, have implemented the tax with an electronic filing and payment capability, which is commonly used.”  PwC’s latest ‘Helping you navigate Africa’s VAT landscape: Overview of VAT in Africa – 2014’ report aims to ease the burden of monitoring tax laws as well as aid those businesses that are concerned about their VAT risks in Africa.

De Wet explained that Africa, as a whole, presents a complex and challenging environment to administer tax legislation.  “Africa’s rapidly growing economy, complex consumer tax needs and increasingly complex tax regimes means that managing the tax burden for multinationals is a daunting task,’ he said.

He then said, “Businesses entering African markets are faced with imprecise challenges of having to adapt to the various countries’ tax regulations.  They can even suffer harsh consequences if they are not ‘Africa ready’.”  While most countries in Africa have VAT systems in place, these systems are not aligned and this can have a major effect on a company’s operating and financial systems.

de Wet stated, “Often the VAT laws are not clear and the lack of guidance on interpretation and case law also makes it difficult to consider the application of certain legislation in a specific situation.”  He also stated, “As organizations come under increased pressure from regulation and compliance requirements, they will need to ensure that their organizational processes become more efficient and streamlined.”

The report, which was compiled by PwC VAT specialists in Botswana, Congo, Côte d’Ivoire, Madagascar, Malawi, Mauritius, Namibia, Rwanda as well as South Africa, also indicated that multinationals operating in Africa need to be aware of stringent penalty provisions.

de Wet continued, “In Zambia the penalty for late payment of VAT is 0.5 percent of the tax due for each day that the tax is unpaid. In South Africa, an additional penalty of up to 200 percent may be imposed for the evasion of tax, as well as criminal prosecution. In Nigeria a penalty of five per cent may be imposed as well as interest of up to 21 per cent per annum.”

He then continued, “There are also considerable variations in the VAT thresholds across jurisdictions.  The current threshold in South Africa is one million rand. Some jurisdictions have introduced special regimes, such as a turnover tax for micro and small businesses.”

Source: CNBC Africa