Budget Speech: Proposed Amendments to South Africa’s VAT Legislation

By Seelan Muthayan

Following the Budget speech the following amendments were proposed to South Africa’s Value‑Added Tax (VAT) legislation highlighting government’s continued focus on improving certainty, simplifying compliance, and closing gaps that may give rise to unintended VAT outcomes. The changes are particularly relevant for businesses operating in special economic zones (SEZs), digital and platform‑based models, property and leasing structures, and industries dealing in second‑hand goods or precious metals.

From a VAT perspective, the proposals clarify when services supplied to customs-controlled area enterprises and SEZ operators qualify for zero‑rating, confirming that such services must be physically rendered within the customs- controlled area. This is intended to reduce interpretational disputes and audit risk.

Other proposals include changes to the VAT treatment of certain gold supplies, as well as tighter rules around the timing of notional input tax deductions on second‑hand goods, aimed at preventing potential revenue leakage where goods are subsequently exported.

Of particular note for the property and commercial leasing sector is the proposed amendment relating to leasehold improvements. Under the current rules, a VAT adjustment is generally required only where leasehold improvements are made for the benefit of a lessor who is a VAT vendor. This has resulted in situations where non‑vendor lessors—such as those below the VAT registration threshold or making exempt supplies—receive the benefit of leasehold improvements without effectively bearing the associated VAT cost. The proposed change seeks to address this anomaly by extending the adjustment mechanism beyond vendor lessors and introducing a dedicated declaration process. If implemented, this may have cash‑flow, pricing, and contractual implications for tenants funding improvements, particularly in long‑term commercial lease arrangements.

In addition, the proposed amendments shift the default VAT responsibility for electronic services supplied via digital platforms to intermediaries, unless an agreement provides otherwise. This reinforces SARS’s ability to collect VAT efficiently and places greater responsibility on platform operators to manage VAT compliance across their supply chains.

Overall, these proposals underscore the importance of businesses reviewing affected transactions, lease agreements, digital platform arrangements, and VAT recovery positions to ensure they are well positioned to respond as the amendments as they  progress. Proactive planning may help mitigate unexpected VAT costs and compliance risks.