VAT Connect Issue 21 (September 2026)

The public was alerted to the publication of the 2025 draft tax bills on 16 August 2025 in VAT Connect Issue 20. These bills have since been promulgated and the following Acts containing amendments to the VAT Act were published. These amendment Acts were all promulgated on 1 April 2026 as per Government Gazettes (GGs) 54446, 54447, and 54448 respectively. The amendments come into effect on 1 April 2026 unless otherwise stated.

These documents can be accessed via the SARS website by clicking on the links below:

• Rates and Monetary Amounts and Amendment of Revenue Laws Act 3 of 2026
• Tax Administration Laws Amendment Act 4 of 2026
• Taxation Laws Amendment Act 5 of 2026

Explanatory Memoranda to the above Acts can be accessed by clicking on the links below:

• Memorandum on Object of Rates and Monetary Amounts and Amendment of Revenue Laws Bill, 2025
• Memorandum on the Objects of the Tax Administration Laws Amendment Bill, 2025
• The updated explanatory memorandum on the TLAB is not yet available, but a draft is available at Draft Explanatory Memorandum on the Draft Taxation Laws Amendment Bill, 2025

A summary of some of the more important VAT amendments, as promulgated in the Tax Administration Laws Amendment Bill (TALAB) and Taxation Laws Amendment Bill (TLAB), are provided below.

• Refunds on deregistration of foreign electronic services suppliers – Following the amendments to the Electronic Services Regulations (discussed in VAT Connect– Issue 19), effective from 1 April 2025, foreign electronic services suppliers making supplies only to VAT-registered vendors were excluded from the ambit of “electronic services” and are no longer required to register for VAT in South Africa. As a result, foreign suppliers will now need to deregister for VAT in South Africa and may be entitled to VAT refunds when they deregister. Previously, the VAT Act did not allow SARS to pay these refunds into a foreign bank account, even if the foreign supplier does not qualify to have a local bank account.

Refunds could only be paid into a South African bank account held by a subsidiary or holding company, or another third party in South Africa, provided SARS is indemnified against any loss arising from such instruction by the foreign supplier. Many such foreign entities do not, however, have subsidiaries or holding companies in South Africa, nor any other third parties in South Africa, that they could request to facilitate such refund. A new provision, section 44(3)(e), has been introduced to address this practical difficulty, by authorising SARS to pay any refund directly into the foreign supplier’s bank account when the supplier’s registration is cancelled. This dispensation is available only upon deregistration.

• Interest on delayed refunds – Section 45 of the VAT Act governs the payment of interest by SARS on delayed VAT refunds. Generally, a vendor is entitled to interest if a refund is not paid within 21 business days after the date on which the vendor’s VAT201 return reflecting the refund is received by SARS. However, certain exceptions may either suspend the running of the 21-business-day period or cause the period to commence only once specified requirements have been met.

Proviso (iii) to section 45 sets out the circumstances in which non-resident vendors need not open a South African bank account, and may appoint a representative vendor who is not necessarily a resident in South Africa.

Two amendments have been made to section 45. The first amendment is a technical change. It corrects outdated and incorrect cross-references in section 45 that arose following the introduction of the Tax Administration Act 28 of 2011 and subsequent amendments to sections 23 and 46 of the VAT Act, including changes relating to foreign vendors. The amendment ensures that the provisions of section 45 accurately reflect the current legislative framework.

The second amendment is substantive and broadens the circumstances in which SARS is not liable to pay interest on delayed refunds. If a vendor fails to provide the required banking details, supporting documentation and indemnifications (if applicable), SARS will not pay interest for the period of delay. This ensures that vendors do not benefit from delays attributable to their own non-compliance and promotes fairness by ensuring that vendors meet the required obligations before interest becomes payable.

• Amendment of section 74 – Section 74 empowers the Minister of Finance to, amongst others, make regulations to enhance the carrying out of the objects of the VAT Act, prevent malpractices, prescribe certain information to be reported by the Commissioner, and to amend Schedule 1 to the VAT Act, following any amendment to the Customs and Excise Act 91 of 1964 by notice in the Gazette.

The amendment expands the Minister’s regulation-making powers to support the VAT Modernisation Project. In particular, it allows regulations to prescribe the model and requirements for vendors to participate in a voluntary e-reporting system, as well as matters connected with that system. This amendment is consequential to the introduction of new definitions in the VAT Act as part of the ongoing modernisation of the VAT administrative framework.

• VAT modernisation – The introduction of the e-invoice, e-credit note, e-debit note, interoperability framework and e-Reporting definitions form the basis for VAT modernisation which repositions VAT administration for the economy, eases compliance obligations and strengthens oversight. The definitions seek to enable the secure, structured and near real-time flow of VAT transaction data across the VAT value chain.

The overall intention is to modernise, simplify, and streamline VAT declaration and filing processes by moving away from manual, paper-based systems to a digitally driven, transparent, resilient and progressively automated VAT assessment model. For taxpayers, this delivers a simpler, more predictable experience with reduced effort and increased certainty where “tax just happens”.

The amendments introduce the building blocks for future regulations which include the formulation of a modernised VAT model which will be implemented through a phased and consultative approach. Over time, this should reduce administrative burdens for both vendors and SARS, improve compliance, efficiency and narrow the VAT gap.

SARS has published a Consultation Paper, seeking stakeholder input on the design and implementation of the proposed modernised VAT model.

• Short-term insurance – The definition of “insurance” under section 1(1) has been amended to clarify that an arrangement qualifies as insurance for VAT purposes only if a premium is paid. Subsequent to the Constitutional Court decision in Capitec Bank Limited v Commissioner for the South African Revenue Service [2024] ZACC 1, there was uncertainty about whether certain arrangements could be treated as insurance even when no premium was charged. Under the VAT system, short-term insurance is intended to be taxed on a net basis. Insurers must account for output tax on premiums received for the risk covered and  may deduct input tax on qualifying claim payments or trade payments made under the insurance policy.

Following the Capitec judgment, there was concern that the insurers could potentially claim an input tax deduction even if no premium was charged and no output tax was accounted for on the supply of insurance. This created a mismatch in the VAT system and could result in an unintended tax benefit, particularly if the underlying transaction related to exempt supplies such as the provision of credit.

The amendment addresses this issue by requiring the payment of a premium and by defining a “premium” as direct consideration for the insurance cover provided. As a result, input tax deductions will generally be available only if a taxable premium has been charged. This restores the intended VAT treatment of short-term insurance and prevents input tax deductions from arising if no corresponding taxable premium was charged.

• Debit- and credit notes in going concern and reorganisation transactions – The amendment to section 21(1)(d)(ii) deals with a practical difficulty that arises if an enterprise is sold as a going concern under the corporate reorganisation rules. Before the amendment, section 21(1)(d)(ii) allowed only a purchaser of a going concern that qualified for the zero rate under section 11(1)(e) to issue debit- or credit notes by deeming that purchaser to have made the original supply (even though the supply was made by the previous owner of the business who supplied the business as a going concern). This ensured that debit- or credit notes could still be issued if the original supplier was no longer carrying on the business or was unable to issue the required document.

However, this dispensation did not apply to a purchaser of a going concern under a reorganisation transaction as contemplated in section 8(25). Therefore, in order to align the treatment of all going concern transactions and to avoid uncertainty for both vendors and SARS, section 21(1)(d)(ii) has been amended to extend the same practical treatment to similar supplies effected under a reorganisation transaction. The effect is that the acquiring vendor under a reorganisation transaction is also deemed to have made the original supply of goods or services and may issue the relevant debit- or credit note if goods are returned after the reorganisation transaction, as if they made the original supply.

• Electronic services, intermediaries, and platform supplies – With effect from 1 April 2019, section 54(2B) required an intermediary to account for VAT, in its own return, on electronic services supplied on behalf of a foreign principal on its platform, while a foreign supplier that exceeded the registration threshold remained primarily liable to register and account for the VAT. Section 54(2B) was further amended with effect from 1 April 2025, allowing the intermediary and foreign principal to agree in writing to treat the supply of the foreign principal as made by the intermediary, in which case both are held jointly and severally liable for the relevant VAT obligations and tax. Section 54(2B) has now been amended to also allow intermediaries to report and account for VAT on electronic services made on behalf of a local principal, based on similar conditions (that is, written agreement and joint and several liability of the parties). This amendment is aimed at reducing the administrative burden on platforms that facilitate supplies to South African customers, by removing the need to distinguish between supplies made on behalf of foreign suppliers and those made on behalf of local suppliers. The practical effect is simpler VAT compliance for platforms, less invoice-level complexity and a reduced audit risk for SARS, because SARS can engage directly with the intermediary rather than having to follow each underlying supplier separately.
  
  
• Documentary requirements for silver exports – With effect from 1 April 2024, section 54(2C) was introduced to address difficulties in obtaining documentary proof for zero-rated supplies of refined or smelted gold. During refining or smelting, gold from different depositors may be co-mingled and lose its separate identity. Depositors may therefore be unable to keep separate documentary evidence of the exact gold supplied or exported. Subsection (2C) was introduced to allow a qualifying agent (being a vendor) that supplies or exports gold on behalf of a principal (being a vendor) that meets the conditions in section 54(2C) to retain the required documentation instead of the principal. It has since come to light that the same commercial and evidentiary challenges arise in relation to silver. Subsection (2C) has therefore been amended to extend the dispensation to zero-rated silver exports, ensuring comparable VAT treatment for silver supplied and exported under comparable circumstances.
  
  
• Testing services and clinical trials supplied to non-residents – New zero-rating provisions in the form of sections 11(1)(x) and (2)(z), have been introduced to address cases in which South African vendors supplied testing services, such as clinical trials, for non-resident clients. Previously, VAT was a cost to the non-resident as the supply could not be zero-rated under section 11(2)(l). This was because the services were regarded as being supplied directly in respect of movable property or directly to persons in South Africa at the time the services were rendered if residents were involved in the trial.

Section 11(2)(z) therefore allows the zero-rating of qualifying testing services supplied to non-residents, including cases in which goods are used in the course of providing those services. In addition, under section 11(1)(x) the consumable goods supplied in the course of the testing services are also zero-rated provided that the goods become unusable or have no commercial value as a direct result of being used in the supply of those testing services and are necessary for the supply of the testing services.

The practical effect is to improve the international competitiveness of South African service providers and to ensure that VAT does not become an embedded cost in qualifying cross-border testing arrangements.

• Property developers and temporary letting of residential property – Property developers that construct residential properties for sale sometimes let those properties temporarily before they are sold. Historically, this created VAT difficulties because residential letting is an exempt supply, which triggered change-in-use adjustments and could result in cash-flow pressure for developers.

The VAT Act was previously amended to allow developers to remain in the VAT system if the temporary letting period did not exceed 12 months, subject to an output tax adjustment that could later be reversed if the property was sold or the temporary letting remained within the permitted period. Further amendments clarified the consequences if the letting exceeded 12 months or if the developer permanently changed its intention from sale to rental. See the VAT404 – Guide for Vendors for a detailed discussion on the application of section 18D.

The latest amendments clarify the interaction between section 18D and the input tax deduction available under section 16(3)(o) if the property is sold or the letting period extends beyond 12 months. It also removes the need to rely on the section 72 dispensation that was previously provided in Binding General Ruling 64. The result is a more complete statutory framework and better matching between output tax and input tax adjustments.

• Airtime vouchers used outside South Africa – New provisions in the form of sections 8(31), 10(30) and 11(2)(zA) were introduced to deal with airtime vouchers sold by South African distributors to customers in South Africa but such vouchers can only be used to obtain telecommunication services outside South Africa as provided by an International Telecommunications Service Provider that is not a resident of South Africa and not a vendor. In the past, the VAT consequences of such a supply were unclear.

Under the new section 8(31), the supply of the airtime voucher itself is disregarded for VAT purposes. However, any amount retained by the distributing vendor in South Africa is deemed to be consideration for the supply of distribution services. The amount typically retained and the value of the supply of such distribution services is deemed, under section 8(30), to be consideration in money equal to the difference between the purchase price and selling price of the airtime voucher. Furthermore, since the deemed supply of distribution services is supplied to the foreign telecommunications services supplier, these services may qualify for the zero-rating under section 11(2)(zA). The amendments recognise that the telecommunications services are consumed outside South Africa because the infrastructure used to make or receive calls or use data is situated outside South Africa.

• Low value imports – Schedule 1 to the VAT Act, dealing with the importation of goods from Botswana, eSwatini, Lesotho, or Namibia into South Africa has been amended to remove the VAT relief that previously applied to certain low value imports. Goods with a customs value of R500 or less on which no customs duty is payable, and certain printed matter imported by post not exceeding R100 in value, were previously exempt from VAT on importation. In practice, this created opportunities for offshore suppliers and importers to split orders into smaller parcels of a value below R500 to remain below the threshold and avoid customs duties and VAT. This practice impacted revenue collection and placed local suppliers at a competitive disadvantage, particularly in the context of increased online shopping from foreign platforms.

This exemption has now been deleted. By implication, such low value goods are now subject to VAT on importation and supports simplified customs procedures. The practical effect is to level the playing field between local suppliers and offshore suppliers.

• National housing programme payments – The amendment to section 8(23) replaces the previous reference to payments made under a “national housing programme” with a specific reference to payments made under the “housing subsidy scheme”. It also clarifies that the deemed supply applies only if the subsidy payment relates to a taxable supply of goods or services made by the vendor. The amendment is intended to limit the scope of the zero-rating to its original purpose, namely, the supply of Reconstruction and Development Programme (RDP) housing. Over time, uncertainty arose as to whether the zero rate could apply more broadly to other housing-related supplies under the national housing programme. This resulted in inconsistent VAT treatment. In some cases, vendors applied the zero rate to supplies relating to exempt rental housing stock or hostels, while in other cases government departments were incorrectly charged VAT at the standard rate. The amendment therefore clarifies that the zero rate is limited to the intended RDP housing context and removes uncertainty regarding its application. Given the historic uncertainty, a new provision, section 40F, has also been introduced to manage the past incorrect VAT treatment. In certain circumstances, the past output tax treatment on supplies made to the department or municipality is left undisturbed, while SARS retains the ability to assess input tax and other deductions that were incorrectly claimed. See the article below “Narrowing the scope of section 8(23) and the effect of these changes” for more information.
  
  
• Educational institutions and public schools – The VAT Act provisions relating to educational services have been amended to update references to education legislation and to clarify that supplies made by basic educational institutions are exempt from VAT. The amendment is a response to uncertainty and alternative interpretations under which some schools claimed input tax on land and improvements, even though their main activity was the provision of exempt educational services. The amendment therefore makes it clear that supplies made by schools are exempt, with limited exceptions. Schools that are welfare organisations and conduct approved welfare activities may remain registered to the extent of their welfare activities provided this is supported by a VAT ruling. Schools are required to determine their exit VAT liability as at 31 December 2025. To reduce the immediate cash-flow impact, the exit VAT may be paid from 1 January 2027 in 12 equal monthly instalments, or in such further instalments as the Commissioner allows, without interest and penalties. Special rules also prevent SARS from raising assessments in past periods for certain supplies that were incorrectly treated under the old exemption provision, although SARS may still assess input tax or deductions that were incorrectly claimed. Refunds are also limited in certain cases in which supplies were incorrectly standard-rated in the past.