Tshwane, 30 September 2021 – Thirty years ago today, the Value-Added Tax Act, 1991, came into operation. Value-added tax (VAT) was envisaged as a more robust consumption tax to replace the general sales tax levied under the Sales Tax Act, 1978. Following its introduction in France in 1954, over 160 countries around the world now operate a VAT (also known as Goods and Services Tax) system, making it the fastest growing tax instrument internationally.
Some of the factors that drove the switch to VAT in South Africa were:
- A broader base and improved neutrality due to the ability to tax a wider range of services.
- Imposition of sales tax on business inputs led to cascading tax (or tax on tax), especially in capital intensive industries, and increased export prices compared to countries operating a VAT.
- Sales tax exemption certificates were used to allow tax-free purchases of goods for resale by businesses and were widely abused, especially given the poor audit trail the system provided.
VAT has proven to be a stable and reliable revenue source that has generated R4.4trillion from its introduction to 31 August 2021.
SARS thanks the VAT vendors whose compliance has helped make VAT a success in South Africa that supports our higher purpose of enabling government to build a capable state that fosters sustainable economic growth and social development that serves the well-being of all South Africans.
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