Following our blog last week, we see that VAT is set to increase to 15% from the 1st of April 2018 following the Minister of Finance’s budget speech. This will not be a simple task like many would have imagined where one will just change the rate in their accounting package and continue capturing.  It is a complex process that requires much attention, planning and time to execute smoothly.

Companies will have to initially accommodate two VAT rates due to timing and cut-off periods, when were the goods delivered or services rendered and in the case of credit notes that might have to be issued after the 30th of March 2018 for goods or services rendered before the 1st of April 2018.  Some invoices will have the two rates, looking the example of cell phone service providers where subscriptions are charges in advance and call are charged in arrears. The biggest complication will be in April where some companies will have VAT of 14 % on income and expenses and VAT of 15% on income and expenses.

Companies, however, have the option to increase their prices simply because the VAT act allows or keep the prices the same but that would mean absorbing the tax costs hence less income from the same price. Companies can opt not to increase their prices for various reasons some being to maintain business relations or to attract more customers but that does not mean they will be immune to the 1% VAT increase from the authorities.

Despite all these companies will have to be ready to comply with the rules. Making the necessary changes immediately is advised considering the amount of work that is estimated to go into this transition especially for big companies with a lot of transactions. Please consult your accounts for assistance with this.