How To Add VAT to A Price In South Africa

By Tevait Feanle •  Updated: 01/23/24 •  4 min read

VAT is a major tax type in South Africa and generates a significant amount of revenue for both SARS and the government. Most of us don’t even consider the VAT we pay on our daily transactions. This is because South Africa, unlike the United States, will always show the VAT-inclusive amount to the end customer, so we see everything we will pay before we take it to the till.

- ADVERTISEMENT -

However, if you are a VAT-registered business, you will need to display both the VAT-exclusive and VAT-inclusive amounts on your invoice. Additionally, you may simply be curious about the impact our current VAT rate is having on your budget every month. Today, we are diving deeper into the mathematical side of VAT, including how to add and subtract VAT from amounts, when to add VAT to your pricing, and much more. 

How Do You Add VAT To A Price?

The VAT rate in South Africa is currently set at 15%. However, this amount may change very shortly, as the government is currently discussing raising the VAT rate yet again. This is after we had a base rate of 14% for many decades, so the shifting climate around VAT can leave a lot of people feeling very uncertain.

However, calculating VAT is simply a mathematical equation based on percentages or 100th fractions. As the rand is also broken into 100ths (100 cents to a rand), it is a lot easier than you may think.

At its most basic, once you have established the total price for the product you need to make a profit, recoup costs, and so on, you will add 15% to this figure to arrive at the VAT-inclusive amount you need to charge. We break this down further below.

How Do You Calculate VAT Payable?

The VAT component of any transaction will be governed by the VAT rate set by SARS and the government. This is currently 15%, although it may go higher in future years. Here are the three key formulas you need, depending on whether you need to add or subtract the VAT from an amount:

If the rate changes from 15%, you will simply replace the ‘15’ in these formulas with the new amount. For example, if it was a VAT rate of 18%, you would use 1.18 instead of 1.15.

- ADVERTISEMENT -

Do You Add VAT Before Or After Markup?

You will add VAT after all other changes to the VAT-exclusive price. This means you add VAT after the markup.

To determine a fair VAT-inclusive price for your product, you will start by working out the net product cost you need to recoup (i.e., what it costs you to make). You will then add your markup percentage. This should cover both your indirect costs, like a percentage of the electricity, water, and staff costs, plus some built-in profit. This will give you a fair VAT-exclusive price. You then add the 15% VAT to that price to arrive at the final VAT-inclusive price you will charge the end customer.

How Do You Separate VAT From Total Amount?

While adding and subtracting VAT is relatively simple, many people struggle to separate the VAT from the total amount. Let’s take a closer look at the math for this case:

To arrive at only the VAT from a VAT-inclusive amount, do the following

(VAT-inclusive amount)/ 115 x 15

Why is this the case? The VAT-inclusive amount can be considered as ‘100%’ of what the vendor needs to receive, with an additional ‘15%’ for SARS. So, we need to divide the amount by 115 to account for both factors. We then multiply by just the VAT component (15) to see what the VAT alone was on the amount. See it in action here for a purchase of R2,000:

R2,000/ 115 x 15 =R260.86

So, the VAT-exclusive price of this transaction was R1,739.14, and R260.86 was VAT. Remember, if you wanted to investigate other aspects of this transaction, you could do so with the following formulas:

Using the same amounts, this works as follows:

To add VAT: (VAT-exclusive amount) x 1.15, or R1,739.14 x 1.15 = R2000
To remove VAT: (VAT-inclusive amount)/1.15, or R2000= R1,739.14 (with some rounding on the cents).

As you can see from our above example, calculating VAT-inclusive and VAT-exclusive amounts does not have to be hard. It is simply a case of understanding what the VAT percentage is and applying mathematical formulas to add or remove that portion of the total amount from the other components of the price. 

- ADVERTISEMENT -

Keep Reading

How Does SARS Calculate Interest on VAT?

How Does SARS Calculate Interest on VAT?

This comprehensive guide will delve into how SARS calculates interest on VAT, including the interest rate

Can You Get a VAT Refund on Online Purchase?

Can You Get a VAT Refund on Online Purchase?

This guide explores the eligibility criteria and steps to get a VAT refund for online purchases in South Africa.

How To Check The Validity Of A VAT Number

How To Check The Validity Of A VAT Number

How do you check the validity of a VAT number? Today we look at convenient ways to do so, as well as some other important issues you should consider.

Are Salaries Exempt from VAT?

Are Salaries Exempt from VAT?

This piece seeks to elucidate how Salaries are treated under VAT in South Africa, differentiate between zero-rated and exempt supplies

Which Incomes Are Taxable Under PAYE And VAT

Which Incomes Are Taxable Under PAYE And VAT

This post will delve into the details to better understand which wages are subject to taxation under PAYE and VAT.

When To Submit VAT Returns

When To Submit VAT Returns

You can submit VAT returns any time through the month following the end of the VAT period

Can You Claim VAT on the Commission Paid in South Africa?

Can You Claim VAT on the Commission Paid in South Africa?

This guide provides insights into claiming VAT on commission paid in South Africa, understanding the calculation of VAT on commission

How to Register for VAT Online

How to Register for VAT Online

Today, we look in-depth at the VAT registration process, how to do it online, and everything else you need to know

How is VAT Collected in South Africa?

How is VAT Collected in South Africa?

This piece offers insights into the collection of VAT in South Africa, its overseers, the resultant revenue, the various types of VAT

Can You Charge VAT Without a VAT Number?

Can You Charge VAT Without a VAT Number?

This article examines whether you can levy VAT without a VAT number, the process for issuing VAT invoice

How To Calculate A Price Excluding VAT

How To Calculate A Price Excluding VAT

There will be times when you want to know what the price excluding VAT was on an item, either as part of your own price calculations as a business

What is Excluding VAT?

What is Excluding VAT?

Picture this: you’re shopping in South Africa, and you see a price tag that reads “excluding VAT”. What’s it meaning?

Can You Claim VAT On Accommodation In South Africa

Can You Claim VAT On Accommodation In South Africa

This comprehensive guide will delve into the VAT nuances related to accommodations, such as whether VAT applies to stays surpassing 28 days

What is a VAT Reverse Charge in South Africa?

What is a VAT Reverse Charge in South Africa?

Specifically, when it comes to valuable metals, the responsibility for accounting and paying VAT does a bit of a switcheroo.

How Much Is the Fine for Late VAT Return?

How Much Is the Fine for Late VAT Return?

This guide explores the penalties for late VAT return submissions in South Africa, how late payment interest and penalties are calculated