Proposed amendments to the Value-Added Tax Act will have a significant impact on schools that are currently registered as VAT vendors.
The amendments are contained in the draft 2025 Taxation Laws Amendment Bill, which National Treasury and the South African Revenue Service published on 16 August for public comment.
At the core of these proposals is an expansion of VAT exemptions to cover all goods and services supplied by basic educational institutions, particularly schools, aiming to align with the long-standing policy intent of excluding such entities from the VAT system entirely.
The exemption will effectively mean that schools currently registered as VAT vendors will be forced to deregister, ending their ability to claim input VAT.
Duane Shipp, a VAT specialist at WTS Renmere, wrote in a commentary that the amendments could trigger financial liabilities for schools currently registered as VAT vendors, potentially affecting their cash flow and operational planning.
Current VAT framework for educational services
The Explanatory Memorandum to the TLAB says section 12(h)(i) of the VAT Act exempts the supply of educational services by institutions such as schools registered under the South African Schools Act, public or private colleges under the Further Education and Training Colleges Act and higher education institutions established or registered under the Higher Education Act. This includes public higher education institutions or those registered or conditionally registered as private ones.
Further, section 12(h)(ii) extends exemptions to goods or services supplied by these institutions “solely or mainly for the benefit of its learners or students”, provided they are “necessary for and subordinate and incidental” to the core educational services, and supplied for consideration in the form of school fees, tuition fees, or payments, for lodging and boarding.
Shipp says the wording of section 12(h)(ii) implies that if goods or services are supplied by a school and the consideration for that supply is not in the form of school fees, then the supply should be a taxable supply and VAT charged by the school at the standard rate. Consequently, many schools involved in commercial activities – such as selling school uniforms or renting facilities such as astro turf, activity centres, gyms, or school halls to private individuals or clubs – have registered as VAT vendors. This registration allows them to deduct input tax on related acquisitions, such as the costs of uniforms or construction of facilities.
The Explanatory Memorandum points out that the reference to the Further Education and Training Colleges Act in section 12(h)(i)(aa) is obsolete because of the renaming to the Continuing Education and Training Act. Moreover, the Act now defines private colleges as those registered or provisionally registered under Chapter 6.
The VAT Act’s phrasing of “registered or conditionally registered” in section 12(h)(i)(bb) creates uncertainty, particularly regarding whether exemptions apply to provisionally registered private schools or colleges by the respective departments.
The Explanatory Memorandum states the policy intent has always been to keep basic education outside the VAT net but evolving practices in service provision and charging have necessitated clarification.
The proposed amendments
The TLAB proposes several textual and substantive changes to address these issues.
According to the Explanatory Memorandum, section 12(h)(i)(aa) will update the reference to the correct Act name, the Continuing Education and Training Act.
Additionally, the wording in section 12(h)(i)(bb) will be aligned with educational authorities’ terminology, changing “registered or conditionally registered” to “registered or provisionally registered”. This provisional registration allowance will be extended to section 12(h)(i)(aa) for schools and colleges.
Shipp says the TLAB proposes removing “school” and “school fees” from section 12(h)(ii) and inserting a new section 12(h)(iv). This new section will exempt the supply of any goods or services by a school registered under the South African Schools Act. The Explanatory Memorandum confirms the intent to “extend the scope of the exemption to all supplies made by basic educational institutions”. As a result, all supplies by schools – whether in return for school fees or not – will be exempt, covering commercial activities previously taxed.
For transitional arrangements, a new section 8(2H) will allow institutions deregistering under section 8(2) to pay VAT liabilities in 12 equal monthly instalments or as many as the Commissioner decides. Shipp explains that section 8(2) deems a supply of assets upon ceasing to be a vendor, with the value under section 10(5) as the lesser of cost or open market value, creating output tax implications effective 31 December 2025.
To mitigate penalties and interest, a new section 9(14) adjusts the time of supply to when each instalment is due, prescribed, or paid. The Explanatory Memorandum states: “Since this extension of the period to make payment does not change the time of supply under section 8(2), it results in penalties and interest being due when the extended period is allowed. Consequently, a new section 9(14) is now proposed, and the time of supply will be deemed to take place as when each payment is due, prescribed, or paid under such payment arrangements.”
Finally, new section 40E will ensure that past assessments finalised before1 January 2026 cannot be reopened by SARS or the vendor. Unfinalized assessments may be reviewed upon application, but without refunds, and no new assessments will be issued.
Shipp says: “To the extent that a school has previously charged VAT at the standard rate on the supply of goods or services prior to 1 January 2026, the proposed section 40E(4) will not allow the refund of this VAT or any penalties and interest thereon.”
All amendments are proposed to come into operation on 1 January 2026.
Potential implications
The Explanatory Memorandum notes “there are numerous schools registered for VAT that will now cease to be vendors”, leading to mandatory deregistration and the associated deemed supply liability.
Shipp says: “The financial implications of the deemed supply under section 8(2) for schools could be significant and result in a substantial VAT liability owing to SARS.”
Although instalment payments under section 8(2H) and the time-of-supply adjustment under section 9(14) provide relief, schools will lose the ability to deduct input tax post-deregistration, although they will no longer charge output VAT. Operationally, this means adjusting accounting practices and ceasing VAT charges on all supplies from 1 January 2026.
Shipp points out that the changes treat schools differently from universities, technikons, and colleges, whose exemptions remain limited to fee-tied incidentals.
The tight implementation timeline – deemed supply on 31 December 2025 – is also a challenge, as Shipp states: “With the amendments coming into effect on 1 January 2026 and the deemed supply under section 8(2) of the VAT Act taking place on 31 December 2025, schools will have little to no time to plan or budget for the significant VAT liability.”
He also notes that the amendment does not explain how a school may apply for the tax payable under section 8(2) to be paid in more than 12 monthly instalments and what factors the Commissioner will consider when exercising this discretion.
Comments on the TLAB must be sent to National Treasury at 2025AnnexCProp@treasury.gov.za and SARS at 2025legislationcomments@sars.gov.za by close of business on 12 September.
