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Home News 2025 VAT Apportionment in South Africa: Handling Mixed Supplies
2025 News • 2025-05-07

VAT Apportionment in South Africa: Handling Mixed Supplies

Lindi Penning | Partner, PKF VGA

In South Africa, vendors who make both taxable and exempt supplies must apportion their input VAT to comply with section 17(1) of the VAT Act.

According to SARS guidelines, a vendor may only claim input VAT to the extent that goods or services are acquired for the purpose of making taxable supplies. If an expense is used partly for taxable and partly for exempt activities, only a portion of the VAT incurred is deductible.

Where the intended use of goods or services in the course of making taxable supplies is equal to not less than 90 per cent of the total intended use of such goods or services, the goods or services concerned shall for the purposes of this Act be deemed to have been acquired wholly for the purpose of making taxable supplies.

The Standard Apportionment Method

The default formula prescribed by SARS under Binding General Ruling 16 (Issue 3) is:

(Taxable Supplies ÷ Total Supplies) × Total Input VAT on Mixed Costs

Taxable supplies would include zero rated supplies and standard rated supplies whereas exempt supplies would not form part of taxable supplies.

This method excludes capital goods and any income that is not a supply (e.g., interest earned on bank accounts). It must be applied consistently and reviewed annually or when there’s a significant change in the nature of supplies.

Alternative Methods

If the standard method yields a materially unfair result, vendors may apply to SARS to use a special apportionment method under section 17(1). Common alternatives include floor space, headcount, or time-based calculations, depending on the nature of the inputs and the business model.

Practical Guidance

  • Separate Direct Input Tax: Clearly distinguish input VAT directly linked to taxable or exempt supplies — these are not subject to apportionment.
  • Apply the Formula to Residual Inputs: Apportion only the VAT on shared or general overhead costs.
  • Keep Comprehensive Records: Document the basis and rationale for your apportionment method. SARS may request justification during a VAT audit.
  • Annual Review: Reassess your apportionment ratio at least once a year or upon material business changes.

Misapplied apportionment can result in under-declaration penalties or input tax disallowance, so staying compliant with the VAT Act and related rulings is essential.

Should you require assistance or have any queries regarding VAT apportionment, we recommend that you please contact your nearest PKF Office for further information and/or assistance.

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