The one percentage point increase in the value-added tax (VAT) rate, from 14% to 15%, should not have a major impact on business-to-business transactions, says auditing firm KPMG COO Andrew Cranston.

During a post-Budget discussion on Friday, he explained that the so-called “regressive effects” of VAT actually allow for an increase in social grants to ensure that the VAT increase does not further negatively impact the people who receive social grants while shielding business from tax hikes.

Only businesses who are not VAT-registered or who are not entitled to claim full VAT as input tax will be negatively impacted on by the higher VAT rate.

Further, the South African VAT Act contains a number of rules which cater for complications that might ensue with an increase in the VAT rate, Cranston noted.

These rules cover, for example, what happens when contracts have been entered into before the date on which the VAT rate is increased but where no invoice has yet been issued or payment received.

As an example of how these rules will work, Cranston explained that, should goods have been provided before April 1, or services performed before April 1, then the current VAT rate (14%), not the new VAT rate of 15%, will apply.

Should goods be provided on a periodic basis or services be performed over a period which falls before and after the effective date of April 1, then an apportionment must be made on a fair and reasonable basis and the 14% VAT rate will apply to the portion before April 1, and the VAT rate of 15% will apply on the portion of the supply of goods or services from April 1.

Meanwhile, he said that, given that the VAT rate has not been increased in 25 years, many professionals are not familiar with the contents of the VAT Act, with many vendors battling to implement the required changes.

"Considering the transitional provisions, it's clear that systems going forward are going to have to be able to manage two standard rates - the old rate and new rate for quite some time," he stated.

Cranston also questioned whether it would be possible for all businesses to implement the required changes to their enterprise resource planning systems in time for the implementation of the higher VAT rate on April 1.