Tenders and VAT
By Werner van Rooyen
31 January 2019
One question that gets raised during each HowtoTender Workshop is must my business (or I) be registered for Value Added Tax (VAT) in order for me to respond to a tender? Or, must I register my business for VAT?
The answer according to the VAT Act, 1991 (Act No. 89 of 1991) is simple:
- If your turnover is more than R1 million per annum then you have to register your business (or yourself in the case of a sole proprietor) for VAT.
- There are commodities that are exempt from VAT and if you supply these commodities you do not have to register for VAT. I am not going to go into these technical issues for now.
There is such a thing as voluntary registration. You can register your business voluntary for VAT if your turnover was more than R50 000 for the previous twelve months preceding your registration application.
It is about voluntary VAT registration that I want to talk about. One thing that is a fact in South Africa is that businesses are legislated to death. There are so many laws and Regulations that have to be complied with that entrepreneurs struggle to focus on the most important thing in their business and that is sales. My advice is to stay un-registered for as long as possible – especially if you are a start-up business or a small business. I ask the business owners why they want to give themselves more paper work to do if it is not compulsory to register for VAT.
In my opinion the problem lies within big business. They “force” the small businesses to register for VAT otherwise they do not want to do business with the small business. It starts with big business’ procurement procedures from which they do not want to deviate – you as small business owner must supply them with a TAX INVOICE otherwise they cannot do business with you. This is nonsense; big business must compromise to assist the small business to grow.
Then there is the matter of pricing. Theoretically there should be no difference in price between a VAT registered and a Non-VAT registered supplier. If they procure form the same wholesaler and their mark-up is the same then the price should be the same. The only difference being the VAT that the registered supplier has to add to its price.
Although there are ample places in the Standard Bidding Documents that ask for your business’ VAT registration number it is not a pre-requisite to be registered for VAT in order to respond to a Tender or a Request for Proposal or any other name it might be called. You might be confronted with a Tender Official that says you have to be registered for VAT, if so, just remind that Tender Official of the VAT Act.
The most important thing to remember when it comes to VAT when you respond to a tender is when it comes to pricing – 99.99% of the time your price must include VAT.
To learn more about this and many other tender conditions attend our “Become a Tender Expert” 2-Day workshops presented in Johannesburg, Pretoria, Durban, Port Elizabeth and Cape Town. Book and pay online at www.howtotender.co.za. Please contact Estelle at Estelle@howtotender.co.za should you require more information.
This article was written by Werner van Rooyen, Director of HowToTender (Pty) Ltd which specializes in tender consulting and tender training.