Taxation Laws Amendment Bill 2025: Drastic changes proposed for schools registered as VAT vendors

By Duane Shipp

The draft Taxation Laws Amendment Bill 2025 (TLAB 2025) was recently published by National Treasury for public comment. Included in the proposed amendments are significant changes regarding the supply of educational services. In particular, the amendments will have a significant impact on schools that are currently registered as VAT vendors. This article will unpack the proposed amendments regarding the supply of educational services and the impact thereof for schools.

Legislative background

The supply of educational services by certain institutions such as schools, universities, technikons and colleges is exempt from VAT under section 12(h)(i) of the Value-Added Tax Act 89 of 1991 (the VAT Act). Section 12(h)(ii) of the VAT Act also exempts the supply of goods or services by schools, universities, technikons and colleges if those goods or services are necessary for and subordinate and incidental to the supply of educational services exempt under section 12(h)(i). The exemption under 12(h)(ii) only applies however, to the extent that the goods or services are supplied for a consideration in the form of school fees, tuition fees or payment for lodging or board and lodging. If the consideration for the goods or services does not take the form mentioned above, then the supply of goods or services will be standard rated for VAT purposes.

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. As a result, many schools that are involved in commercial activities have registered as VAT vendors and charged VAT on the supply of certain goods and services such as the supply of school uniforms or making available school property such as astro turf, activity centres, gyms and school halls to private individuals or clubs. By virtue of this VAT registration, the school would also have deducted the VAT incurred as input tax on the goods or services acquired for the purposes of making these taxable supplies including, for example, the costs of the school uniforms acquired or the construction of the astro turf or other school buildings mentioned above.

Amendments proposed by TLAB 2025

TLAB 2025 proposes the removal of “school” and “school fees” from the wording of section 12(h)(ii) and the insertion of section 12(h)(iv) which will exempt the supply of any goods or services by a school registered under the South African Schools Act 84 of 1996. The implication is that all supplies of good or services by schools, regardless of whether in return for school fees or not, will be exempt under the VAT Act. This is confirmed in the explanatory memorandum to TLAB 2025 which provides as follows:

“Further the policy intent was always to exclude schools from the VAT net and having regard to the changes in the manner in which educational services are provided and charged for, the amendment seeks to provide clarity that these services are all exempt.

There are numerous schools registered for VAT that will now cease to be vendors.”

It is proposed that this amendment will come into effect from 1 January 2026. All schools registered as VAT vendors will cease to be vendors from this date.

Section 8(2) of the VAT Act deems a person who ceases to be a vendor to have made a supply of those goods or services (in the form of rights) which formed part of the assets of that person’s enterprise immediately before they ceased to be a vendor. This deemed supply will have output tax implications for the person ceasing to be a vendor. The same would be true for all schools that cease to be a vendor as a result of the abovementioned proposed amendments. An output tax liability would be created with the time of supply, being the date when registration as a VAT vendor ceases i.e. 31 December 2025. Generally, the value of such a deemed supply is under section 10(5) of the VAT Act deemed to be the lesser of the cost of acquisition, manufacture, assembly, construction or production of the goods or services deemed to be supplied or the open market value thereof.

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. National Treasury appears to acknowledge this potential financial impact by proposing the introduction of section 8(2H) to the VAT Act which will allow the tax payable because of the deemed supply under section 8(2) to be paid in twelve equal monthly instalments or so many monthly instalments as the Commissioner may allow. No information is provided as to how a school may apply for the tax payable under section 8(2) to be paid in more than twelve monthly instalments and what factors the Commissioner will consider when exercising this discretion.

Furthermore, new time of supply rules are proposed by the insertion of section 9(14), which will change the timing of the deemed supply under section 8(2) to take place when each of the twelve-monthly payment instalments is due, prescribed or paid. This adjustment will alleviate the school from paying late payment penalties and interest on the tax liability created by the deemed supply under section 8(2).

TLAB 2025 has also introduced a new section 40E to the VAT Act which seeks to reassure schools that past assessments which have been raised with regard to section 12(h)(ii) of the VAT Act prior to 1 January 2026, may not be reopened by SARS or the vendor. If assessments prior to 1 January 2026 have not yet been finalised, the vendor may amend those assessments upon application to SARS. 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.

Conclusion

The amendments proposed by the TLAB will have significant implications for all schools registered as VAT vendors. 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 which will arise because of their deregistration as a VAT vendor.

The proposed amendments also raise certain questions, such as –

• Why are the supplies of goods and services by schools being treated differently from the supplies of goods and services made by universities, technikons and colleges?

and,

• Why not allow those schools registered as VAT vendors to prepare for the impact of these amendments by delaying the implementation date to, for example, 1 January 2027?

According to the media statement issued by National Treasury, written comments on the proposed amendments can be submitted to either National Treasury or SARS by 12 September 2025. It is highly recommended that schools affected by these amendments submit their comments either individually or collectively before the closing date.

If you wish to discuss this topic, please contact: WTS Renmere