We are lucky that under South African law, the display prices we see on the goods and services we buy must always show the VAT-inclusive final price, the amount we will pay over to acquire it. However, there will be times when you want to know what the price excluding VAT was on an item, either as part of your own price calculations as a business or from simple curiosity. Here’s how to do this.
How To Calculate A Price Excluding VAT
If you have a VAT-inclusive amount, i.e. a price that already has VAT included in it, it is pretty easy to find the VAT-exclusive amount. All you need to do is divide the VAT-inclusive amount by 1+ the current VAT percentage as a number. The VAT rate in South Africa is currently set at 15%, although this may be changing shortly. In this case, you take your VAT-inclusive amount and divide it by 1.15. This will give you the price excluding VAT.
As an example, if the VAT-inclusive amount is R100, you can determine the VAT-exclusive price as follows:
- R100/ 1.15 =R 86.96 (with rounding on the cents)
How do you decide on your VAT-exclusive price? This should account for all other markups before you add VAT to the amount. So, you will consider the cost of making the product and apply all profit margins and markups for the cost of doing business (water, lights, manufacturing, etc) to arrive at your VAT-exclusive price. You will then add VAT to that for the final sale amount.
What Is The Formula For The Selling Price Including VAT?
To arrive at your selling price, including VAT or the VAT-inclusive price, you need to decide your VAT-exclusive price and add on the 15% for the current VAT rate. The formula for doing this is as follows:
- VAT-exclusive price x (100+ VAT percentage as a number) / 100
This can also be expressed differently, although it’s the same mathematical formula, by reducing the (100+ VAT percentage as a number) / 100 part of the equation to a single figure. This is 1.15, where the VAT percentage (as a number) makes up the decimal part of the figure. This looks like the following:
- VAT-exclusive price x 1.15
Try it with our above example. In both cases, R86.96 as the VAT-exclusive amount will give us R100 as the VAT-inclusive amount (with a little wriggle room for rounding). If the VAT rate was instead 18%, we would replace the ‘15’ in the formulas with ‘18’ instead.
How Do I Calculate VAT-Inclusive In South Africa?
VAT-inclusive amounts are the VAT-exclusive amount plus the VAT portion. Put differently, take your VAT-exclusive price and add on 15% (or whatever the current VAT rate is) to arrive at the VAT-inclusive figure. There are three basic formulas you could use, depending on what price you have (inclusive/exclusive) and what you want to learn:
- To add VAT to an exclusive amount: (VAT-exclusive amount) x 1.15
- To remove VAT from a VAT-inclusive amount : (VAT-inclusive amount) / 1.15
- To determine just the VAT on a VAT-inclusive amount: (VAT-inclusive amount)/ 115 x 15
Using our above example, where the VAT-exclusive amount is R86.96 and the VAT-inclusive amount will then become R100 (remembering that rounding will make for some small discrepancies and that this uses the current VAt rate of 15%), we can see these formulas in action:
- To add VAT to the exclusive amount: R86.96 x 1.15 = R100
- To remove VAT from a VAT-inclusive amount: R100 / 1.15 = R86.96
- To determine just the VAT on a VAT-inclusive amount: R100/ 115 x 15 = R13.04
Do Prices In South Africa Include VAT?
According to Section 65 of the VAT Act, all display prices in South Africa must include the VAT amount you will be charged. In other words, the price you see is the price you pay. This is very different from how sales taxes like VAT are treated in the United States, where they can display the exclusive amount and then add sales tax at the till.
You’re probably familiar with stories from the US where people think they are within their budget, then find out that they need to pay more due to these other ‘sales tax’ inclusions. The South African system seeks to make it fairer for all parties and introduce more transparency about the final cost so no one is taken by surprise like that. The only time you will see a VAT-exclusive amount (outside of your own business calculations, of course), is on the invoices of VAT-registered vendors, which must show both the VAT-exclusive and VAT-inclusive amounts to help other VAT-registered vendors. The VAT-inclusive amount will still be present.
Remember that South Africa also has a uniform ‘sales tax’, or our VAT amount that is the same everywhere you go in the country. This differs from some international areas, including the US, that have state- or province-based taxes that are different from each other.
