New Formula on VAT Apportionment for Municipalities
This article will count 0.25 units (15 minutes) of unverifiable CPD. Remember to log these units under your membership profile.
Not all income is equal — especially when it comes to VAT.
That’s the message behind SARS’ newly issued Binding General Ruling (BGR 4 of 2025), which tells municipalities exactly how to work out how much VAT they can claim on their everyday, mixed-purpose expenses. And spoiler: it’s not just a spreadsheet shuffle — it’s about fairness, transparency, and avoiding some seriously skewed tax claims.
🎯 The Problem Explained
Think about it:
Municipalities collect money from all sorts of activities — water and electricity sales (taxable), bus fares (exempt), grants (sometimes exempt, sometimes taxable), and fines (not even part of VAT!). But when they spend money, that spend often supports all these areas. So how do they know what VAT to claim back?
That’s where the new formula comes in.
🔍 New, SARS-approved formula kicks in from 1 July 2025
Here’s the deal:
Municipalities must calculate what % of their income comes from taxable vs exempt or non-taxable sources.
Then apply that % to their VAT on “mixed expenses” (expenses that support both kinds of activities).
Certain income must not be included — like once-off capital gains, dividends from liquidations, or the sale of assets.
If 95% or more of their income is from taxable supplies, they can deduct all the VAT on those mixed expenses (hello, de minimis rule!).
📌 Heads-up: Municipalities need to submit their apportionment method and ratio annually to SARS — and the calculations must follow strict guidelines (even using JIBAR and Prime rate spreads for interest/dividends!).
⚖️ What it means for accountants
If you support municipal clients, here’s what’s on your radar:
Ensure clients apply the correct formula from 1 July 2025.
Help them exclude distorting income, like asset sales or once-off gains.
Make sure they adjust their VAT claims if they’ve used prior-year estimates.
File the apportionment details annually to SARS — no submission, no deduction.
Keep all the documentation clean, clear, and compliant.
🔧 Bottom line?
This is not just an admin change — it’s a test of your VAT strategy. A wrong move could cost your client big time through disallowed claims or SARS audits.
🧠 Want help building an easy calculator or client-facing checklist? Drop us a line. We’re here to help you do the math, correctly — the first time.
