Proposed VAT Amendments for Independent Schools Implications, Concerns, and Next Steps

In August 2025, South Africa’s National Treasury released the Draft Taxation Laws Amendment Bill (TLAB) 2025, which proposes significant changes to the Value-Added Tax (VAT) treatment of schools registered under the South African Schools Act. If enacted, these amendments would take effect from 1 January 2026.

The proposals aim to align the law with the policy intention that basic education be excluded from the VAT net. However, they raise serious financial, procedural, and equity concerns, particularly for independent (private) schools. Below is a detailed look at what is proposed, its potential effects, and the reactions from stakeholders.

 What’s Proposed

• Extension of the VAT Exemption

The draft bill seeks to exempt all goods and services supplied by a school registered under the South African Schools Act, regardless of whether they are supplied in return for school fees or not.

Currently, exemption (per section 12(h)(ii) of the VAT Act) applies only when goods or services are supplied for consideration in the form of school fees, lodging, or board/boarding, and only if those supplies are “necessary for”, “subordinate to”, and “incidental to” educational services. If goods/services are supplied outside those forms or outside those conditions, they are often standard-rated.

• Deregistration of VAT Vendors

Independent schools currently registered as VAT vendors, because they engage in taxable supply of goods or services (e.g., hall rentals, uniform sales, facilities hire), would be required to deregister under the new proposals. 

• Deemed Supply / Exit VAT Liability

When a school ceases to be a VAT vendor (deregistration), under current law (section 8(2) of the VAT Act), it is as if the school has made a “deemed supply” of all assets used in its business e.g., buildings, equipment, at their open market value (or cost, whichever is lower). This triggers an output VAT liability as of the date of cessation. In this case, the expected effective date for deregistration is 31 December 2025.

• Transitional Relief / Payment Arrangements

To ease the burden of the exit VAT, Treasury proposes introducing a new section 8(2H) allowing schools to pay the liability in 12 equal monthly instalments (or more, as permitted by SARS).

Also, new time of supply rules under a proposed section 9(14) would adjust when output tax is deemed to arise, linked to when each instalment becomes due or is paid, to avoid penalties or interest accumulating unfairly.

• No Refunds for Past VAT Charges

The draft includes a new section 40E, which aims to ensure that past VAT assessments that have been finalised before 1 January 2026 cannot be reopened for refunds (even if VAT was charged on taxable supplies under prior legislation). Unfinalised assessments may be reviewed, but no new assessments may be issued.

Potential Impacts & Concerns

Financial Liability / Cash Flow Shock

• Independent schools that have significant VAT vendor activities stand to face large financial liabilities due to the deemed supply of assets. These could run into millions of rands.
• Although instalments are proposed, many schools will have already set their budgets for 2026, so this is an unplanned cost. Turf, halls, equipment all these may now trigger VAT that schools had not budgeted for.

Increased Costs Passed to Parents

• For many independent schools, revenue from taxable activities (uniforms, facilities hire, tuck shops, sports fields rented out, etc.) subsidises or offsets operational costs. Losing the ability to claim input VAT, coupled with exit VAT liability, could force schools to raise fees or cut services.
• Impact on Infrastructure & Investment
• The exit VAT could discourage future investment in infrastructure because schools will now factor in large VAT related liabilities for any significant capital expenditure.

Legal and Administrative Uncertainty

• Some of the current wording in the law (e.g. “registered or conditionally registered”, references to old Acts) is being updated for clarity. The amendments attempt to correct obsolete references (e.g. Further Education and Training Colleges Act being renamed) and to clarify which institutions count.
• There is concern about the timing (1 January 2026) giving schools little time to plan. And the fact that past VAT charges (on taxable supplies) won’t be refunded adds to the burden.

Arguments in Favour

• Consistency with Policy Intent: National Treasury argues that education was always intended to be excluded from the VAT net. The changes seek to bring law in line with that policy.
• Simplicity and Clarity: Removing ambiguous terms and expanding exemptions reduces the boundary between what is taxable vs exempt, reducing grey areas and administrative burdens of deciding whether a school’s particular supply is taxable.
• Equity / Access: By reducing the tax burden on goods and services connected with education, government can argue it helps keep schooling more affordable though there is debate whether that benefit would actually flow to end users (parents / pupils).

Stakeholder Reactions

• The Independent Schools Association of Southern Africa (ISASA) has strongly objected, warning of fee increases, budget cuts, and lowered quality of education.
• Free SA, a civil rights non‐profit, described the change as “extraordinary,” pointing out that forcing deregistration will trigger VAT liabilities that schools might struggle to meet.
• Some school groups are calling for delay or transitional relief beyond what has been proposed, to allow schools to adjust.

Open Questions / Risks

1. Will these cost savings actually reach parents? Even though schools will no longer collect VAT on many supplies, the exit costs and loss of input VAT claims may offset any savings, or even make operating more expensive.
2. Differing Impact among Schools Smaller schools with fewer taxable activities may be less affected. Larger independent schools with substantial commercial type operations (rental, sports facilities, etc.) are more exposed.
3. Impact on Public vs Private Sector The shift may push more families towards public schools if private schools increase fees. This could increase pressure on the public system.
4. Implementation and Compliance How SARS will determine asset values for deemed supplies, how instalment payments will be applied, how appeals or disputes will work all these need clear regulation and guidelines.
5. Timing The deadline (1 January 2026) might leave little time for schools to prepare. There may be calls to postpone implementation to allow better planning. 

The proposed amendments in the Draft Taxation Laws Amendment Bill 2025 represent a major shift in how independent schools in South Africa are treated under VAT law. On one hand, they promise clarity, alignment with policy, and potentially reduced VAT based tax compliance burdens. On the other, they carry serious financial implications for many schools, parents, and the broader education system.

Because of these stakes, stakeholder engagement during the public comment period is going to be critical. Schools, associations, parents, and civil society should carefully scrutinise the proposals, quantify the potential costs and savings, and advocate for safeguards (such as delayed implementation or further transitional measures) where needed.

More Articles