South Africa private schools face huge tax bills under new VAT law

Private schools across South Africa may soon face massive tax liabilities under a government proposal seeking to reform Value-Added Tax (VAT) in the education sector.

Deregistration Deadline Set for 2026

According to the Draft Taxation Laws Amendment Bill, all schools—public and private—will be required to deregister from VAT by 1 January 2026.

Experts, however, warn that private institutions could be the hardest hit due to their financial models and high-value assets.

Current VAT Rules in Education

At present, tuition and boarding fees are exempt from VAT.

However, many private schools voluntarily registered for VAT since they also earn from taxable services such as hall rentals, uniforms, catering, and sports equipment.

This registration has given them the advantage of claiming VAT refunds on major expenses like infrastructure upgrades and operational costs.

Expansion of VAT Exemption

The proposed law would expand VAT exemption to cover all services offered by schools.

Once implemented, no school will be allowed to remain VAT-registered.

The Deemed Supply Rule

The most contentious part of the proposal is the “deemed supply” rule.

When a VAT-registered institution deregisters, the law treats it as though it has sold all its assets—buildings, equipment, and furniture—at market value.

This triggers a VAT liability despite no actual sale occurring.

Experts say this could leave larger private schools facing tax bills that run into millions of rand.

Limited Relief from Treasury

To ease the impact, the National Treasury will allow schools to spread payments over 12 monthly instalments, free of interest and penalties.

Still, with most schools already having finalized their 2026 budgets, the added burden could create serious financial stress.

Call for Stakeholder Input

Stakeholders, including school administrators, have until 12 September 2025 to submit comments on the draft legislation.

Tax experts are urging schools to act quickly, warning that failure to engage could lead to devastating financial consequences in the coming year.