There are a number of key issues arising from the impending increase in the Value-Added Tax (VAT) rate that will affect the majority of non-life policyholders, said the South African Insurance Association (SAIA) in a statement.
The statement was issued following the announcement in March by the Minister of Finance of a phased increase in the VAT rate. The rate will increase from 15% to 15.5% effective 1 May 2025 and to 16% from 1 April 2026.
The supply of non-life insurance constitutes a taxable supply of services for VAT purposes and is subject to VAT at either the standard rate or the zero rate.
SAIA contacted the Financial Sector Conduct Authority (FSCA) with regards to the matter. In its response, the FSCA advised that they encourage non-life insurers to send general communications to all policyholders reminding them that the impending VAT increase will impact their premiums going forward.
SAIA published its notice on the change to the VAT rate to create consistent widespread awareness of the direction the industry proposes in addressing the increase. This approach is in line with the spirit of the VAT Act and other regulatory requirements.
Impact on premiums
In general terms, the new VAT rate of 15.5% applies to premiums for cover periods commencing on or after 1 May 2025. For example, for monthly paid premiums a VAT-inclusive premium of ZAR115 ($6.20) paid by debit order for the cover month of April 2025 will increase to ZAR115.50 for the cover month of May 2025 and the months thereafter.
Annually paid premiums for new policies and renewals for cover periods commencing on or after 1 May 2025 will include VAT at 15.5%.
No adjustment is required for annual policies with cover that commenced prior to 1 May 2025 and for which the premium was paid before 1 May 2025.
Impact on claim settlements
Regardless of policies having been written including VAT at 15%, at the time a claim arose, insurers will settle claims including VAT at 15.5% with effect from 1 May 2025.
Common approach
SAIA said, “The effect of the change in the VAT rate is a significant administrative and logistical exercise that necessitates a consistent industry-wide approach, said SAIA. The outcome is not seen to materially prejudice any sector of policyholders or to improperly advantage any insurer or other market stakeholder. This approach facilitates prompt and widespread communication to all policyholders by way of public announcement.
“There may be instances where a particular insurer may not want to follow the industry approach. The insurer will then communicate the variation to its affected policyholders individually.”