An Assessment of the VAT Exemption for Education Services in South Africa and the Treatment in Comparative Countries

This study assesses whether the exemption of educational services from VAT in South Africa aligns with the initial intention behind its enactment. The research focuses on tertiary education in South Africa and considers alternative VAT approaches taken by countries with comparable VAT systems and internationally highly ranked universities. In particular, the VAT treatment of educational services in Ghana is analysed. A qualitative study was performed through a doctrinal analysis of relevant legislative provisions of South African and Ghanaian legislation. A reform-oriented research approach was adopted, involving a review of articles, publications from revenue administrations, and industry experts in relation to the research objectives. A significant reason behind the VAT exemption of educational services was to prevent an administrative burden on educational institutions. The study found that many institutions provide taxable supplies alongside education, necessitating registration for VAT. This requires complex apportionment calculations for claiming input taxes, creating an administrative burden that is at odds with the intention behind the exemption. Where educational institutions are unable to claim input tax, a cost of the ‘trapped’ VAT arises, which is borne by institutions and recoverable only through raising fees and the cost of education. Previous studies have considered zero-rating education or subjecting it to VAT. An alternative approach is adopted by Ghana wherein educational services are VAT exempt but a portion of 2.5 percent of the VAT collected is earmarked for spending on education. Implementing strategies based on the Ghanaian treatment may address the needs of government and universities in South Africa.