Private schools face crippling VAT bills under proposed tax changes

PRETORIA — 20 June 2025

Private schools across South Africa could face massive, unexpected tax bills starting in 2026 under new government proposals aimed at standardising VAT rules for all educational institutions. The Draft Taxation Laws Amendment Bill would force schools to deregister as VAT vendors by 1 January 2026.

While both public and private institutions will be affected, experts warn private schools will suffer most due to their financial structures and high-value assets (tax experts). Currently, schools don’t charge VAT on core services like tuition and boarding fees.

“Many private schools voluntarily registered because they charge for taxable extras such as hall rentals, uniforms, catering, or sports equipment,” tax analysts explain. This also allowed VAT refunds on major expenses like building projects.

The bill expands VAT exemption to all school services. This means no educational institution could remain VAT-registered.

A controversial “deemed supply” rule would then apply during deregistration. “The law treats the school as if it has sold all its assets – including buildings, furniture, and equipment – at their current market value,” notes one tax advisor.

This creates a VAT bill based on assets’ market value without any actual sale. “For larger private schools, this ‘phantom sale’ could result in tax bills running into the millions,” experts caution.

The National Treasury offers limited time relief: “Where the tax charged… relates to expenses incurred more than five years ago,” schools might avoid payment. However, experts argue this won’t address recent investments (Treasury clause).

School representatives argue the policy threatens the sustainability of private education. “Government must reconsider the deemed supply rule,” one administrator states, noting it penalises institutions for past VAT compliance.