What the VAT Increase Really Means for Healthcare Practitioners

On 1 May 2025, South Africa’s VAT rate will officially increase from 15% to 15.5%, with another 0.5% hike planned to reach 16% by 1 April 2026. But what looks like a slight shift on paper is, in reality, a massive blow to an already overburdened healthcare sector—one that will compound financial stress, reduce profitability, and create new layers of administrative chaos for medical professionals.

It seems like no one in the Treasury is asking: Was this the best way to grow tax revenues? Instead of rooting out wasteful expenditures or creating policies fostering economic growth, the government chose to lean harder on taxpayers by imposing a tax disproportionately affecting ordinary South Africans.

The Harsh Reality for VAT-Registered Healthcare Practitioners

Let’s get practical. If you’re a healthcare provider contracted to medical aid, you receive an all-inclusive, fixed rate for your services. You keep 100% of that fee if you’re not VAT registered. But once you’re VAT registered, a chunk of your revenue—currently 15%, soon 15.5%, and eventually 16%—is taken off the top and handed over to SARS.

That means if you earn R100,000 monthly from contracted rates, you pay R15,500 to SARS. Medical aids probably won’t cover this increase; you’ll just take home less. That extra tax doesn’t fund new infrastructure or reduce business costs—it’s servicing government debt. And you’re footing the bill.

Smaller practices and allied healthcare professionals will be hit the hardest. Many are already struggling with late medical aid payments, rising operational costs, and razor-thin profit margins.

The VAT Threshold Trap

To make matters worse, the VAT registration threshold hasn’t been adjusted in years. Not even for inflation. According to SARS, any business earning more than R1 million in taxable turnover over 12 months must register for VAT. That figure has remained the same since 2009.

With inflation and rising service fees, more healthcare providers are being pulled into the VAT net despite no actual increase in their profitability. They hit the threshold simply by keeping up with inflation—but as soon as they register, they immediately lose 15.5% (soon 16%) of their earnings.

To recover from that loss, a practitioner would need to work more than one month extra every year to get back to where they were pre-VAT registration.

Operational Headaches and Compliance Nightmares

The VAT increase isn’t just a financial burden. It’s an administrative nightmare.

• Accounting systems need to be updated to reflect the new VAT rate.
• Medical billing software must be adjusted to apply the correct VAT rate to each service.
• VAT reconciliations must be done as the rate change happened during the financial year, leading to increased workloads for accountants and compliance teams.

This increases hours of work, increases the risk of non-compliance, and raises accounting service fees—all for an increase that doesn’t improve service delivery.

The VAT Imbalance in Medical Practices

For those considering registering for VAT, it’s essential to understand the input-output VAT imbalance in service-based businesses like medical practices.

The most significant part of your costs—staff salaries—don’t attract VAT. So when you pay output VAT on your services, there’s not much input VAT available to reduce your VAT liability. Meaning the relief you get is minimal.

For non-VAT registered practices, costs are increasing rapidly. Equipment, consumables, pharmaceuticals—all these items are becoming more expensive, and your margins are being squeezed.

So, What Can You Do?

1. Consult a VAT Structuring Expert

This is not the time to wing it or rely on general advice. If you’re nearing the VAT threshold or are already registered, speak to a tax advisor who understands the medical industry and can help you structure your business to delay VAT registration as long as possible or at least navigate it strategically.

2. Reevaluate Your Cash Flow & Budgeting

Poor planning will result in missed payments—and once you fall behind with SARS, it’s challenging to catch up. Penalties and interest add up fast, and SARS takes a particularly hard stance on high-income earners like doctors and specialists.
You need a budget that helps you plan cash outflows like:

• VAT liabilities
• Provisional and income tax
• Operational cost

3. Implement Meticulous Bookkeeping Practices

Proper bookkeeping helps you:

• Track all possible input VAT claims
• Flag discrepancies early
• Stay compliant with SARS
• Identify areas for cost savings

This is non-negotiable if you want to maintain profitability and avoid costly errors.

Final Thoughts

Suppose the government truly wants to grow the economy and fund essential services like healthcare. In that case, it should start by looking inward—at wasteful spending, bloated departments, and underperforming SOEs—not by placing a greater burden on the professionals holding our healthcare system together.

At GAS Accounting, we stand with healthcare professionals. We work with doctors, specialists, and allied healthcare practitioners daily to help them navigate the tax minefield. If you’re worried about VAT, cash flow, or compliance, we’re here to help you fight smarter.

Reach out to us. Let’s ensure you keep more of what you earn and protect the practice you’ve worked so hard to build.