Private schools in South Africa are facing a potential tax blow as a proposed amendment to the VAT Act continues through Parliament. If enacted, the change would make all goods and services supplied by schools registered under the South African Schools Act VAT-exempt, which would force schools that are currently VAT vendors to deregister.
That matters because the issue is not just about technical tax wording. Affected schools could lose the ability to claim input VAT on commercial activities such as facility rentals and other fee-based services, while also facing a deemed disposal charge when they leave the VAT system.
The next step is still legislative. The 2025 Taxation Laws Amendment Bill was introduced in November 2025, passed through the National Assembly stage in January 2026 and remains listed by Parliament as a bill currently before Parliament. That means the proposed change is serious and advancing, but it is not yet a completed law signed off through the full process.
What we know so far
The core proposal is contained in the 2025 Taxation Laws Amendment Bill. It would add a new VAT exemption covering the supply of any goods or services by a school registered or provisionally registered under the South African Schools Act, excluding certain welfare activities confirmed by SARS in a ruling. The bill text says this provision would come into operation on 1 January 2026.
That sounds like a benefit at first glance, because VAT exemption usually means the supplier does not charge VAT on qualifying supplies. But for schools that have been registered as VAT vendors, the practical effect is the opposite of relief. Once all school supplies become exempt, those schools would no longer be allowed to remain in the VAT net and would be required to deregister.
National Treasury’s November 2025 response to comments on the draft tax bills explained the policy rationale clearly. Treasury said the long-standing intent was to exclude schools from the VAT net and that the amendment was meant to clarify that position. It also acknowledged that schools currently on the VAT register would become liable to deregister and face VAT consequences linked to input tax previously claimed.
Treasury partly softened the immediate blow after receiving objections. In the same response document, it said the proposal would be amended so that exit VAT liability would only begin from 1 January 2027, one year later than originally planned, in order to give schools more time to prepare financially. The bill also includes a mechanism allowing the tax payable on the deemed supply to be paid in 12 equal monthly instalments or over a longer period if SARS allows it.
There is another important protection in the bill. A proposed new section 40E would prevent already finalised assessments for periods before 1 January 2026 from being reopened in relation to this school VAT issue. That is relevant because some schools feared the amendment could trigger a broader retrospective reopening of historic tax positions.
Why it matters
The problem for many independent schools is that they do not operate only on tuition fees. Some schools rent out halls, astro turf fields or sports facilities, sell uniforms, run tuck shops, offer boarding or provide other taxable supplies. Under the current system, those activities can allow a school to register for VAT and claim some input VAT on related costs.
If the new rule takes effect, that structure changes sharply. Schools would no longer be able to use those taxable activities to stay registered, and VAT paid on goods and services linked to those activities would become a cost instead of a recoverable input. For schools with large campuses, mixed-use facilities and ongoing infrastructure plans, that could create a cash-flow squeeze even before any exit liability is settled.
Independent school bodies and tax professionals have warned that the pressure may not stay inside school balance sheets. ISASA has said the change could ultimately feed through into higher school fees, while BDO said schools may have to absorb the loss or recover it through higher charges because the commercial side of a school often represents only a small portion of total income.
That is why the proposal is being watched so closely. It affects not only elite institutions, but also fee-charging schools that rely on careful budgeting and side-income streams to maintain facilities, fund capital projects and keep annual increases under control. In practical terms, the VAT change could raise costs even where tuition itself remains formally VAT-exempt.
Key details and figures
Several details define the scale of the issue:
- The 2025 Taxation Laws Amendment Bill was introduced on 12 November 2025.
- Parliament’s bill page shows it reached the National Assembly stage on 13 January 2026 and is still listed as a bill currently in Parliament.
- The proposed VAT exemption would apply to any goods or services supplied by a school registered or provisionally registered under the South African Schools Act, with a carve-out for certain welfare activities.
- The bill text says the exemption would come into operation on 1 January 2026, though the legislation has not yet completed the full parliamentary process.
- Treasury’s response document says the exit VAT liability would only begin from 1 January 2027 to give schools more time.
- Treasury also proposed that the exit amount could be paid in 12 monthly instalments or over a longer period approved by SARS.
A Treasury example reported by Moonstone shows how the mechanics could work. It described a school that built an aquatic centre costing R30 million, with VAT of R4.5 million. Using an average 2% apportionment ratio cited by Treasury from SARS data, the school’s exit liability would be about R90 000, payable in instalments from 1 January 2027. Treasury also said some schools may have used much higher apportionment ratios, which could create bigger problems if those positions are ever tested.
That example is only illustrative, not a universal number for the sector. The actual liability will depend on each school’s assets, VAT treatment history and method of apportionment. But it shows why the proposal has triggered such concern. Even where the final output tax bill is not catastrophic, the combination of deregistration, compliance work and loss of future input claims can still hurt.
What the law or policy says
The policy case from Treasury is that schools were always meant to sit outside the VAT net, and that the current amendment is mainly a clarification. The difficulty is that the existing wording allowed some schools to treat certain side activities as taxable supplies and to claim input VAT accordingly. That produced a system in which some schools could partly benefit from VAT registration even though education itself was already exempt.
The proposed amendment tries to close that gap by exempting all goods and services supplied by schools under the South African Schools Act. Once that happens, a VAT-registered school leaving the system is treated as making a deemed supply of the assets used in its enterprise immediately before deregistration. That is the legal trigger for the exit VAT bill.
The law also tries to reduce the immediate administrative shock. Proposed section 8(2H) allows instalment payments, while a linked amendment to section 9 would deem the time of supply to arise when each instalment is due, which is intended to limit penalties and interest. Proposed section 40E then blocks the reopening of finalised pre-2026 assessments in relation to the school VAT issue.
What happens next
The most important point now is that this is still a proposal moving through the legislative process. Parliament’s own page does not list the bill as an Act yet. Until the bill completes the remaining stages and is assented to, schools are dealing with a credible legislative risk rather than a finalised legal change already in force.
Even so, the direction of policy is hard to ignore. Treasury reaffirmed the proposal in its response document, and current tax analysis still treats mandatory school VAT deregistration as the expected outcome if the amendment is enacted. That means schools that are currently registered for VAT may need to model their exposure now, especially where they have large fixed assets, mixed-use facilities or heavy dependence on input VAT claims.
For parents, the immediate impact is uncertainty rather than an instant fee hike. But the warning from independent-school bodies is that if the proposal becomes law in its current form, some schools may eventually have to recover higher costs through fees or scale back infrastructure spending. That is the real bad news in the story. The proposed rule is technical, but its consequences could reach classrooms, campuses and household budgets.
