Do You Pay VAT on Vehicle Insurance in South Africa?
Vehicle insurance is a necessary expense for all car owners in South Africa. With the high rate of accidents and vehicle crime, having comprehensive insurance provides vital financial protection. When taking out a new policy or renewing your cover, you may wonder if Value-Added Tax (VAT) applies to your premiums. Understanding the VAT Exempt implications can help you budget effectively.
Does VAT Apply to Vehicle Insurance Premiums?
The short answer is yes – you do pay VAT on your car, motorbike, or other vehicle insurance premiums in South Africa. Insurance policies fall into the category of financial services, which are subject to the standard VAT rate.
So if your annual insurance quote is R5000, including VAT it will total R5750 (R5000 plus 15% VAT of R750). This VAT is payable to SARS by the insurance companies. The tax is therefore included in what you pay as the policyholder.
It’s important to note that not all insurance policies have VAT added. For example, life insurance and disability cover do not currently incur VAT. But for vehicle insurance, VAT at 15% is compulsory.
Breakdown of VAT on Vehicle Insurance
To understand exactly what portion of your insurance premium is attributable to VAT, let’s take the example of a policy costing R5000 a year. Here is a breakdown:
- Base premium cost: R4348
- VAT portion (15% of R4348): R652
- Total annual premium: R5000
So in this case, out of the total amount paid, R652 (or 13.04%) relates to VAT. This tax is paid by the insurance company to SARS based on their VAT reporting obligations.
The base premium cost covers the actual risk and administrative expenses incurred by the insurer. Then VAT is charged on top as a percentage of that base amount. All VAT registered companies must charge VAT in this manner based on the prevailing rate.
Factors that Determine your Premium VAT
The amount of VAT you will pay on your particular vehicle insurance policy depends on a few key factors:
Base policy premium: This is the core amount charged by the insurer based on risk, which excludes VAT. A higher risk profile means a higher premium, which in turn raises the portion attributable to VAT.
Rate of VAT: Currently 15%. Any future increase or decrease in the VAT rate will impact the VAT charged on policies.
Insurer: Some insurers may have small differences in their base premium amounts compared to competitors, affecting the VAT total.
Type of cover: Comprehensive vehicle insurance includes a higher risk and benefit value than third party policies, for example. Thus the higher base premium also raises the VAT portion.
Tips for Budgeting your Car Insurance VAT
Here are some useful tips to help you accurately budget for VAT when factoring your car insurance costs:
Check Quotes Carefully
Scrutinize the total premium amount quoted, as well as any breakdown of fees or taxes shown, to understand what portion relates to VAT. Some insurers may not provide a detailed breakdown unless you request it.
Ask Your Broker to Explain
Your insurance broker should be able to clearly explain the VAT component that applies to your policy, as reflected on your insurance schedule.
Be Aware at Renewal Time
If insurers decide to increase base premiums on your policy at renewal time, your VAT charge will also go up by 15% of this raised premium amount.
Factor in potential VAT rises – With inflation and rising claims likely putting upward pressure on premiums over the long term, the portion attributable to VAT may slowly increase too. Keep this in mind when budgeting.
Does Insurance Claim Payouts Include VAT?
If you need to claim under your vehicle insurance policy for accident damage, theft, or other loss, you don’t need to worry about VAT. Insurance claim payouts made by insurers do not include or attract VAT. This helps to simplify and speed up claim processing.
The VAT has already been included in the insurance premiums paid by policyholders based on the coverage value, risk levels, and other pricing factors. Claims are thereafter VAT exempt – they are essentially a refund of this pre-paid cover when specific insured events occur. This avoids a situation where insurers must refund claimants VAT on approved claim settlements.
So if your car is written off and the insurer pays out R150 000 according to your policy benefits, no VAT is added or included within this amount. The full R150 000 claim settlement goes towards your vehicle replacement costs.
Getting the Right Cover at the Best Price
While VAT on car insurance in South Africa is non-negotiable, you can still shop around for the most competitive premiums. Comparing quotes from multiple providers helps you find the features,excesses and premiums that suit your budget. This allows you to get the right cover you need at the best available pricing.
Working with an experienced broker can also help ensure there are no unexpected fees in your policy. They will explain all charges and taxes like VAT before you commit. This assistance enables you to estimate your total budget accurately when insuring your vehicle.
Conclusion
All standard vehicle insurance policies in South Africa do include VAT charged at the current rate of 15%. As a policyholder, while you can’t avoid paying VAT, you can shop around for the most competitive premiums. Getting quotes from multiple insurers assists in accurately budgeting for policy expenses like VAT.
To easily estimate your total car insurance costs including VAT, be sure to use our online Car Insurance VAT Calculator. This tool allows you to input your base premium amount and instantly see the VAT portion and total payable amount. Having access to this estimator helps provide clarity on VAT implications before committing to cover.
So don’t forget to access and save our Car Insurance VAT Calculator today for handy pre-purchase support.
FAQs
Is VAT charged on vehicle insurance in South Africa?
Yes, South African vehicle insurance policies are subject to 15% VAT which is payable to SARS. This standard rate applies to all comprehensive cover for cars, bikes, trucks etc.
Is VAT refundable when I claim on my policy?
No, you do not get refunded the VAT you paid when claiming. Insurance claim payouts do not include or attract any VAT as this was already paid on your premiums.
How can I reduce the VAT I pay on insurance?
VAT rates are set by law so cannot be negotiated. But you can reduce your total VAT by choosing insurers with lower premiums to minimise the policy cost that VAT applies to.
Does VAT apply on vehicle insurance in other countries?
VAT and other insurance taxes vary globally. Some countries charge higher rates while some do not include VAT on vehicle insurance. You’d need to check locally applicable laws.
Will VAT increase further on South African vehicle insurance?
Possibly yes if the government increases the standard VAT rate above 15% in future. This would proportionally raise the VAT component on your policy premium.
