Big VAT changes coming to South Africa

SARS is steaming ahead with its value-added tax (VAT) Modernisation Project, which will give the revenue service real-time data on collections and enable it to implement e-invoicing. 

This is part of a broader project within SARS to overhaul its systems and provide digital, streamlined services to taxpayers. 

Apart from improved service, the project also aims to enable SARS to close the estimated R800 billion tax gap in South Africa through enhanced compliance. 

The tax gap refers to the difference between the amount of tax assessed and the amount actually paid in South Africa. This has ballooned over the past decade as SARS’ capacity was eroded during the era of state capture. 

SARS has shed more light on its VAT modernisation efforts, with the South African Institute of Taxation (SAIT) saying it has engaged with the revenue service in early 2026 regarding the project. 

First referenced in 2023 as part of various tax draft proposals, the full framework for the overhaul of SARS’ VAT systems is set to be released in early 2026. 

SAIT said the revenue service is quickly shifting towards real-time data transmission, automation, and increased transparency. It expects the phased rollout to begin in 2026, with full operational capability targeted for 2028. 

The overhaul of SARS’ systems is set to significantly ease the compliance burden on South Africans and make the revenue service more efficient. 

“It introduces the potential for a more predictable, efficient compliance environment, but also places significant responsibility on businesses to ensure systems, data, and processes are prepared for enhanced transparency,” SAIT deputy CEO Keitumetse Sesana said. 

“South Africa now stands on the threshold of a system-driven compliance era. One in which SARS gains earlier, richer, and more accurate visibility of business activity.”

Sesana explained that this will occur well before VAT returns are formally submitted, increasing SARS’s scrutiny of businesses. 

The upcoming e-invoicing regime promises a more streamlined and easier experience for taxpayers whose systems are aligned with SARS’ new requirements. 

“Digital invoices, validated VAT numbers, and automated data flows will allow VAT information to be transmitted directly from accounting systems to SARS in near real time,” Sesana explained. 

“For many businesses, this means fewer documentation requests, faster verification cycles, and improved turnaround times.” 

Compliance crackdown

While the new modernisation project will make it easier for taxpayers to comply and reduce their administrative burden, it will also greatly enhance SARS’ scrutiny. 

Sesana explained that compliance under the new system will naturally embed itself in daily operations, rather than remaining an isolated monthly task. 

“The same digital capabilities that create seamless compliance also give SARS unprecedented insight into the operation of vendors,” Sesana said. 

“Real-time data from banks, accounting systems, and third-party platforms will increasingly allow SARS to detect discrepancies – often before a taxpayer becomes aware of them.” 

In particular, mismatches between invoicing patterns and VAT declarations, or the value of VAT returns and bank activity, will be immediately noticed by SARS. 

This means that understatement penalties will become stricter over time, and the margin for “honest mistake” classifications has narrowed significantly. 

In this new environment, compliance becomes a systems issue first and a tax issue second, Sesana explained. Accuracy at the point of data creation will define compliance. 

“Every invoice, credit note, and adjustment entered into financial systems must be correct from the outset. VAT numbers must be validated in real time,” Sesana said. 

This will fundamentally change how VAT is reported and collected in South Africa. All the while, SARS will gain access to more business information in real time. 

Deloitte’s Tax Technology and Indirect Tax Team said the biggest change will have to come within businesses, as SARS will receive data directly and in real time. 

This means that tax teams at companies will not have time to analyse and correct data before filing a return. SARS will have eyes on an organisation’s tax data at the same time as the company. 

The changes will compel many organisations to adapt to the new ways of interacting with the tax authority or face significant penalties and increased operational risk. 

It also presents a challenge for SARS, with immense investment required in digital capacity and consistent monitoring of VAT invoices. 

However, it can yield tremendous benefits in terms of increased tax revenue and a smaller tax gap – without raising the VAT rate.

Deloitte’s tax team pointed to Chile as an example of the potential benefits of modernisation, with the country having effectively digitised its VAT monitoring systems.

By doing this, the country systematically reduced its VAT gap using data gathered from electronic invoicing. 

This was first implemented for the largest businesses – a small number of conglomerates controlling a large part of the economy – and cascaded through their supply chains.