VAT warning for South Africa

South Africans can expect significant changes to how VAT compliance is monitored and enforced in the coming tax year, along with far greater scrutiny of refunds. 

This is largely due to the immense pressure on the government to close its fiscal gap and rein in growth in the state’s debt burden. 

So far, the National Treasury has done this through implementing fiscal consolidation, which is a painful process of squeezing more tax revenue while limiting spending growth. 

This has been successful, with the government on track to post its third consecutive primary budget surplus. This means the state is bringing in more in tax revenue than it is spending, excluding debt-servicing costs. 

Part of this plan from the National Treasury was to increase tax rates to further grow revenue. However, its plan to implement a VAT hike was scuppered by political opposition. 

This has forced it to increase the pressure on SARS to raise revenue through increased compliance and a narrowing of the tax gap, Deloitte’s Tax and Legal team explained. 

In their pre-Budget commentary for the 2026/27 financial year, Deloitte’s tax experts explained that there is sustained pressure on the government to address its deteriorating financial health. 

Due to the scrapping of the proposed VAT hike in April 2025, the government has to find other ways to cover a projected R75 billion revenue shortfall over the medium term. 

“Although VAT is a viable lever for revenue sustainability, given the public sentiment and political optics, another rate hike in the near term is improbable,” Deloitte’s tax experts said. 

However, this does not mean the government will not look to squeeze more revenue from VAT collections through increased scrutiny of refunds and more intense compliance efforts from SARS. 

“As a result, VAT as a self-assessment tax may be scrutinised more rigorously. Vendors may expect a notable shift in how VAT compliance is monitored and enforced as a mechanism to narrow revenue shortfalls,” the experts said. 

SARS has already signalled a shift towards broader efforts to transform tax processes and close the compliance gap through its VAT Modernisation Project. 

The revenue service aims to introduce e-invoicing, e-reporting, and a framework to support real-time VAT data transmission. 

This lays the foundation for far greater oversight from SARS regarding VAT collections. It also gives the revenue service much greater access to company data. 

SARS crackdown is coming

Deloitte’s experts explained that SARS is likely to pursue efficiency gaps and tax reform through alternative methods in the near future. 

These methods are likely to be imposed until the revenue service can fully implement real-time VAT compliance and fundamentally change how the tax is collected in South Africa. 

Many of these alternative methods are more intense applications of existing elements of VAT compliance in South Africa, alongside heightened scrutiny of refunds. 

One of the easier ways for SARS to squeeze more juice from the VAT lemon is to add more fields on the VAT201 return form, Deloitte’s experts said. 

This can provide more precise details on transaction types for targeted investigation by SARS, with detailed disclosures improving the revenue service’s error-detection capabilities. 

Increased data in this regard will also enable SARS to have clearer audit trails for data reconciliation in the future. 

Another simple option on offer for SARS is the identification of risky vendors and sectors, where the organisation can relatively easily increase compliance and, thus, revenue. 

“Vendors or industries with a higher probability of non-compliance may face greater scrutiny where a risk-based compliance approach flags behaviour patterns such as unusual or frequent refunds, deviations from norms, or inconsistent returns,” the experts said.

SARS has been steadily building out its artificial intelligence capabilities to be able to increase its detection of anomalies for further investigation by its staff. 

This method of raising more revenue is closely tied to the implementation of strategic verifications and audits to curb false refund claims or detect data omissions. 

“Employing third-party data-matching technology, which SARS has implemented in other areas already, may also serve as an effective risk tool for validating vendor filings,” the experts said. 

These are only some of the options open to SARS to raise additional revenue from VAT in the near future, without a rise in the VAT rate. 

“Looking ahead, we expect a drive by SARS to identify non-compliance faster than before. However, with real-time VAT reporting still in its infancy, alternative compliance methods will be used as an interim solution,” Deloitte’s experts said. 

“This would place more pressure on audit and verification processes to find anomalies or result in other methods employed by SARS to achieve results.”

“Vendors could, however, be headed for compliance fatigue and cash flow strains in order for SRS to protect and expand the VAT base.”