Big VAT changes in South Africa as SARS hunts for R800 billion

South African businesses face urgent pressure to modernise their VAT systems and adopt e-invoicing, as SARS aims to close an estimated R800 billion tax gap and streamline compliance.

In his State of the Nation address on 12 February 2026, President Cyril Ramaphosa set out several bold strategies to underpin South Africa’s growth and development.

VAT Modernisation SA CEO Shannon Friedman warned that these “expensive strategies” are likely to put pressure on the government’s fiscus.

Fortunately, there is some good news for the President and for Finance Minister Enoch Godongwana, who must finance these projects.

This is the fact that the South African Revenue Services (SARS) has published plans to modernise its revenue collection approach to achieve greater efficiency.

The recent release of its SARS Modernisation 3.0 White Paper 2025/26 – 20209/30 shares deeper insights into the taxman’s plans.

The white paper describes that SARS is modernising its tax administration platform “into an intelligent digital system embedded with data science and artificial intelligence”.

SARS said it aims to create a platform that “will foster trust, promote efficiency, and ensure transparency, driving voluntary compliance”.

Friedman said a key part of that strategy is transforming the Value Added Tax (VAT) collection system to improve the existing onerous administrative burden on vendors while minimising fraud and non-compliance.

This modernisation has already been under discussion for several years, with momentum now steadily growing.

“The project gained critical momentum in 2025 when Minister Godongwana had to realign his plans to increase VAT to 17% in that year’s budget,” she explained. “That increase was intended to increase revenue by up to R60 billion.”

However, SARS Commissioner Edward Kieswetter and other experts highlighted at the time that remedying revenue under-collection could help unlock an additional R800 billion – SARS’s current estimate of the existing tax gap.

“This massive potential income shift is what ultimately put the modernisation project into high gear,” Friedman noted.

Businesses must act quickly

According to Friedman, the R800 billion potential income makes it likely that Minister Godongwana will announce further support for the revenue collector in his 2026/7 Budget Speech on 25 February 2026.

This will allow SARS to accelerate improvements in its administrative environment to become “an intelligent digital platform, embedded in data science and artificial intelligence”.

VAT modernisation includes an automated tax data submission system that will automatically assess VAT liabilities, she explained.

It does so by drawing on trusted data sources, such as verified e-invoicing solutions, in near real time, removing the need for periodic VAT returns.

“This suggests that South African businesses need to pick up the pace in their own modernisation efforts if they are to comply with SARS’ intended innovations.”

This all means that South African businesses that have not yet realised the importance and potential impact of SARS’ modernisation of VAT collection need to start planning now.

Specifically, they need to adapt their ERP environments to accommodate e-invoicing frameworks that enable seamless compliance.

They should be having similar discussions with their suppliers, vendors, and key customers as well, Friedman added. “Modernising the VAT process is about more than compliance, however.”

“Aligning with the revenue collector’s AI-assisted initiatives by implementing an e-invoicing system yields far greater benefits than just support of its regulatory framework.”

SARS has made its intentions clear

Friedman explained that e-invoicing enables greater automation and reduced manual administration for billing, reconciliations, reporting, and document capture.

E-invoicing also offers the revenue service increased visibility into transactions through real-time reporting and tracking.

“It allows for faster collections, quicker supplier payments authorisations, and reduced leakage from processing errors and disputes.”

Importantly for businesses and for SARS, Friedman said it offers increased security, reducing the potential for fraud.

“The benefits have already been seen in countries like Chile, Italy and Mexico, where near-real-time VAT reporting has yielded billions in additional revenue because it’s more difficult for entities to understate their liabilities.”

These successful implementations in markets very similar to South Africa’s are likely to inspire even further impetus for SARS.

“While e-invoicing is already a globally adopted practice, VAT reporting frameworks vary between countries,” Friedman noted.

This means that South African businesses need to choose an implementation partner with experience in the local environment and insights into the environments where their international clients are domiciled.

Choosing a solution developed with South African nuances in mind will smooth the compliance journey and avoid the traumatic downtime and data loss that often accompany rushed system changes.

Friedman stressed that SARS has made its intentions for modernising VAT clear, and its recent track record suggests it will likely deliver on its proposed transformation journey.

Businesses that want to ensure their own transformation to e-invoicing is a positive process that realises all possible benefits should be investigating solutions now to support a graceful roll-out of new systems.