Say goodbye to SARS as you know it

The South African Revenue Service (SARS) aims to revolutionise the way it interacts with taxpayers through investing heavily in its digital capacity and improving relations with tax practitioners. 

This is expected to significantly improve compliance and generate more revenue, while also ensuring that taxpayers feel more valued by the institution and government. 

The man leading this charge is SARS’ new commissioner, Dr Johnstone Makhubu, who took on the role officially from 1 May. 

Makhubu replaced Edward Kieswetter, who led the turnaround of the institution after the era of state capture resulted in its capacity being hollowed out. 

Kieswetter was successful in this task, with SARS’ capabilities being significantly improved and the tax authorities repeatedly outperforming the revenue targets set by the National Treasury. 

This has helped stave off increases in tax rates in South Africa and has begun to make inroads on the illicit trade and tax avoidance. 

Now, Makhubu is switching gears, with SARS having to invest heavily in modernising its systems to make tax collection more efficient, enhance compliance, and improve relations with taxpayers. 

“We have been the first to say that while we have achieved great progress with regards to tax administration, we have also said we have a long way to go,” Makhubu told Newzroom Afrika. 

“We are aware that our systems and our infrastructure, whilst it has carried us until now, there are areas where we have to improve.” 

SARS is currently undergoing a modernisation programme that aims to overhaul the revenue service’s systems and fundamentally change how individuals interact with it. 

Makhubu said that SARS is particularly looking at taxpayer service and how that can be improved alongside overhauling infrastructure. 

“Taxpayer service relates to how the taxpayers’ service is enhanced or is lagging. We have a number of channels through which they interact with us and we know that, quite often, there are challenges that taxpayers experience in those areas,” Makhubu said. 

“We know that tax practitioners do sometimes get challenges whenever they interact with us, and I intend to work on that relationship with them in particular.” 

Makhubu referred to tax practitioners as effectively being SARS’ agents in the field in terms of how they engage with taxpayers, which makes the relationship between the revenue service and them particularly important. 

“I will look into this relationship and talk to recognised controlling bodies that register those tax practitioners so that we can work together to create a situation where the experience of taxpayers is enhanced,” Makhubu said. 

Big VAT overhaul

The largest part of SARS’ overhaul is its VAT modernisation plan, which aims to significantly enhance compliance and data collection by the revenue serivce. 

This modernisation plan will give SARS real-time data on collections and enable it to implement e-invoicing for the first time. 

As a result, SARS will be able to monitor the compliance of businesses much more closely than in the past, requiring significant changes to how companies interact with it. 

SARS has recently begun to share more information about this modernisation with the National Treasury, implementing the necessary regulatory and legislative changes. 

This overhaul is expected to significantly ease the compliance burden on South African businesses and make revenue collection far 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.”

This is part and parcel of SARS trying to improve the taxpayer experience when interacting with business owners and large corporates. 

The overall VAT regime will become more streamlined, with SARS promising a far easier experience for taxpayers who align with its new system. 

“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.”

However, Sesana did warn that these same capabilities give SARS new insight into the operation of vendors, giving it real-time data to detect mismatches and avoidance. 

The revenue service may even become aware of this before a taxpayer does, creating significant compliance challenges. 

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.

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