Big VAT changes on the cards for South Africa

SARS’ VAT Modernisation Project is one step closer to reality, with the National Treasury seeking to amend tax administration legislation to enable its implementation. 

This marks a significant step for the project since the VAT Modernisation Discussion Paper was published by SARS in 2023. 

The project aims to overhaul the tax authority’s systems to provide digital and streamlined services for taxpayers to comply with their obligations. 

Apart from improved service, the project aims to narrow the tax gap, which SARS estimates to be R800 billion per annum. This is the gap between the amount of tax levied and actually paid in South Africa. 

Thus, it is likely that the modernisation of SARS systems will come with a clampdown on South African businesses and individuals not complying with their VAT obligations. 

There is also a proposal in the discussion paper to implement real-time transmission of data from registered vendors to SARS. 

This will enable the revenue service to clamp down on non-payment almost immediately and access business information to analyse the payment patterns of taxpayers to make them more compliant.

The National Treasury explained that the modernisation of SARS systems should also translate into savings for the institution in the form of a reduced administrative burden. 

In the publication of the 2025 Draft Tax Bills and Draft Regulations for Comment, the National Treasury and SARS outlined the changes set to be made to tax legislation in the current financial year. 

While most of the changes are set to close loopholes or provide clarity for taxpayers, there will also be alterations to the tax legislation to enable the implementation of the SARS VAT Modernisation Project. 

“This project forms part of a broader effort to transform tax processes, improve customer service and engagement, reduce the VAT gap and streamline tax administration,” the Treasury and SARS said. 

VAT modernisation

The major change that is likely to come from the VAT modernisation project is set to be the implementation of real-time VAT reporting and compliance. 

Deloitte’s Tax Technology and Indirect Tax (VAT) Team analysed the proposed changes from SARS to understand the potential impact on South African individuals and businesses. 

It said that real-time VAT reporting will fundamentally change how the tax is reported and collected in South Africa.

The investment in digitisation by the revenue servie will also significantly increase its ability to access more business information in real time. 

This is set to give SARS more data from which it can gain insight on the behavioural patterns of taxpayers and work towards making them more compliant.

Some of the biggest changes will have to come from within businesses, with SARS receiving data directly and in real-time. This does not give tax teams at companies the ability to analyse and correct data before filing a return. 

This means that SARS will have eyes on an organisation’s tax data at the same time as the company. As a result, tax data quality and governance will become more important. 

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 in digital capacity being needed 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 effectively digitising its VAT monitoring systems.

By doing this, the country managed to systematically reduce its VAT gap by using the information and 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.

They have since built a range of taxpayer-facing services as well as internal use cases to identify high risk cases and potentail signs of avoidance.