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Tracing taxes in real time – SARS is working toward a new VAT return strategy

Tracing taxes in real time – SARS is working toward a new VAT return strategy

January 31, 2024


At the end of 2023, the South African Revenue Service (SARS) made public its plans to modernise the administrative framework for the South African Value Added Tax (VAT) system. In a recent discussion paper, SARS outlined the initiative to overhaul its system to enhance its ability to collect business taxes in South Africa. Let’s unpack the proposed changes that are set to make it easier for companies to submit their VAT returns.

Value Added Tax in South Africa: History

In 1991, South Africa implemented its current VAT (Value Added Tax) system, which replaced the former general sales tax framework. Since then, Value Added Tax (VAT) has emerged as the second-largest source of revenue for the South African Revenue Service (SARS).

How does VAT work in South Africa?

VAT operates somewhat uniquely, relying on businesses to self-assess and meticulously document their transactions to determine VAT liabilities or refunds due. Accurate record-keeping is the backbone of the current VAT system, as it serves as the foundation for audits to verify adherence to VAT requirements.

Over time, as technology has progressed, SARS has recognised the growing need to update and augment the VAT system in South Africa. While specific aspects of the tax system, such as electronic registration and payments have already been digitised, the overall process lacks seamless integrated supply chain visibility. Such a gap in the collection of VAT not only poses the risk for potential revenue losses, but also increases the frequency of audits, which imposes additional administrative burdens on businesses, in addition to the already high burden of accurate VAT record keeping.

SARS VAT Modernisation Strategy – looking forward to 2028

SARS is in the process of transforming into a modern institution with high integrity that emphasises voluntary tax and customs compliance. The 2023 Budget Announcement highlighted the need for SARS to review and revitalise the VAT system to align with international trends and streamline processes.

International Benchmarking for Value Added Tax in South Africa

In the discussion paper, a study of 11 countries revealed common features, key requirements, and cost structures associated with VAT modernisation. The golden thread in this study highlighted the need to digitise VAT data through electronic invoicing, along with the prioritisation of B2G (Business to Government) transactions, and outlined a phased implementation approach with vendors expected to bear compliance costs.

What steps are required to achieve VAT modernisation in SA?

To achieve its goals, SARS aims to establish near-real-time data transmission between businesses and itself, enabling enhanced visibility across the entire VAT supply chain. This will necessitate building VAT data models, selecting appropriate technologies, collaborating with vendors and stakeholders, integrating accounting systems, and conducting thorough testing before launch.

As an interim measure, SARS has suggested implementing an updated VAT return for the entire vendor base, by introducing detailed reporting on VAT data. This is intended to prepare VAT vendors for the future state of the modernised VAT system.

Electronic invoicing will play a central role in the VAT modernisation initiative, aligning with international trends favouring the digitisation of VAT source data through electronic invoices (e-invoices). To this end, SARS has acknowledged the need for adapted systems and a secure invoice validation framework to facilitate this transition.

What are the benefits of VAT modernisation and when will it be complete?

The anticipated benefits of this modernisation effort include improved compliance and efficiency in the VAT system, quicker VAT refund processing, streamlined registration and deregistration procedures, enhanced capabilities for estimated assessments in cases of non-compliance, and simplified VAT calculations. Although the initial costs incurred to upgrade accounting systems will need to be carried by the vendors, SARS has pointed out that the long term benefits will far outweigh the costs.

To make these changes happen, a number of legislative adjustments will be required, specifying the mandatory requirements for the new VAT return, as well as updates to the categories of vendors obliged to digitally transmit data to SARS, along with penalties for non-compliance with the digital transmission of VAT data.

The digital transmission concept aims to support a self-assessment system while allowing SARS to simulate a vendor’s VAT return for more accurate estimations in cases of non-compliance. Initially targeting the segment contributing approximately 80% of total VAT revenue due to the phased roll-out approach, legislation will compel around 30% of the VAT vendor base to digitally transmit VAT data by the proposed target year of 2028.

Information is key – education and awareness on the modernisation of VAT systems by SARS

SARS is committed to launching educational campaigns, including webinars, to ensure vendors understand their place in the updated VAT framework. Recognising the challenges faced by smaller vendors, SARS plans to provide adequate time and resources for a smooth transition.

The SARS’ modernisation initiative is a proactive step towards ensuring the efficiency and adaptability of South Africa’s VAT system. The planned changes will bring the system into alignment with international best practices, by leveraging technology to create a more transparent, compliant, and user-friendly taxation environment.

FinGlobal: cross-border financial specialists for South Africans

We pride ourselves on always being ahead of the curve, and up to date with all the latest developments in South African tax laws. This means we’re always able to unpack the upcoming changes for our clients, and advise on next steps with confidence and clarity.

We provide services such as tax clearance, tax refunds, tax emigration and retirement annuity withdrawals to South Africans all over the world. We are a Licensed Financial Services Provider, and fully accredited and registered with South Africa’s Financial Intelligence Centre (FIC). We are also a Licensed Treasury Outsourced Company with the South African Reserve Bank (SARB) and our close working ties with SARS makes us the ideal partner for South Africans at home and abroad for all cross-border financial transactions.

To put our services to the test, simply fill out the contact form below with a short message and we’ll be in touch to discuss your requirements.

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