South Africa has kicked off a six‑year overhaul of its value-added tax reporting system, setting the stage for one of the most significant tax administration shifts in decades. A newly released consultation paper outlines the framework and rollout timeline for the Digital VAT Model, with stakeholders given until 16 October to weigh in.
The reform marks a decisive change from slow, retrospective VAT declarations towards structured e‑invoicing, interoperability, real‑time e‑reporting, and, ultimately, automated VAT assessments.
SARS’s ambition is clear: businesses should transmit near real‑time transaction data, cutting out manual filing, reducing errors, speeding up refunds, and sharply limiting the need for audits or “after‑the‑fact” verifications.
Victor Terblanche, managing director of CentaTax, says South Africa is far behind countries that already run real-time VAT reporting. “It affords us the opportunity to learn from them.”
SARS Commissioner Johnstone Makhubu says the revenue-collection agency is seeking practical, evidence-based input to ensure that the final approach is implementable and suited to South Africa’s economic realities.
“When done well and with high-quality stakeholder input, this work can significantly modernise VAT administration for the benefit of vendors, the economy, and the fiscus.”
Charles de Wet, tax executive at ENS, says the consultation document gives a clear direction as to where SARS is going. The timelines are reasonable and realistic.
“There has been concerns that the processes will be rushed, but I think there is recognition of the challenges some of the entities might be facing.”
De Wet has some apprehension about the lack of detail in the consultation paper. “Pre-population is clearly where SARS is going in the income tax sphere. It has been done for individuals, but I am not convinced that it will be as easy with businesses.”
He adds it will be possible to record the sales and purchases, but there are exempt supplies, deemed supplies, and change in use that will have to be considered.
SARS currently uses the “post-audit model” to verify VAT submissions, which often results in higher compliance costs, a greater administrative burden, and delayed refunds for taxpayers. It also leads to a reduced ability for SARS to address compliance risks, fraud, and the VAT gap effectively.
Cost and disruption
The new Digital VAT Model will have three pillars: e-invoicing, an interoperability framework, and e-reporting. Under this model, VAT transaction data will flow in near real-time between suppliers, buyers, service providers, and SARS, enabling improved visibility across the value-chain and progressively automated VAT compliance.
The implementation will be a gradual phasing-in process that recognises the cost of adopting the Digital VAT Model. This includes potential substantial investment in technology, systems integration, organisational readiness, and operational costs. The extent of these costs will vary depending on the size, complexity, and digital maturity of each stakeholder.
Terblanche says SARS will benefit from a substantial upgrade in visibility and fraud detection in almost real-time, while businesses may only experience the upside once their systems are integrated. The integration from a business perspective is where the disruption and cost of implementation will be experienced.
“The impact on smaller businesses, using outdated systems, will be the hardest. The business still doing invoices on a spreadsheet or running outdated software will feel the impact especially from a cost perspective.”
Real time reporting may also present challenges if you need to fix a mistake on an invoice before your return is due. This may result in VAT law amendments to accommodate such instances, says Terblanche.
De Wet agrees and adds that a few practical examples of how things will fit together would have been helpful. How will the system distinguish between exempt supplies and taxable supplies? What happens when the vendor has not sent an invoice and it is not prepopulated?
The consultation paper is “light on detail” and does not answer all the questions, De Wet says. One example is the reference to the “network authority”.
The consultation paper only says, “the governing body responsible for setting, maintaining, managing, and enforcing the technical and legal rules within a decentralised electronic document exchange network”. The question is who the “network authority” will be, asks De Wet.
Main challenges
SARS acknowledges that the main challenges taxpayers will face in adopting the Digital VAT Model include implementation costs, low digital literacy, resistance to change, business disruption, regulatory complexity, system integration, data security, and scalability.
Costs for businesses will include application programming interface (APIs), software upgrades, intermediary service providers for e-invoicing, consultation fees, information technology fees, staff training, and the cost of disruptions.
Terblanche says the biggest challenge for SARS will be rolling this out across an enormous, uneven population of vendors without the system falling over.
“SARS indicated that they’ll start with the largest taxpayers first, which is sensible, but the real test comes when it reaches the mass of medium and small businesses further down the line.”
Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law, and regulatory issues.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies.
