The South African Revenue Service (SARS) has published a discussion paper for public comment on the modernisation of the South African Value Added Tax (VAT) framework. VAT is the second highest contributor to revenue for the fiscus. Despite this there has been little in the way of modernisation of the VAT system compared to other taxes.

SARS foresees a staged approach to its modernisation which will include developing VAT data models, determining suitable technologies to be used, consultation with vendors and stakeholders, the integration of vendor’s accounting systems with SARS systems, and the testing of the models and systems.

How will the future VAT system work? VAT data, which is obtained from source documents, (such as issued and received electronic invoices and payments), will be processed through the vendor’s accounting system and digitally transmitted to SARS using secure data submission channels. It is envisaged that the digital transmission of VAT data will take place at almost near to real-time transmission. When VAT data is digitally transmitted it will be used to simulate the Vendor’s VAT return. SARS will still retain the self-assessment concept with the vendor still being required to submit a return before a due date.

SARS proposal is to initially implement the digital transmission of VAT data with those medium to large vendors that use technology-based accounting information systems, which account for approximately 20% of vendors. In later phases they will integrate the remaining vendor base. SARS estimates that realistically the implementation of this new system will take place in five years. In the interim SARS will modernise the VAT return to expand on the data input points. For example, differentiating between the supply of goods and services, identifying zero rated supplies, input tax deductions for imported goods, and more.

In its discussion paper SARS explains the benefits of its modernisation initiative. These include:

• resolving delays in refunds;
• reducing the number of inaccurate VAT returns;
• reducing the need for manual verifications and audits (i.e., a migration to e-audits);
• decrease in the number of disputes lodged;
• auto registration and deregistration;
• simplifying the calculation of VAT.

There will be an expense to vendors in upgrading their accounting information systems, but SARS expects the long-term benefits will outweigh this cost. There will also, in time, be legislative amendments to give effect to the modernisation of VAT systems.  Comments on the discussion paper can be made to SARS by 31 October 2023.

Telephone: +27 31 570 5496, Email: graeme.palmer@gb.co.za.