The South African Revenue Service (SARS) has called for comment on the value-added tax (VAT) Modernisation Consultation Paper that aims to support a modern, transparent and efficient VAT administration system in South Africa.

The Consultation Paper outlines a proposed digital VAT model that brings together e-invoicing, an interoperability framework and e-reporting to reposition VAT administration for the economy, ease compliance obligations and strengthen oversight.

The proposals form part of SARS’s Modernisation 3.0 and seek to enable the secure, structured and near-real-time flow of VAT transaction data across the VAT value chain.

“VAT modernisation is a major step in reshaping how VAT is administered in South Africa. It seeks to move us from a system that is still too dependent on manual processes and retrospective verification, to one where VAT compliance becomes part of the systems businesses already use every day,” says SARS Commissioner Dr Johnstone Makhubu.

“This modernisation of service will reduce the burden on compliant vendors, strengthen compliance and safeguard the revenue needed to fund South Africa’s development priorities. The transformation will enable a long-term shift to a digitally driven, transparent and resilient VAT administration.”

The proposed Digital VAT Model is intended to deliver practical benefits for both SARS and VAT vendors.

For SARS, the secure sharing of reliable VAT transactional data is expected to provide clearer visibility over VAT transactions, more accurate and reliable data, stronger risk-based compliance oversight and enhanced ability to detect and respond to fraud and close the VAT compliance gap, he says.

Further, VAT vendors are expected to benefit from a simpler, more predictable compliance experience, lower administrative effort and cost, clearer visibility and faster, more efficient handling of VAT information.

The wider economy could also benefit from improved data quality; reduced duplication; trusted digital exchange among businesses, service providers and SARS; simpler business processes; smoother trade; efforts to narrow the VAT compliance gap; and a more transparent and trusted tax ecosystem, says Makhubu.

The long-term vision is a VAT system where tax compliance becomes a seamless part of ordinary business activity. However, this must be developed in consultation with stakeholders so that the final model is secure, inclusive and aligned to South Africa's needs, SARS states.

“We are seeking practical, evidence-based input to ensure the final approach is practical, 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.”

The modernisation process marks a paradigm shift in the use of data and advances SARS’s vision of building a smart, modern SARS.

For taxpayers, this delivers a simpler, more predictable experience with reduced effort, increased certainty where “tax just happens”, he says.

The Consultation Paper emphasises that the proposed Digital VAT Model will be implemented through a phased and consultative approach.

Stakeholder feedback will help shape the policy choices, technical design, implementation sequencing, readiness requirements, costs, risks, benefits, governance arrangements, standards and safeguards.

Therefore, the paper is the beginning of a long-term reform of the VAT ecosystem, Makhubu says.

The feedback from the 2023 Discussion Paper on Modernisation has greatly enriched the direction for VAT modernisation. SARS incorporated these inputs and made significant progress from the initial position and included the best practices from peers and multilateral organisations’ consultations.

The Consultation Paper, therefore, embodies a well-researched and inclusive process, reflecting stakeholder comments and proposals, international best practice and continuous refinement of the VAT modernisation proposals.

SARS calls on all impacted and interested stakeholders to study the Consultation Paper and submit written comments by October 16.

The Consultation Paper is available on the SARS website, and comments must be submitted through the response mechanism provided in the Consultation Paper.