This significant revenue loss directly impacts the country's ability to fund essential services such as healthcare and education. In response, the SA Revenue Service (SARS) is pushing for a fully digital VAT system by 2028, underscoring the urgency for businesses to modernise their reporting processes.
Speaking to Channel Africa, Shannon Friedman, Chief Executive Officer of VAT Modernisation South Africa, explained that the country's VAT framework is inherently prone to compliance issues due to its reliance on self-reporting.
Unlike taxes such as personal or corporate income tax, VAT reporting is largely manual and highly aggregated, making it difficult for SARS to trace individual business transactions.
“VAT lacks the visibility other taxes have,” Friedman said.
“The framework's dependence on manual reporting allows certain entities to exploit vulnerabilities, despite the majority of businesses complying with regulations.”
Fraudulent activities exploit these gaps, compounding the fiscal losses and placing a heavier burden on compliant businesses. This highlights the need for a system overhaul to enhance transparency and efficiency.
To address these issues, VAT Modernisation SA is working with businesses to prepare for the upcoming digitalisation of VAT systems. Their focus is on integrating real-time reporting and electronic invoicing solutions with existing business frameworks.
Friedman emphasised the importance of a smooth transition: “We assess a business’s current systems and help them adopt solutions that enable real-time reporting. The goal is for businesses to switch seamlessly to compliance when the new regulations take effect, rather than scrambling at the last minute.”
The adoption of real-time VAT reporting involves transmitting invoice and transaction data directly to tax authorities in a format that is automatically processed. This eliminates the need for manually compiled returns, reducing the scope for errors and fraud.
The push for a fully digital VAT system by 2028 aligns with global trends in tax compliance. Technological advancements, such as electronic invoicing and automated data transmission, are key to streamlining VAT processes.
These systems allow businesses to operate as usual while ensuring compliance in the background.
“Automation is critical,” Friedman noted. “By integrating these solutions into their accounting systems, businesses can transmit data to SARS without additional administrative burdens. This ensures compliance is seamless and cost-effective.”
While the 2028 deadline for compliance may seem distant, businesses are urged to act now. Friedman warned that late preparation often leads to costly and suboptimal solutions.
“Preparation is vital,” she stressed. “The longer businesses wait, the harder and more expensive it becomes to align their systems with the new requirements.”
The transition to a modern VAT system is expected to benefit both SARS and businesses. It promises to close compliance gaps, increase revenue collection, and simplify the tax process for businesses, fostering greater efficiency and transparency in SA’s tax administration.
--ChannelAfrica--
