Earlier this month, the South African Revenue Service (Sars) published its ‘Discussion Paper on Value-Added Tax (VAT) Modernisation’, and those who wish to submit comments should do so by October 31. VAT was introduced in South Africa on September 29, 1991, replacing General Sales Tax, and is the second-highest contributor to revenue collection for the tax authority. However, its modernisation has largely not progressed over the past decade, unlike other taxes, including customs and excise duties.

Sars aims to achieve two primary objectives through the discussion paper. Firstly, it seeks to explain, at a high level, the modernisation of the VAT administrative framework. The modernisation will impact on businesses (vendors) that are registered or required to be registered as VAT vendors. In line with international trends in making the VAT system agile and easy to administer (for both the tax authority and vendors), there is increasing adoption and implementation of real-time or close-to-real-time transmission of VAT data from vendors to the tax authority, as well as the reporting of VAT data using VAT returns.

The second primary objective of the discussion paper is to invite vendors, accounting system software developers or suppliers, recognised controlling bodies, public finance entities, municipal finance entities and the public to submit contributions, as well as comments, as part of a consultative process to modernise the VAT administrative framework. According to Sars, the contributions, comments and feedback will be followed by further engagements and consultations.

As an additional motivation for its VAT modernisation effort, Sars states that, while the administration of the VAT value chain has adopted the use of technology, such as e-registration, eFiling and e-payments, it remains the tax type with the least supply chain visibility from a self-assessment perspective. Apparently, this lack of supply chain visibility exposes the fiscus to revenue leakages, the detection of which is time-consuming and requires frequent audits and verifications, which place a burden on vendors and their businesses. Sars believes that these frequent audits and verifications could potentially delay the finalisation of a vendor’s VAT liability or VAT refund.

The release of the discussion paper was in accordance with Finance Minister Enoch Godongwana’s announcement when he presented the 2023 National Budget on February 22 that, over the period ahead, Sars would, in consultation with affected parties, review the VAT administrative framework to simplify and modernise the current system.

Sars’s strategic intent is to develop and administer a tax and customs (inclusive of excise) system of voluntary compliance and, where appropriate, undertake enforcement responsibly and decisively.

In addition to the strategic objective to modernise its systems to provide digital and streamlined online services, the journey towards modernising the VAT administrative framework also seeks to achieve the following strategic objectives: providing clarity and certainty for taxpayers of their obligations; making it easy for taxpayers to comply with their obligations; detecting taxpayers who do not comply and making noncompliance hard and costly for such taxpayers; developing a high- performing, diverse, agile, engaged and evolved workforce; increasing and expanding the use of data within a comprehensive knowledge management framework to ensure integrity, drive insight and improve outcomes; demonstrating effective resource stewardship to ensure efficiency and effectiveness in the delivery of quality outcomes and performance excellence; working with and through stakeholders to improve the tax ecosystem; and building public trust and confidence in the tax administration system.

Although Sars is in the early stages of modernising the VAT administrative framework, the initiative will apparently entail a staged approach, which will include, among others, the following: developing VAT data models; determining suitable technologies to be used; consultation and collaboration with vendors and other relevant stakeholders; integration of vendors’ accounting information systems with Sars systems; and testing and implementation of the data models, the vendors’ accounting information systems and Sars systems.

VAT is a dual carriage. On the one hand, it ensures a steady and predictable stream of revenue, with its self-assessment mechanism placing the onus on vendors, while, on the other, it requires an effective and efficient tax administration capability on the part of Sars.