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‘Mother-in-law’ VAT approach: SARS eyes real-time tracking

Oct 17, 2023

By Philip Tillman

VAT approach update. A live feed of your business’s VAT data to the South African Revenue Service (SARS) could become a reality in the next five years, if a recent discussion paper is anything to go by.

In what could mark one of the biggest changes to South Africa’s VAT regime since 1991, SARS earlier this month published its discussion paper on “Value-Added Tax Modernisation”.

The paper is inviting input from various stakeholders and the public with the aim to initiate a process to modernise South Africa’s sales tax system and update the VAT return to enhance compliance, efficiency, and transparency.

SARS says it aims to modernise the VAT system in stages, including implementing near-real-time or even real-time digital transmission from businesses to the revenue collector.

To date, SARS has regarded VAT as a “self-assessment” tax, which means that the onus has largely been on businesses to honestly provide accurate information on their tax returns.

SARS, therefore, wants better visibility of the entire supply chain process that generates VAT tax revenue, so that it can determine the tax liability and not just rely on self-determination. By doing this, SARS in future, wants to demand real-time knowledge, while maintaining the self-assessment method.

This is the ‘mother-in-law’ method where SARS already knows the correct answer and is effectively waiting to see if a business gets it wrong in its tax returns.

How businesses can prepare for the new VAT approach

Companies must be proactive and should already start asking themselves now whether SARS’ knowledge of their real-time transactions (sales and purchases) is a risk to them. If it is, they need to eliminate the source of that risk to ensure full compliance.

All businesses should consider whether their accounting software is going to be capable of complying with any new VAT requirements.

It’s going to become crucially important that your business’s software is also cloud-based, as there may be a requirement for it to continuously communicate directly with SARS.

Depending on the size of your business, you may also need to weigh up whether the tax compliance burden is sufficient enough to require dedicated compliance and management software to automate some of the processes for you.

Considerations for SARS

While there’s no doubt that SARS VAT approach and its intention with its VAT modernisation drive is to mitigate leakage, achieve maximum permissible tax revenue collection, and reduce the cost of administration and non-compliance detection; the reality is that it will have some hurdles to overcome.

The revenue collector must bear in mind the potential cash-flow implications of taxpayers, if any, for complying with any new regulations. If updated or new software is required, then there could be extra costs involved for businesses.

Added to this, many entities that should be registered for VAT are businesses in the informal sector and they often use no finance systems. SARS needs to find a way to help these entities comply with any new regulations.

There’s no doubt that there will be a greater focus on VAT collection and compliance going forward, especially as it continues to be one of the biggest revenue generators for the country. In February’s budget speech, the National Treasury reported that VAT revenue alone accounted for R472 billion of the total R1.78 trillion in tax revenue for the government’s latest financial year.

And with recent reports of growing pressures on South Africa’s fiscal position, the government will look to tighten the taps wherever it can. Businesses must get ready now.

Philip Tillman is the CEO of Konsise, which is a top tax software solution that combines the functionality of Excel, SharePoint, Outlook, and SARS eFiling into a single platform, allowing South African businesses to manage their tax obligations efficiently. Konsise is especially powerful for large companies looking to more easily manage the tax compliance of multiple entities in a single platform.

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