Unpacking SARS VAT Modernisation plans and how to prepare

Whenever there’s talk of a ‘new regulation’, such as the upcoming SARS VAT Modernisation, it can often offset some restlessness and uncertainty in businesses. Of course, this is only natural considering the amount of preparation and changes that generally come with it. In addition, there’s the fear of being underprepared. This is especially true when such news is coming directly from SARS.

As SARS reveals VAT modernisation plans for SA businesses and discussions around VAT modernisation start carrying more significance and weight, businesses are urged to start joining the conversation. 

Unfortunately, for most businesses, it can feel complex, daunting, and almost like navigating a foreign language. But complying with the upcoming law shouldn’t come at the expense of your resources, time, or patience. 

So, here’s what you need to know about SARS’s VAT modernisation plans. 

What is VAT modernisation?

In evolving economic, technological, and regulatory landscapes, it’s only natural that the VAT systems are going to play catch-up. And that’s exactly what the recent SARS VAT modernisation plans aim to do. In brief, VAT modernisation is the process of updating (and improving) value-added tax (VAT) systems and regulations to keep up with the global economic, digital, and regulatory environment. It also encapsulates the global need for enhancing VAT reporting frameworks in order to better address existing VAT collection gaps while simultaneously combatting VAT fraud. 

The upcoming SARS VAT modernisation initiative is no different and aims to: 

• Enhance VAT system compliance and efficiency
• Ease the compliance process for vendors
• Increase taxpayer satisfaction
• Better detect non-compliance
• Boost digital offerings for taxpayers

Sounds great! But as we all know, nothing is ever as straightforward as you’d like it to be when it comes to the compliance and VAT landscape – which is why it requires some further digging. 

Overview of SARS white paper

As it currently stands, research shows that in South Africa, VAT is the tax type with the least supply chain visibility. This is largely due to its being reported on a predominantly self-assessment basis. Naturally, this creates significant risk of collection leakages, which in turn, increases the need for frequent audits. This has led to the publishing of the SARS white paper, which discusses how VAT modernisation aims to change this. 

Here are a few key takeaways: 

The overall aim: 

Although SARS may be catching up with international regulatory trends, it believes that upcoming changes will significantly streamline processes for everyone involved – from tax authorities to vendors. How? By facilitating the real-time (or near real-time) transmission of businesses’ transaction data.

Simply put, the end goal is for SARS to digitally receive real-time VAT data. This will result in businesses’ VAT reporting becoming more automated, streamlined and accurate.

The question then follows as to how SARS intends to make this a reality.

Cue e-invoicing. 

Practically, what would VAT modernisation and e-invoicing entail? 

This is where we need to take a slightly closer look at e-invoicing beyond its known operational and automation benefits. An e-invoice refers to a document transmitted directly from your IT system to a corresponding system at your customer’s end. These invoices are formatted to facilitate direct integration into your and your customer’s systems and stored in specific data formats. 

In relation to SARS, the paper informs us of plans to invest in IT infrastructure to receive VAT data digitally. However, it is the sole responsibility of each vendor/business to ensure that their systems align with SARS’s requirements. Although it will require an initial investment to transition to this framework, SARS plans to create tax incentives to smooth this. 

Although the timeline is yet to be finalised, if SARS follows suit on par with global VAT modernisation legislation, we will most likely expect a phased transition over the next five years. 

While that may seem far away, it is important to take into account the periodic nature of VAT returns. Businesses who complete VAT returns every 2 months, will only have 30 VAT reporting periods to work out their compliance strategy and iron out any kinks. Given that the above will likely involve changes or adjustments to businesses’ existing, core systems, vendors should avoid falling into any last-minute scrambles (often with suboptimal results) such as those experienced by many in 1991, when VAT was originally brought into effect by SARS.

However, what’s important to note is that e-invoicing and VAT modernisation shouldn’t be considered a disruptive or mandatory legislative box to tick. Although it will soon become a critical part of your compliance journey, it holds invaluable growth and digitisation opportunities.  This is why there are SA-based businesses that have been a leaders in this space for years. 

How adopting an e-invoicing solution can help South African businesses prepare for upcoming VAT reforms

Fortunately, you’re in the right corner – and already one step ahead (so you don’t have to play compliance catch-up). One can adopt e-invoicing seamlessly by partnering up with  a tried and tested South African e-invoicing provider with years of experience in EDI security, e-invoice distribution, and tracking. For example, System1A sends over 1.5 million e-invoices to SA businesses monthly, with over 200,000 companies interacting with the platform. 

Why wait five years before  achieving VAT compliance? And streamline your AR processes, improve your DSO, increase cash flow and free up critical resources, while you’re at it? 

Instead, avoid any last-minute scrambles and enjoy the benefits that e-invoicing has to offer. In other words, help your business conduct its sales cycle processes more efficiently while effortlessly transitioning with future legislation. To find out more about e-invoicing or SA’s VAT Modernisation plans, check out our e-invoicing FAQ page or contact us directly.