Valued Added Tax (VAT) is the second highest contributor of tax revenue to the fiscus collected by South African Revenue Services (SARS) which was 25,6% share of total tax revenue for fiscal year 2025.
Currently SARS has a backlog in its turnaround time to collect outstanding debt by taxpayers/vendors in all its tax products including VAT. As of December 2025 around R523 billion in undisputed payable tax debt by taxpayers/vendors is not yet collected and SARS is rigorously eyeing for this debt to be converted into revenue into the fiscus and has been under pressure from the the National Treasury as well as other stakeholders, particularly the unease by the taxpayers who want to see the dwinggling service delivery to pick up.
All the pressure from different stakeholders has propelled SARS to develop mechanisms to effectively recover huge sum of these outstanding debts before the debt becomes bad.
One of the mechanism to effectively deal with VAT revenue collection is to make VAT return submission/declaration much easier to declare by creating a modernised SARS VAT system to provide digital and streamed lined online system.
The VAT modernisation will allow the taxpayers/vendors to link their accounting software system with SARS tax system in that whenever the transaction or e-invoice is captured on the vendor accounting system it automatically linked with SARS digital transmission system in real time or almost near real time transmission which will result in modern VAT return.
SARS is implementing this changes in phases where phase one will affect medium to large vendors approximately 30% of the vendor base, the second phase of the VAT modernisation will integrate the remainder of the VAT vendor base consisting of micro, small and medium sized vendors.
According to SARS this changes will bring with it some benefits and some of these benefits are mentioned below:
- Less costly to meet tax obligations.
- Lessening the burden of Vendors when preparing their schedules for declarations as most of the transactions that attract output tax or input tax are traceable and streamlined to SARS tax system in realm time or almost in real time.
- Resolving inherent delays in releasing VAT refunds or collecting VAT payables
- Reducing the high rate of inaccurate VAT returns
- Reducing the need for manual verifications or audits and migrate to e-verifications and e-audits.
All these modernisations of VAT data transmission will come into effect sometime this year 2026 starting with phase one and expected to be fully implemented including phase two by 2028.
The traditional way of declaring VAT as we know it – as a self -assessment tax will remain as such, meaning the the vendor is still expected to submit the manual VAT schedule periodically.