SARS: South Africa Unveils Real-Time VAT Reporting Proposal

• SARS has proposed a new system for real-time VAT reporting in South Africa, detailed in an August 2026 consultation paper.
• The initiative requires businesses to issue standard digital invoices with automatic data transmission to SARS, aiming to enhance VAT compliance.
• This reform seeks to address South Africa's substantial VAT reporting gap, estimated at 35-41% between 2016 and 2020.
• International examples, such as Uganda's e-invoicing mandate, demonstrate that digital systems can significantly impact reported VAT liabilities and purchasing claims.
• The public comment period on the proposed changes closed on October 16, 2026, having offered stakeholders an opportunity to influence the final regulations.

Legal and compliance professionals should proactively advise clients on the necessary adaptations to their accounting systems and processes, as well as the strategic opportunity to influence the final regulations through the now-closed public comment period.

The South African Revenue Service (SARS) has unveiled a significant proposal aimed at modernizing Value-Added Tax (VAT) administration through near real-time reporting. Detailed in an August 2026 consultation paper, this initiative seeks to streamline the VAT process for businesses while simultaneously bolstering compliance and revenue collection efforts. The core of the proposal involves mandating VAT-registered entities to issue invoices in a standardized digital format, with pertinent transaction details automatically transmitted to SARS.

This proposed system would enable SARS to pre-populate VAT returns for businesses, allowing them to review and correct the information before submission. Furthermore, the immediate availability of transaction data would empower the revenue service to identify discrepancies much sooner than under the current post-submission audit model. The public comment period on these proposed changes, which closed on October 16, 2026, offered a crucial window for stakeholders to contribute to the final regulatory framework.

The impetus behind SARS's push for digital VAT invoicing and real-time reporting stems from a substantial VAT reporting gap within South Africa. Between the 2016 and 2020 tax years, this gap, representing the difference between declared VAT and the amount that would be collected under full compliance, was estimated to be between 35% and 41%. Currently, VAT-registered businesses file returns electronically, with SARS reviewing supporting invoices only upon request after submission.

VAT constitutes South Africa's second-largest source of tax revenue, contributing R457.8 billion (approximately US$28 billion) in 2024/25, which accounted for 24.7% of the total tax revenue after refunds. Personal income tax remains the largest contributor at 39.3%. Businesses often reduce their VAT liabilities by exaggerating purchases or concealing sales. The proposed system, by enabling digital records and automated data matching, aims to make such under-reporting significantly more difficult, thereby enhancing VAT compliance South Africa-wide and securing vital government revenue.

Research into digital VAT reporting systems in other African nations offers valuable insights for South Africa's proposed reform. Studies indicate that while digital records can markedly improve VAT reporting accuracy, businesses may adapt by finding alternative methods of under-reporting. Effective implementation, therefore, requires more than just data collection; tax authorities must actively compare buyer and seller records, identify mismatches, and thoroughly investigate potential under-declarations.

Uganda's experience provides a compelling case study. From January 2021, VAT-registered businesses were required to issue electronic invoices. A stricter mandate introduced in April 2022 compelled approximately 5,000 larger firms to directly integrate their accounting software with the tax authority's system. This change led to a 43% reduction in reported purchases and a nearly 150% increase in reported VAT liabilities for affected businesses, suggesting a significant reduction in exaggerated purchase claims. However, reported sales also declined by 39%, indicating that some businesses shifted towards concealing sales when inflating purchases became harder. The experience of Rwanda further underscores the critical importance of robust follow-up actions on identified discrepancies.

The August 2026 consultation paper represents a pivotal moment for VAT compliance in South Africa. The impending shift to real-time VAT reporting and digital invoicing will necessitate substantial adjustments for businesses across various sectors. Legal and compliance professionals should proactively advise clients on the necessary adaptations to their accounting systems and processes, as well as the strategic opportunity to influence the final regulations through the now-closed public comment period.

Businesses must begin evaluating their current enterprise resource planning (ERP) systems and accounting software to ensure they can accommodate the requirements of e-invoicing South Africa tax regulations. The consultation process, which concluded on October 16, 2026, was crucial for shaping a regulatory environment that is both effective for SARS and manageable for the business community.

Lawyers and compliance officers should advise clients on the impending need to adapt their accounting systems and processes for SARS's proposed real-time VAT reporting and digital invoicing. They should also note the public comment deadline of October 16, 2026, for the August 2026 consultation paper, which presents an opportunity for clients to influence the final regulations.

Source: Information derived from recent financial reporting