Businesses that proactively set out to modernise their Vat reporting systems and processes are actively contributing to improving the country’s fiscus, in turn creating a platform for investment into the country, along with improvements in public education, healthcare, and other service delivery imperatives.

This would be in contrast to South Africa’s current Vat environment, where estimates of the Vat compliance gap have historically ranged from 5% to 10% per annum, with the South African Revenue Service (Sars) having achieved gross revenue (before refunds) of R2.155tn in the 2023/2024 fiscal year.

Sars’ revenue collection contributes to over 90% of government’s consolidated budget, which, in the words of Minister of Finance, Enoch Godongwana, is pivotal for developing a capable state that serves the needs of all its citizens.

At that rate of tax collection, and with that rate of non-compliance through non-reporting or incorrect reporting, South Africa’s fiscus is losing between R22bn and R50bn per year through Vat leakage.

This leakage is made possible by manual invoicing and reporting systems – money to which Sars is entitled through legislation, and funding that could be used effectively to address some of the country’s most pressing challenges.

Real-time Vat control

The introduction of continuous transaction controls via a standardised e-invoicing system implemented through organisations’ ERP and accounting platforms allows for real-time or near real-time transaction visibility, with invoices reported to Sars either just before or shortly after being issued.

As a more efficient and accurate Vat framework, it would mean that fewer resources need to be spent on unnecessary audits. Tighter controls within an automated system also reduce the opportunity for fraud and other financial crimes.

Globally, similar models have already been implemented or are currently undergoing implementation. Notable examples include the European Union, via its ‘Vat in the Digital Age (Vida)’ initiative, along with Brazil and Mexico.

Italy benefited from an increase in tax revenue of approximately €6bn by introducing e-invoicing and digital reporting, and Chile and Mexico have been able to reduce their Vat gaps by as much as 50%.

In the Brazilian model, businesses issue electronic invoices which are submitted to the country’s revenue service for validation before goods can be dispatched, significantly reducing tax evasion and increasing tax revenue.

“It’s not just the revenue services that will benefit from a more automated Vat system – e-invoicing brings a wide range of compliance and commercial benefits to businesses too,” says Shannon Friedman, chief executive officer of Vat Modernisation SA.

Streamlined Vat processes

Automated data submission gives businesses the peace of mind that the correct information has been accurately submitted, in turn allowing for quicker processing of legitimate Vat refunds.

This, as a result of Sars having greater visibility into documentation and greater confidence in the legitimacy of refunds. Simultaneously, businesses are less likely to have to endure unnecessary manual audits, and the chances of disputes are reduced too.

E-invoicing allows for greater automation and less manual administration when it comes to billing, reconciliations, reporting and document capture, while offering increased visibility into transactions that can be easily ingested into real-time reporting, creating meaningful dashboards.

This combination allows for faster collections, faster payment authorisations for suppliers, and reduced cash leakages that typically arise from processing errors and disputes. Importantly, e-invoicing also allows for increased security, in turn reducing the potential for fraud-related crime.

“Consumer sentiment is lifting, and there’s a palpable sense of optimism as the country’s economic indicators become more favourable,” says Friedman.

“Choosing to work with a partner skilled in integrating e-invoicing solutions with existing accounting platforms allows businesses to reap the benefits of greater automation. This proactive approach also contributes to the early and meaningful modernisation of Sars' Vat systems and processes. The benefits are myriad for businesses, and for our country.”

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