VAT priorities likely to shape the budget: Tightened compliance over rate hike

• Field data on VAT returns: Adding more fields on the VAT201 return can provide more precise detail on transaction types for targeted interrogation by SARS. Detailed disclosure can improve SARS’ error detection capabilities and prepares vendors to provide information in structured and consistent format with clearer audit trails for data reconciliation.
• Pinpointing risky vendors and industry sectors: Vendors or industries with a higher probability of non-compliance may face greater scrutiny where a risk-based compliance approach flags behaviour patterns such as unusual or frequent refunds, deviations with industry norms, or inconsistent return declarations.
• Strategic verifications and audits: Although reliance is still placed on post-transaction audits and verifications, more detailed information requests and stricter VAT data reconciliations may be on the horizon to curb false refund claims or detect data omissions. Employing third party data-matching technology – which SARS has implemented in other areas already – may also serve as an effective risk tool for validating vendor filings.  
• Implementing standard reconciliations: Implementing reconciliations between VAT and other financial information would not be unprecedented, as SARS historically applied a similar approach through so-called IT14SD reconciliations prior to its withdrawal. Introducing an alternative reconciliation concept as a risk detection tool could support early identification of anomalies and reduce reliance on intensive audit procedures.
• Cross-border compliance: Expanding enforcement around our growing digital economy is critical to rectify competitive imbalances. Some businesses continue to operate under the radar, benefiting from limited detection. To promote a fair marketplace and accelerate cross-border compliance, SARS may strengthen its oversight and data-sharing capabilities to ensure transparency and accountability.
• Avoid non-meritorious spurious assessments: A more efficient use of audit resources is required to reduce capacity strain on SARS officials and avoid administrative bottlenecks. For example, reducing the issuance of non-meritorious assessments due to process inefficiencies, by making certain amendments to s95 of the Tax Administration Act.  

Even though s95 of the Tax Administration Act has been applicable since the promulgation of the Act in 2012, the functionality for VAT in relation to estimated assessments was only implemented in December 2023. As such, the experience of dealing with estimated assessments for VAT is only being dealt with now and it has become clear that there are still teething issues in dealing with VAT estimated assessments.

Considering the process issues that have been identified over the past two years with the implementation of the VAT estimated assessments, proposals were made to the National Treasury (Treasury) to have s95 amended in order to use SARS’ audit resources more efficiently.

In order to reduce non-meritorious assessments, it was proposed to Treasury that –

• SARS must inform the taxpayer of its decision not to make a reduced or additional assessment after the taxpayer submits the return or relevant material requested by SARS.
• The notification of the decision not to reduce the estimated assessment, must be accompanied with grounds for not reducing the estimated assessment to enable the taxpayer to adequately respond to these grounds in its objection.
• Upon receipt of the notification the taxpayer must within 21 business days of delivery of the document, or further period requested by the taxpayer which may be allowed by SARS, respond in writing to the facts and conclusions set out in the document.

These proposed amendments will ensure that there is enough time, opportunity and remedial options provided to the taxpayer to respond accordingly to SARS’ information requests before the matter is escalated to an additional assessment that is time-consuming, wastes resources and is unnecessary. The proposed amendments, if implemented will see that potential additional assessments and prolonged disputes are dealt with efficiently for both the taxpayer and SARS.