VAT audits expand as SARA targets compliance gaps amid fiscal pressure
Following a political backlash that threatened the cohesion of South Africa’s ruling coalition, the government has formally abandoned its proposed 1% VAT rate increase. Instead, the South African Revenue Service (SARS) is shifting its focus to significantly expanding VAT investigations and enforcement activities to help close the revenue shortfall.
This pivot aligns with broader strategic objectives to increase tax compliance through intensive scrutiny of VAT processes, including:
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Input tax deductibility and documentation;
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Use and accuracy of apportionment methodologies; and
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Zero-rating of exports and related compliance.
Project AmaBillions: heavy recruitment for new era of VAT enforcement
In support of its enhanced compliance agenda, SARS has launched Project AmaBillions, aiming to raise an additional R70 billion in revenue over the next three years. The initiative includes a major expansion in audit capacity, with over 500 new staff already deployed and another 1,000 to 1,500 recruits anticipated. A substantial portion of this capacity is being allocated to VAT-related audits, verifications, and reviews.
This development underscores VAT’s continued role as a high-yield and administratively efficient area for enforcement. Businesses, especially those operating across multiple sectors or engaging in complex transactions, are strongly encouraged to re-examine their VAT positions, legal interpretations, and evidentiary documentation.
Why VAT Is a Strategic Focus for SARS
VAT’s transactional nature and its broad application across nearly all economic sectors make it a prime candidate for revenue recovery. According to the 2024/25 SARS Revenue Plan, VAT ranks just behind personal income tax in terms of contribution to total revenue.
Recent enforcement trends reveal a clear shift toward challenging non-compliance and technical misinterpretations, particularly in the following areas:
1. Input Tax Deductions:
SARS is increasingly disallowing deductions where:
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The tax invoice does not meet the requirements of Section 20 of the VAT Act, such as missing VAT registration numbers, incorrect legal names, or vague line descriptions.
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The goods or services are not wholly or partly used in the course of making taxable supplies, as required by Section 16(2).
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The deduction period does not align with the time of supply, leading to incorrect claims under Section 16(3).
2. Apportionment of Input Tax:
Businesses that make both taxable and exempt supplies must apply an apportionment method that is reasonable, fair, and consistently applied in line with Binding General Ruling (BGR) 16 and BGR 36. SARS has been known to challenge:
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Use of industry-agnostic or outdated apportionment formulas.
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Lack of contemporaneous documentation to justify apportionment rates.
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Discrepancies between VAT returns and financial accounts.
3. Zero-Rated Supplies, Particularly Exports:
Zero-rating under Section 11(1) and 11(2) requires strict adherence to documentary and timing requirements, including:
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Customs export documentation, such as the SAD 500 form.
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Proof that goods were physically exported within 90 days.
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Valid contracts and purchase orders showing foreign buyer details.
Delays or deficiencies in documentation can result in standard-rated assessments and penalties.
4. Tax Invoice Requirements:
SARS is increasingly rejecting VAT claims based on non-compliant tax invoices, which must include:
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The words “Tax Invoice”
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Supplier’s and recipient’s full legal names, VAT registration numbers, and physical addresses
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A unique serial number
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Clear descriptions and quantities of goods or services
Where invoices are issued in foreign currency, they must include Rand equivalents, in line with the Exchange Rate Regulations.
Legal Challenges and Judicial Scrutiny
There has been a noticeable uptick in VAT matters being escalated to the courts, particularly around the interpretation of taxable supplies, the validity of invoices, and apportionment. Recent case law demonstrates that success in such disputes often hinges not only on the legal technicalities but also on the commercial substance of the transactions and the quality of supporting documentation.
Read more in our South Africa VAT guide.
