For many businesses, VAT compliance has historically meant one thing:

Get the VAT return right before the deadline.

SARS’s proposed Digital VAT Model could fundamentally change that mindset.

The future of VAT compliance is intended to be less about looking backwards at what happened during the previous tax period and more about ensuring that transactions are correct as they happen.

From post-audit to continuous controls

The current VAT system relies heavily on retrospective verification.

SARS receives the VAT return and has limited visibility of the underlying transaction data until after submission.

The proposed model introduces Continuous Transaction Controls (CTC).

Under CTC, transactional or invoice data can be validated, reported or made available to SARS in real time or near real time as part of the ordinary business process.

This doesn’t necessarily mean SARS will be auditing every invoice manually.

Quite the opposite.

The intention is to automate the routine checks and allow SARS to focus its resources on exceptions, anomalies and higher-risk behaviour.

What happens to the VAT audit?

It doesn’t simply disappear.

Instead, the nature of compliance oversight may change.

SARS envisages moving from a predominantly post-audit environment towards exception-based oversight.

If transactional data is reliable and consistently reported, SARS can identify unusual patterns without necessarily requiring a traditional audit of every taxpayer.

The Consultation Paper says AI and analytics will be used to analyse whole-of-value-chain data and identify discrepancies and risks earlier.

The end of month-end VAT panic?

Potentially, yes.

One of the most interesting consequences for finance teams is the shift from periodic VAT preparation to continuous transaction monitoring.

Instead of waiting until the end of a VAT period to reconcile everything, finance teams may increasingly monitor:

• invoice validation;
• VAT coding;
• rejected invoices;
• input VAT treatment;
• customer and supplier data;
• exceptions and anomalies.

SARS anticipates that finance teams will increasingly focus on data quality and exceptions rather than routine tax calculations.

Internal controls will move upstream

This may be one of the most significant changes.

Traditionally, a business might identify an error during a month-end or VAT reconciliation.

Under a digital model, controls can increasingly move closer to the source transaction.

For example:

Old approach:

Invoice processed > VAT return prepared > discrepancy identified.

Digital approach:

Invoice created > validation occurs > error rejected > invoice corrected.

That is a fundamentally different control environment.

What does this mean for finance teams?

The job isn’t necessarily disappearing.

It is changing.

Less time may be spent on:

manual capturing;

repetitive reconciliations;

checking standard transactions; and

compiling VAT information.

More time may be spent on:

• exception management;
• investigating unusual transactions;
• data governance;
• system controls;
• VAT technical decisions; and
• maintaining the integrity of accounting data.

The benefit for compliant businesses

There is potentially a significant upside.

SARS expects the model to reduce compliance effort, improve accuracy, accelerate refunds and provide greater real-time visibility and certainty.

A business with clean systems and reliable data could therefore spend less time proving that it is compliant after the fact.

Instead, compliance could increasingly be demonstrated automatically through the transaction trail itself.

That is the real meaning of “tax just happens”.

Disclaimer

The Digital VAT Model remains a proposed framework and is subject to consultation, legislative development and further guidance from SARS.