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28-January-2025-Blog

A proposed amendment to South Africa’s Value-Added Tax (VAT) Act has been withdrawn following feedback from tax professionals and businesses. National Treasury initially proposed limiting VAT vendors to claiming input tax deductions only in the original tax period when entitlement arose, replacing the current five-year window. The amendment aimed to curb VAT fraud but faced criticism for its impracticality and the administrative burden it would place on businesses. Here’s a closer look at the implications of this decision and what lies ahead for VAT compliance.

The initial proposal and its objectives

The proposed amendment was intended to address double deductions, a form of VAT fraud where input VAT is claimed multiple times for the same invoice. Treasury highlighted the need for vendors to perform accurate reconciliations between accounting records and VAT returns to ensure compliance.

However, the reality is that such reconciliations often don’t happen in practice. As a result, Treasury proposed restricting claims to the original tax period to enforce stricter oversight.

Challenges with implementation

Tax professionals raised significant concerns about the proposal:

Practical difficulties

The proposed changes would have required businesses to adjust monthly VAT reconciliation reports manually, an onerous task for larger vendors processing hundreds of invoices monthly.

Increased risk of errors

Manual adjustments would heighten the risk of human error, complicating compliance efforts further.

Impact on the SARS eFiling system

The current eFiling system doesn’t allow for corrections or resubmissions of past VAT returns during audits or verifications, limiting its ability to support the proposed changes effectively.

Implementing these changes would require significant upgrades to SARS’s eFiling platform, adding to the challenges for vendors and tax authorities alike.

Why the proposal was withdrawn

Critics argued that the proposal attempted to solve an audit problem through legislative means. SARS’s current audit approach focuses on specific tax periods rather than conducting full-year audits, which some believe is the root issue.

Treasury has acknowledged these concerns, opting to withdraw the amendment for further consultation. While the move was intended to combat VAT fraud, it was deemed impractical for real-world application.

What’s next for VAT compliance?

Although the proposal has been halted, the need to address VAT fraud remains. Alternative solutions and modernized systems could offer more effective ways to ensure compliance without imposing undue burdens on businesses.

What this means for businesses

The withdrawal of the proposed amendment is a relief for businesses concerned about increased administrative workloads and risks of non-compliance. However, VAT compliance remains a critical area where businesses must stay vigilant to avoid penalties and fraud allegations.

Partner with MMS Group for VAT compliance
At MMS Group, we specialize in helping businesses manage VAT obligations efficiently and accurately. Contact us for expert guidance on VAT compliance, audits, and accounting solutions tailored to your business needs.