Sars Modernisation 3.0 Signals AI Driven Overhaul Of Vat And Revenue Collection

Source: Supplied. Shannon Friedman, chief executive officer of Vat Modernisation SA.

Encouragingly for both government and the economy, Enoch Godongwana may find support in the latest strategy from the South African Revenue Service (Sars).

The agency’s Modernisation 3.0 White Paper sets out a roadmap to overhaul revenue collection through digital systems, AI and VAT reform. With projections pointing to stronger compliance and efficiency, the plan signals a decisive shift toward a smarter, technology-driven tax ecosystem for businesses and the state alike.

The white paper describes that Sars is modernising its tax-administration platform ‘into an intelligent digital system embedded with data science and artificial intelligence’ that ‘will foster trust, promote efficiency, and ensure transparency, driving voluntary compliance’.

A key part of that strategy is transforming the Value Added Tax (Vat) collection system to improve the existing onerous administrative burden on vendors while minimising fraud and non-compliance. This modernisation has already been under discussion for several years, with momentum on the topic steadily growing.

The project gained critical momentum in 2025 when Minister Godongwana had to realign his plans to increase Vat to 17% in that year’s budget. That increase was intended to increase revenue by up to R60bn, but Sars Commissioner Edward Kieswetter and other experts highlighted at the time that remedying revenue under-collection could help unlock an additional R800bn – Sars' current estimate of the existing tax gap. This massive potential income shift is what ultimately put the modernisation project into high gear.

Vat modernisation drive

That potential income makes it likely that Minister Godongwana will announce further support for the revenue collector in his 2026/7 Budget Speech on Wednesday, 25 February 2026, so that it can pick up the pace in improving its administration environment to be ‘an intelligent digital platform, embedded in data science and artificial intelligence’.

Vat modernisation includes an automated tax data submission system that will automatically assess Vat liabilities by drawing on trusted data sources such as verified e-invoicing solutions, in close to real time, removing the need for periodic VAT returns. This suggests that South African businesses need to pick up the pace in their own modernisation efforts if they are to comply with Sars’ intended innovations.

This all means that South African businesses who have not yet realised the importance and potential impact of Sars’ approach to modernising Vat collection need to start planning now to adapt their ERP environments to accommodate e-invoicing frameworks that will allow for seamless compliance. They should be having similar discussions with their suppliers, vendors, and key customers too.

E-invoicing advantages

Modernising the VAT process is about more than compliance, however. Aligning with the revenue collector’s AI-assisted initiatives by implementing an e-invoicing system yields far greater benefits than just support of its regulatory framework. E-invoicing allows for greater automation and less manual administration for billing, reconciliations, reporting and document capture, while offering increased visibility into transactions with real time reporting and tracking.

It allows for faster collections, quicker supplier payments authorisations, and reduced leakage from processing errors and disputes. Importantly – for business and for Sars – it offers increased security, reducing the potential for fraud-related crime.

The benefits have already been seen in countries like Chile, Italy and Mexico where near-real-time Vat reporting has yielded billions in additional revenue because it’s more difficult for entities to understate their liabilities – with these successful implementations in markets very similar to ours likely to inspire even further impetus for Sars.

While e-invoicing is already a globally adopted practice, Vat reporting frameworks vary between countries, which means that South African businesses need to choose an implementation partner that has experience with the local environment, and insights into the environments where their international clients are domiciled.

Choosing a solution developed with South African nuances in mind will smooth the compliance journey and avoid the traumatic downtime and data loss that are often part of rushed system changes.

Sars has made its Vat modernisation intentions clear, and its recent track record shows that it will likely deliver on its proposed transformation journey. Businesses that want to ensure that their own transformation to e-invoicing is a positive process that realises all possible benefits should be investigating possible solutions now to support the graceful roll-out of new systems.