Treasury urged to fix VAT compliance before tax hikes
Tax experts say that modernising compliance could be a better solution as South Africans steel themselves for a possible VAT increase to address revenue shortfalls.
The address was postponed last month due to disagreements within the GNU over a proposed percentage point VAT hike.
The delay in tabling the national budget to Parliament stemmed from disagreements within the Government of National Unity over a proposed hike in value-added tax from 15% to 17%.
In the last cabinet meeting, Godongwana was urged to balance South Africa’s fiscal constraints while protecting lower and middle-income households and supporting economic growth, aligning with the Public Finance Management Act.
Shannon Friedman, CEO of VAT Modernisation, warned that outdated tax systems cost the country billions of lost revenue annually.
She says raising VAT may worsen tax evasion instead of solving the problem.
"While tax policy is inherently a balancing act, South Africa's focus should be on updating compliance frameworks and introducing better reporting and monitoring systems before defaulting to VAT rate increases," said Friedman.
“South Africa currently loses tens of billions in VAT revenue annually due to outdated systems vulnerable to non-compliance.
“This persistent gap in collection efficiency creates a dangerous cycle: higher VAT rates incentivise greater evasion, which further erodes the revenue base.
“VAT Modernisation reforms and real-time reporting frameworks represent sustainable solutions to our revenue challenges.
“By leveraging technologies like e-invoicing and digital reporting, we can ensure more efficient revenue collection without disproportionately burdening those who can least afford it," she added.
Friedman believes reforms like e-invoicing and real-time digital reporting could boost revenue without burdening consumers.
"These systemic improvements would target the estimated billions in uncollected VAT revenue while creating a more transparent tax environment.
“International experience has shown that countries implementing such modernisation efforts typically see significant improvements in compliance rates and revenue collection."
She said the budget delay is an opportunity for the government to rethink its approach.
"Rather than applying band-aid solutions that may exacerbate inequality, we should address the fundamental weaknesses in our system that allow non-compliance to flourish," she said.
Friedman emphasised that while rate increases may sometimes be necessary in any economy, such measures must be accompanied by serious efforts to close compliance gaps to be truly effective and sustainable.
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