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South Africa is doing some catching up and plans to introduce an electronic value-added tax (Vat) reporting and invoicing system. Countries in Asia Pacific and Europe are already at an advanced stage of implementation.

Mexico and Brazil, which are also first implementers, realised that their tax gap – theoretical versus collected Vat revenues – closed significantly because of the new measures.

Annelie Giles, tax executive at ENSafrica, is excited about the Vat modernisation project in SA. “I know it is going to be difficult. Nothing that is challenging will be achieved quickly.

“It will take time, but if ever there was a solution to refund fraud this is it.”

Speaking at the annual Tax Indaba in Cape Town she said SA is currently dealing with so-called Vat invoice factories, where paper documents that give fraudsters the ticket to claim a refund are created.

New kid on the block

Severus Smuts, tax partner at Deloitte, says the global buzzwords in the Vat space are e-reporting and e-invoicing.

“I do not think we have seen anything as significant as this in the last 30 years. It will revolutionise the way the tax function is going to be addressed by taxpayers and their    teams.”

Electronic invoicing was first mentioned in the 2023 budget and a discussion paper was published in September last year, making it a rather “new kid on the block”.

E-reporting does not refer to the way Vat returns are loaded on the South African Revenue Service (Sars) eFiling system. It means taxpayers will provide “real-time data” to the tax authority, says Smuts.

Mabutho Mthembu, associate tax director at SNG Grant Thornton, says some African countries have already started implementing e-invoicing. The Middle East, where Vat was only introduced in 2018, has also started implementing the new system.

In SA there is still some way to go before the systems of Vat vendors will be integrated with the Sars system to achieve real-time reporting, he adds.

Giles says the difference between an e-invoice and a normal PDF invoice is that a PDF is a human-readable invoice. An e-invoice is a structured data file and machine-readable.

“If you print the two, the e-invoice will be computer gibberish. Since it is machine-readable, it allows for automatic and swift processing of information.

“The challenge is, of course, the diverse systems [across tax-paying entities], which mean one cannot apply one solution across the board.”

Implementation challenges

Different industries have different Vat rules. Mthembu says during the first implementation phase in India they excluded financial services. The revenue authority had to design a model that worked for that industry.

Many countries have taken a phased approach in implementing the new system. SA also plans to take this route.

    It will first target bigger businesses and then look at vendors who transact with government before introducing the system to smaller businesses.

Smuts believes SA is on the right track to start comparing information.

“Everybody must realise that if the quality of their data is not meeting the required standard they will give Sars incorrect information. The implications will be severe.”

Fraud happens because the taxpayer was looked at in isolation and there was no comparison with data from others in the supply chain, he adds.

“If the e-reporting and e-invoice transformation is done correctly it will be beneficial to all taxpayers who pay their fair share,” says Smuts.

Set-up costs

However, there will be a cost to the taxpayer as they will need to adjust their systems. – Moneyweb