The R500 Billion Shadow: How VAT Debt is Choking South Africa’s Fiscus

South Africa’s tax system is facing a crisis of collection on an unprecedented scale. The latest data reveals that undisputed tax debt has soared to a staggering R489 billion, with Value-Added Tax (VAT) identified as the single biggest problem child in the national ledger.

Despite the South African Revenue Service (SARS) taking a tougher stance and collecting R63 billion in cash from debtors this year, it is a drop in a half-trillion-rand ocean. The figures expose a worrying gap: while SARS is ahead of its debt collection targets, it remains R20 billion short of its overall revenue goal for the financial year.

VAT: The Second Largest Revenue Stream, The Largest Headache

As the government’s second-largest income source (after personal income tax), VAT contributed R457.8 billion in 2024/25. Yet, it is also the highest contributor to the mountainous debt book. With nearly 500,000 active VAT vendors in the country, non-compliance within this group represents a critical threat to national revenue.

Tax expert Jashwin Baijoo of Tax Consulting SA warns that the consequences for defaulting businesses are severe and increasingly personal. “The tax laws do not specifically presuppose the existence of formal responsibility… They instead merely require that a person exercise a degree of control over or regular involvement with its overall financial affairs,” he explains.

The Personal Liability Trap

This means the net of accountability is cast wide. Under Section 180 of the Tax Administration Act (TAA), personal liability can extend beyond company directors to include shareholders and any person factually involved in financial management whose negligence or fraud led to the tax debt. Failure to comply isn’t just a corporate issue; it can become a personal financial disaster.

Criminal Charges and a Path to Relief

The risks escalate further. Baijoo highlights that SARS can pursue criminal charges for non-compliance, with potential imprisonment of up to two years. For more serious offences like tax evasion or fraudulently obtaining refunds, the threat rises to five years behind bars.

However, there is a structured path for those struggling to pay. The TAA allows for a Compromise of Tax Debt application, where SARS can agree to reduce the liability based on a taxpayer’s genuine financial circumstances. “Where SARS is approached correctly… a tax debt can be reduced,” Baijoo notes.

The massive VAT debt is more than a number; it’s a symptom of a strained economy, administrative burdens on businesses, and, in some cases, outright negligence. For SARS, closing this gap is paramount to funding the state. For half a million VAT vendors, the message is clear: compliance is not optional, and the personal and criminal repercussions of debt are now too substantial to ignore. The R500 billion shadow is growing, and SARS is determined to make someone pay.

{Source: BusinessTech}

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