VAT remains one of the most powerful revenue instruments available to the South African fiscus. In practical terms, it continues to rival personal income tax as a primary contributor to government revenue and remains indispensable to Sars’s collection mandate.

This reality matters.

Where a tax type accounts for such a significant portion of national revenue, enforcement is never passive. In 2026, VAT sits at the centre of Sars’s enforcement agenda and represents a significant legal risk for businesses.

Despite this, VAT is still widely treated as an administrative function. Returns are submitted, reconciliations balance, auditors sign off, and management assumes that risk has been managed. 

That assumption is increasingly difficult to justify.

VAT in 2026: Revenue Protection and Enforcement Focus

Because VAT remains one of the largest sources of revenue for the State, Sars approaches VAT very differently from other taxes.

Under collection of VAT directly erodes the State’s revenue base. As a result, Sars has little tolerance for uncertainty, informal practices, or positions that are not grounded in law.

In this environment, VAT disputes frequently escalate beyond audits and objections and reach the Supreme Court of Appeal and, in some instances, the Constitutional Court. These matters turn on legal interpretation, statutory construction, and whether the VAT position adopted aligns with the requirements of the Value-Added Tax Act, No. 89 of 1991 (VAT Act).

How VAT Risk Accumulates Over Time

VAT risk develops incrementally. A VAT position is often adopted early, shaped by commercial decision-making and embedded practice, and applied consistently without legal challenge.

Over time, however, business operations evolve and become more complex. Despite these changes, VAT treatment is frequently left untouched and legally untested.

Sars scrutiny is typically triggered by specific events, including refund claims, restructurings, acquisitions, cross-border transactions, or multi-period reviews. In such cases, Sars’s assessment focuses on the legal foundation of the VAT position itself.

Where VAT Risk Is Most Acute in 2026

The most significant VAT exposure in 2026 continues to arise in complex and non-standard environments. Cross-border supply chains develop. Digital offerings and electronic services expand. Property and project-based activities increase, encompassing acquisitions, developments, leasing, and construction. Group structures become more complex, giving rise to intragroup and multi-entity transactions.  

In reality, VAT outcomes depend on precise legal characterisation. Whether a supply is taxable, zero rated, exempt, or outside the scope of VAT often turns on statutory interpretation rather than commercial intent.

Errors in these areas, when replicated across contracts or tax periods, can create material historic exposure.

Audit Sign Off Does Not Neutralise VAT Risk

A persistent misconception is that VAT risk is mitigated through audit sign-off.

Auditors play a vital role in financial reporting, but they are not mandated to resolve legal uncertainty under the VAT Act. 

If a VAT position cannot be defended by reference to the VAT Act, relevant case law, and accepted principles of interpretation, it remains exposed regardless of how long it has been applied.

This is why second opinions have become critical, particularly where VAT treatment is complex or the exposure is material.

Sars Enforcement in a Revenue Constrained Environment

Given VAT’s importance to revenue collection, Sars’s enforcement powers allow for retrospective scrutiny, creating significant legal risk in 2026. Where incorrect VAT treatment is identified, Sars commonly reassesses across multiple years of assessment. This often results in compounded exposure, including VAT, interest, understatement penalties, and denial of input tax or zero rating claims.

In more serious cases, VAT non-compliance may also give rise to criminal implications under the Tax Administration Act, No. 28 of 2011.

Once disputes escalate, the issue extends beyond VAT and into governance, controls, and oversight. At that stage, the cost of inaction is already locked in.

What Businesses Should Be Doing Now

In 2026, VAT should be managed as an ongoing legal risk that requires specialist oversight.

Complex or non-standard VAT positions, particularly in cross-border or high-value transactions, should be subjected to specialist legal review, with a focus on their historic VAT treatment and application under current commercial and contractual arrangements.

Seeking specialist VAT legal input before Sars intervenes allows businesses to identify exposure early and put defensible frameworks in place.

Written by Micaela Paschini, Team Lead: Tax Legal at Tax Consulting SA; and Megan Langton, Tax Attorney at Tax Consulting SA