SARS modernisation 3.0

2025/26–2029/30

SARS 3.0

SARS Modernisation Experience Statement

SARS is modernising its Tax Administration Platform into an intelligent digital system embedded with data science and artificial intelligence . This transformation will foster trust, promote efficiency, and ensure transparency . To enhance service while managing risks, the platform will revolutionise taxpayer and trader interactions with SARS, driving voluntary compliance . In the future, taxpayers and their nominated representatives will receive a unique digital identity for secure access to the SARS Digital Administration Platform. Authentication will primarily use biometric and two-factor methods to strengthen transaction integrity, improve data accuracy, and maintain a single version of the truth. Once verified, users will gain a comprehensive view of their tax accounts across registered products. This allows intuitive, self-reliant actions like updating demographic details, checking compliance status, querying accounts, and fulfilling obligations. To boost taxpayer service, skilled and professional SARS employees will be empowered with the same comprehensive account views to resolve or advance outstanding matters efficiently. SARS will leverage the South African Reserve Bank’s (SARB) initiative for a cost- effective instant payment system , aiming to increase financial inclusion, reduce cash circulation, and enhance

the national payment system’s integrity.

At the core is an intelligent case management system that supports voluntary compliance through automating routine tasks, harnessing big data, deploying Agentic AI, and improving taxpayer service and productivity. This includes shifting from declaration-based to real-time risk profiling and case selection, embedded in an entity-based compliance model within the digital platform. This modernisation phase focus on modernising VAT administration, connecting SARS across the value chain to every point of sale—with the goal of eventual auto- assessment, similar to Personal Income Tax (PIT). It will also include minor taxes. SARS will also partner with the Border Management Authority to modernise Customs & Excise , upgrading both physical and technology infrastructure toward a “no-stop” experience at Ports of Entry. Overall, SARS will collaborate with government partners to adopt a “whole of government” approach and leverage private sector partnerships to support, supplement, and accelerate implementation.”

Edward Chr Kieswetter October 2025

1. MESSAGE FROM THE COMMISSIONER

TABLE OF CONTENTS

2. PURPOSE, OBJECTIVES AND SCOPE

06 06 06

2.1 PURPOSE

2.2 OBJECTIVES

2.3 HISTORICAL CONTEXT AND MODERNISATION SCOPE

3. SARS STRATEGIC PLAYBOOK

07 07 07 07 08 08 09

3.1 SARS LEGAL MANDATE 3.2 SARS HIGHER PURPOSE

3.3 SARS VISION

3.4 SARS THEORY OF COMPLIANCE 3.5 SARS COMPLIANCE MODEL

3.6 SARS STRATEGIC INTENT AND STRATEGIC OBJECTIVES 3.7 THE INVESTMENT IN, AND MANAGEMENT OF OUR PEOPLE

4 . SARS SITUATIONAL ANALYSIS AND COMPLIANCE LANDSCAPE

12 13 15

4.1 INTERNAL FACTORS 4.2 EXTERNAL FACTORS

4.3 ADDRESSING THE COMPLIANCE LANDSCAPE - THE “TAX GAP”

5. THE MODERNISATION OF SARS

17 19

5.1 SARS’S JOURNEY OVERVIEW

5.2 INTRODUCING MODERNISATION 3.0

6. SARS MODERNISATION 3.0 PLAYBOOK

20 22

6.1 THE PLAYBOOK

6.2 GENERATIONAL PROGRAMMES

6.3 EXPANDED SARS MODERNISATION EXPERIENCE STATEMENT: ARCHITECTURAL AND DESIGN GUIDANCE FOR THE INTELLIGENT TAX ADMINISTRATION PLATFORM

28 29

7. CONCLUSION 8. ABBREVIATIONS

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SARS Modernisation White Paper 2025/26 – 2029/30

1. MESSAGE FROM THE COMMISSIONER

The story of SARS is a story about people: everything we do is about improving the well-being and transforming the lives of South Africans, especially the most vulnerable among us. The South African Revenue Service has a legal mandate to collect taxes, improve compliance, and facilitate legitimate trade. We draw inspiration though, from a clear sense that SARS serves a higher purpose to “enable government to build a capable state, that fosters sustainable economic growth and social development, serving the well-being of all South Africans”. Since its establishment in 1997, SARS has been on a journey of continuous transformation and modernisation. The first phase of this modernisation was the consolidation of the separate departments of Inland Revenue, and Customs & Excise, into a single semi-autonomous agency outside of the public service, but within the public sector. In this phase the focus was to transform a previously inward, administrative orientation into a more taxpayer facing, service-oriented institution. During this phase, assessment centres, enforcement centres, contact centres along with frontline tax branches, customs branches, as well as the establishments respectively in land, air, and sea modalities, formed the physical footprint of SARS. The initial technology modernisation was focused on digitisation of a paper-based environment into digital artefacts, but largely still manual processing. The second phase of transformation focused on personal income taxes (PIT) followed by corporate income tax (CIT), value added tax (VAT) and Customs. The modernisation during this phase entailed mainly digitalisation with the introduction of e-Filing and some process automation - which effectively transformed physical experiences like registration, filing, and assessment into digital experiences. The third and current phase of transformation reviews the end-to- end administration architecture of PIT, CIT, VAT and Customs, and aim to include the balance of all minor taxes. Modernisation during this phase will go beyond the digitalisation of experiences and automation of processes.

Modernisation 3.0 will increasingly draw on advanced data science, artificial intelligence and agentic AI to create an intelligent administration platform on which routine tasks are automated; traditional functions like declaration filing will be disintermediated; and decisions will be informed by insights from data. In this phase of modernisation employees will seamlessly co-exist with AI Agents. Historically taxpayers submit declarations and supporting evidence to SARS, who then performs the reconciliation and settlement of a tax account for a defined period retrospectively. The aspiration globally, for tax and customs administrations, is to transition from this retrospective perspective to real-time assessment of the tax account, where traditional submission of a declaration is no longer required, and all the required information and supporting evidence are drawn from third party data sources. The OECD refers to this aspiration as Tax 3.0. In May 2024, the SARS Executive Committee (EXCO), along with a group of key executives, met to review progress since 2019, of the “Rebuilding of SARS” since the institution became a casualty of state capture. The session took stock of the SARS modernisation to date. A follow up session was conducted with the “Top 350” executives for further refinement and to establish a basis for broader alignment amongst leaders.

A key outcome of this comprehensive strategic review was a first draft of a new “SARS Digital Transformation Playbook”

Moving from each phase of modernisation to the next is not through a single discreet event, but transitions through a combination of incremental and disruptive innovations as permitted through various emerging enabling technologies.

SARS Modernisation White Paper 2025/26 – 2029/30

In summary:

This work programme sets the foundation for the modernisation of SARS over the next 5 years, and beyond. It is an exciting and inspirational journey of transformation. It will require an appropriate investment, the steadfast commitment to a clear Vision and Purpose, whilst remaining agile and adaptive in the journey against actual progress, mindful of situational and context realities, and responsive to emerging technologies and enabling capabilities. A good analogy would be how a Global Positioning System (GPS) works. The user enters a clear destination but leaves route optimisation to a navigational system that draws on live satellite information, situational and environmental factors such as traffic density and incidents, whilst allowing for detours, diversions, and important transitional waypoints. It does all this whilst continuously optimising the journey but remaining true to the destination. The historical performance of SARS, within an environment of limited “whole-of-government” service coordination, yielded above-expectation performance. Much more progress has to be made in sharpening the “service” bias from a traditional “enforcement” bias. In this regard, the taxpayer experience becomes the strategic reference point for everything we do. The commitment to our compliance theory that “most people are honest” as well as our strategic intent of Voluntary Compliance, must guide our conviction to lead with SERVICE (Clarity and Ease of Compliance), whilst we ENFORCE (Detect and Respond to non- compliance) responsibly. Collaboration with the “whole of government” is an essential component of service and enforcement. A “smart digital tax administration platform, embedded in data science and artificial intelligence” will increasingly facilitate a seamless and intuitive experience for honest taxpayers, travellers, traders, and allow SARS to detect and respond to instances of non-compliance. The platform will also enable SARS staff to act competently, professionally, and display integrity beyond reproach. The ultimate measure of success of the platform, is the achievement of SARS mandated objectives (revenue, compliance and trade facilitation), increasingly through voluntary compliance.

MODERNISATION 3.0

» PURPOSE: The purpose of building a “smart digital tax administration platform, embedded in data science and artificial intelligence”, is to foster trust, promote efficiency, and ensure transparency , by revolutionising the way taxpayers/traders and SARS engage to achieve voluntary compliance. » PRIMARY OBJECTIVE & OUTCOMES: The primary objective of the “Digital Platform Playbook” is to guide the development for implementing an intelligent data driven, technology enabled tax administration platform, in support of our vision of a “Smart Modern SARS, with unquestionable integrity, trusted and admired” that would advance our strategic intent of voluntary compliance. » The 6 OUTCOMES which will define the SUCCESS of Modernisation 3.0, include: • Improve Voluntary Compliance • Enhance Taxpayer Experience • Enhance Employee Engagement • Streamline Internal Processes • Improve Operational Efficiency • Maximise Long-term Sustainability

GENERATIONAL PROGRAMMES

The following generational programmes are implicit in the “smart digital administration platform”, contribute to our vision of a “smart modern SARS, and advance our strategic intent of voluntary compliance: 1. Prepare and upskill our staff to be relevant in the future world of work 2. Establish a unique digital identity 3. Create a comprehensive taxpayer account 4. Modernising the case management system 5. Embed an “entity-based” compliance model on the administration platform 6. Partner with SARB to leverage the instant payment system 7. Modernise VAT administration 8. Modernise Customs & Excise administration

SARS Modernisation White Paper 2025/26 – 2029/30

SARS Modernisation Experience Statement

increase financial inclusion, reduce cash circulation, and enhance the national payment system’s integrity.

As we strive toward this asymptotic end state of the single idea that “the best service is no service!”, SARS must endeavour, through the deployment of technology and Agentic AI, automation of routine tasks, drawing on insights from data to inform decisions, aim to improve its service to taxpayers by radically re-imagining tax administration: » Anticipating and resolving taxpayer needs proactively to reduce service queries across our service channels. » Providing intuitive and helpful digital services to increase taxpayer self-reliance. » Reducing the need for service queries through our physical service channels - especially focusing on the most vulnerable taxpayers. » Improving waiting and turnaround times where an intervention is necessitated. » Managing the inventory case load effectively, efficiently, to provide outstanding service whilst managing compliance risks. A simplified Modernisation Experience Statement is set out below, and a more detailed version is in the main body of the paper.

At the core is an intelligent case management system that supports voluntary compliance through automating routine tasks, harnessing big data, deploying Agentic AI, and improving taxpayer service and productivity. This includes shifting from declaration-based to real-time risk profiling and case selection, embedded in an entity-based compliance model within the digital platform. This modernisation phase focus on modernising VAT administration, connecting SARS across the value chain to every point of sale—with the goal of eventual auto-assessment, similar to Personal Income Tax (PIT). It will also include minor taxes. SARS will also partner with the Border Management Authority to modernise Customs & Excise , upgrading both physical and technology infrastructure toward a “no-stop” experience at Ports of Entry. Overall, SARS will collaborate with government partners to adopt a “whole of government” approach and leverage private sector partnerships to support, supplement, and accelerate implementation.”

Edward Chr Kieswetter October 2025

SARS Modernisation White Paper 2025/26 – 2029/30

2. PURPOSE, OBJECTIVES AND SCOPE

The purpose, objectives, and scope of this document are described below. 2.1 Purpose The main purpose of sharing this Modernisation white paper reaffirms the commitment by SARS to its Citizen-Centred approach and an uncompromising bias towards serving taxpayers, traders and travellers. The white paper is to inform the public and key stakeholders of our modernisation intent. It is meant to invite conversation, trigger curiosity, and influence our own thinking. This white paper communicates the ambition of SARS to develop a modern digital tax administration system that leverages data science and artificial intelligence. By leveraging information technology, artificial intelligence (AI), Agentic AI, and eventually artificial general intelligence (AGI) to its full potential to fulfil its mandate and achieve its strategic intent of voluntary compliance. But to do so, responsibly, and ethically. It is important that SARS holds itself accountable to the highest standards of ethics as it explores the deployment of current and emerging AI technologies. Whilst the white paper is about our modernisation journey, the ongoing engagement with taxpayers, traders, and SARS, serves to enhance trust, promote transparency, and instils a culture of accountability. Earning the confidence of the public trust is central to promoting voluntary compliance. 2.2 Objectives The main objective is to provide a high-level depiction of the SARS modernisation ambition to the general public as well as key stakeholders, public and private, allowing the opportunity to engage and consider implications for them. The document seeks to promote advocacy for the responsible and ethical deployment of emerging AI technologies and create public confidence.

Since SARS is an entity within the public sector and relies on other agencies for the fulfilment of its mandate, this document communicates our modernisation intent to our partners in government to explore possible collaboration opportunities. The success of SARS is enhanced when a “whole of government” (WOG) approach to modernisation is followed. Similarly, the opportunity is also presented to private players, intermediaries, and other stakeholders, who may consider implications for them, as well as collaborative partnerships with SARS. This level of transparency aims to foster cooperation, coordination, and communication among SARS, tax, and customs stakeholders, as well as partners across the public and private sectors, and is central to the strategic intent of voluntary compliance.

2.3 Historical context and Modernisation S cope

This document recaps the rebuilding of SARS, the progress and achievements to date, the transition from Modernisation 1.0 to Modernisation 3.0. It outlines the elements of SARS modernisation from 2025 and beyond. The modernisation of SARS, including the individual initiatives respectively, support its broader enterprise strategic intent. The white paper is therefore to be read with the initial SARS Strategic Plan 2025/26 - 2029/30 and will be supplemented with additional detail with each of the successive Annual Performance Plans. It is further supplemented with a number of annexes that provides supplementary context.

A full set of the key documents will be available on the SARS public website.

SARS Modernisation White Paper 2025/26 – 2029/30

3. SARS STRATEGIC PLAYBOOK

SARS already has several foundational assets to achieve its mandate. These provide the necessary strategic clarity that sets out what we do, why we do it, how we do it, and informs how we allocate resources , how we define success , and what SARS will look like when we have achieved it. For completeness and convenience, these are set out in this section. 3.1 SARS LEGAL MANDATE SARS legal mandate is to collect revenue, facilitate legitimate trade, and ensure compliance. It derives its legal authority from the SARS Act, 1997, which require SARS “to make provision for the efficient and effective administration of the revenue collecting system of South Africa”.

In fulfilling its mandate, SARS will be an innovative tax and customs administration that enhances economic growth and social development, and that helps to integrate South Africa into the global economy. 3.4 SARS THEORY OF COMPLIANCE We believe that most taxpayers are honest and want to comply with their legal obligations. They want to do so though, with least cost and effort. This implies that we bias our efforts towards honest taxpayers who want to comply voluntarily, whilst continuing to discourage dishonest taxpayers. Drawing on behavioural insights, that underlie this compliance theory, we hold the belief that Voluntary Compliance is best achieved when SARS: 1. Provides clarity and certainty of how we understand taxpayers’ obligations 2. Makes it easy for taxpayers to fulfil their obligations 3. Ensures that there’s always a credible threat of detection of non- compliance 4. Understands its entire tax register that differentiates Taxpayers based on: » Their unique character and needs (Segmentation) » The extent, nature and degree of their compliance (Risk Profiling) 5. Selects the nature and extent on engagement with taxpayers based on segmentation and risk profiling (Case Selection) 6. Composes and communicates a transparent programme of work, including the consequence of non-compliance (SARS Compliance Programme) 7. Builds confidence and Public Trust in the entire tax administration ecosystem by: » Improving voluntary compliance and fiscal citizenship overall » Broadening the tax base so that more contribute their fair share » Use taxpayer’s money/resources intelligently to achieve more with less » Building and maintaining strong partnerships with all stakeholders, including other government agencies » Building an organisation with integrity that can be trusted and admired These insights inform our compliance model as well as our strategic intent and 9 strategic objectives.

In pursuit of its mandate, SARS is further required to administer a number of primary legislations, including:

» » » » »

Income Tax Act, 1962

Customs and Excise Act, 1964 Value-Added Tax Act, 1991 Tax Administration Act, 2011

Employment Tax Incentives Act, 2013 3.2 SARS HIGHER PURPOSE

Whilst the law gives SARS its legal authority, the organisation earns its moral authority by defining for itself an incontestable higher purpose orientation. Our reason for existence. We frame our Higher Purpose as providing the financial resources that “enable government to build a capable state that fosters sustainable economic growth and social development, serving the well-being of all South Africans” 3.3 SARS VISION To fulfil its mandate, SARS’s vision is “to build a smart, modern SARS with unquestionable integrity that is trusted and admired”. This means that SARS must always be guided by the highest standards of institutional integrity. This requires on the one hand an administration system that employs skilled and competent professionals, within an environment enabled by the latest smart technologies, whilst at the same time, conducting its work in a manner which is ethical and beyond reproach. The public must trust us, and our international peers must admire our work.

SARS Modernisation White Paper 2025/26 – 2029/30

3.5 SARS COMPLIANCE MODEL Based on our compliance theory of segmentation and risk profiling, our Compliance Model differentiates our engagement with taxpayers. The pyramid represents the universe of taxpayers, and our engagement is graduated from the base to the peak of the pyramid. At the base of the pyramid, where most taxpayers are located, we bias our engagement on awareness and ease of compliance. At the peak of the pyramid, are those who consciously do not comply, we enforce unapologetically, making non-compliance hard and costly.

3.6 SARS STRATEGIC INTENT AND STRATEGIC OBJECTIVES Based on our theory and model of compliance, the SARS strategic intent is “to develop and administer a tax and customs system based on voluntary compliance, and, where appropriate, enforce it responsibly and decisively”.

To support this intent, SARS implements Nine Strategic Objectives.

SARS 3 core strategic objectives for achieving voluntary compliance are:

1. SO1: Provide clarity and certainty to taxpayers and traders. 2. SO2: Make it easy to fulfil tax obligations. 3. SO3: Detect tax evasion and enforce tax law.

Our Compliance philosophy drives our compliance model

Taxpayer approach towards compliance:

SARS approach towards compliance: ▷ Enforce the full extent of the law ▷ Detect and deter non-compliance ▷ Provide assistance to comply

These are enabled and supported by the 4 strategic objectives that enables the core business , viz.:

HIGH

ENFORCE

▷ Conscious decision not to comply

4. SO4: Develop a high performing, diverse, agile, engaged and evolved workforce 5. SO5: Increase and expand the use of data within a comprehensive knowledge management framework, to ensure integrity, derive insight, and improve outcomes 6. SO6: Modernise our systems to provide digital and streamlined online services 7. SO7: Demonstrate effective resource stewardship to ensure efficiency and effectiveness in the delivery of quality outcomes and performance excellence

▷ Does not want to comply ▷ Willing but not always able to comply ▷ Willing to do whatever is necessary

Most taxpayers are honest and want to comply with the greatest of ease and lowest cost

▷ Make it easy to comply

Recognising that we are part of a broader system, we have 2 strategic objectives that define our relationships and interdependence , viz.:

Make aware and easy

LOW

8. SO8: Work with and through all stakeholders to improve the tax co-system 9. SO9: Build public trust and Confidence in the tax administration system

Figure 1: SARS compliance model.

Each of these strategic objectives (SO’s) are expressed as a user experience to further give expression to the digitalisation programme. Collectively, these strategic objectives are central to the approach to our work and informs our 5-year Strategic Plan as well as the successive Annual Performance Plans. We also derive our Operational Plan and Compliance Programme from the strategic playbook.

SARS Modernisation White Paper 2025/26 – 2029/30

3.7 THE INVESTMENT IN, AND MANAGEMENT OF OUR PEOPLE In support of the strategic objective to develop our people (SO.4), our people practices have also been explicit and intentional. The SARS People Journey since 2019 included a scholarly Leadership Model and an Employee Rights Charter that forms the foundation of the SARS Employee Engagement framework. In the future, we will not only have to maintain the focus on competencies and personal attributes. We must prepare our employees to co-exist with AI agents and to use AI ethically and responsibly.

Connecting our Higher Purpose and Mandate to our Strategic Objectives and Core Value Chain

HIGHER PURPOSE: Enabling government to build a capable state that fosters sustainable economic growth and social development that serves the wellbeing of all South Africans

STRATEGIC INTENT (How we Administer) Build an Administration Platform based on Voluntary Compliance

SARS VALUE CHAIN (What we Administer) Registration Filing of Declarations Assessment of Filing Investigations and Audits Dispute Resolution Payments Debt Collection

SARS MANDATE (The Impact of our Work)

In summary, the following is included:

1. Collect Tax and

3.7.1 SETTING A CLEAR STANDARD FOR ACCEPTABLE LEADERSHIP – THE SARS LEADERSHIP MODEL Leadership is central, not only for setting an inspirational vision, providing strategic clarity, allocating resources, and performance management. Leadership, through their own behaviour also sets the tone, ethos, and culture that ultimately defines the “institutional DNA”.

Customs Revenue 2. Improve Compliance 3. Facilitate Legitimate Trade

Underpinned by 9 clear Strategic Objectives

MEANS

END

SARS Employs 12993 people across

9 Geographic Regions, 3 Segments which include: 49 Service Centres

40 Ports of Entry ▷ 8 Sea Ports, ▷ 11 Airports and ▷ 21 Land Borders

Figure 2 - Connecting SARS’s Higher Purpose its Mandate

SARS Modernisation White Paper 2025/26 – 2029/30

Leadership Model and Employee Value Position

Women in Leadership

Due to the societal and structural impediments that often disadvantage females in the workplace, SARS has established an active platform to conscientise the organisation intentionally to be aware of gender discrimination and promote gender equity. It is a platform “for women, by women,” but visibly championed by the Commissioner through an active programme of interventions that addresses aspects such as representativity on internal and external platforms, career mobility, gender pay parity and positive discrimination.

SARS Leadership Model Every SARS Leader shall 1. Display personal proficiency WHO I AM (Personally and Professionally)

Higher Purpose (Level 5 Ambition)

2. Manage people and work WHAT I DO (Personal Competence) 3. Impact others positively WHAT I STAND FOR (Personal Brand)

Balance an indomitable will with genuine humility. Ambitious not for themselves, but for a worthy cause.

SARS Junior Board

The Junior Board is an institutional platform that recognises the voice of next generation leaders. Members of the Junior Board are selected through a rigorous and open process of self or peer nomination, endorsed by their line manager, and finally interviewed and selected to serve for a period of 2 years. The platform provides them with direct access to the Commissioner and SARS Leadership regardless of their own level in the organisation. They engage in the challenges and opportunities to advance the vision and strategic intent of SARS. They are themselves required to be more audacious, bring youthful insights, and challenge the conventional ways of working. Junior Board members are expected to be exemplary in their respective work roles. 3.7.2 EMBEDDING AN ENVIRONMENT FOR POSITIVE EMPLOYEE ENGAGEMENT No organisation can achieve performance excellence by relying only on the technical competence of its employees. Employees have to be engaged. Empirical evidence suggests that high employee engagement can add a substantial increment to organisational performance. Organisation culture is integrally important to establish a workplace conducive to employee wellbeing and in turn SARS has adopted the following: » Employee Rights Charter - that sets out the composite experience every employee should legitimately expect in the relationship with their direct manager in particular, and the organisation in general. These are expressed as 5 employee rights, viz.: 1. The right to enjoy their work 2. The right to understand the meaning of their work 3. The right to know what “winning” means 4. The right to regular feedback to help them win 5. The right to a “fair deal” - the employee value proposition » Employee value Proposition (EVP) - the composite experience of an employee which consists of financial, non-financial, and other “soft” benefits implicit in their employment relationship, like “SARS has talent” or “Best Employer” brand association.

Stewardship

Care and Growth

Leadership is an inordinate privilege.

Invest in Talent

Go beyond merely employing others to do work.

Strategic Formulation

Holding in trust on behalf of others. Bequeath something greater than what was inherited.

Personal Proficiency

Demonstrate an interest in the wellbeing of employees. Inspire employees to be the best version of themselves.

Engaging Talent

Execute Strategy

Place interest of others ahead of their own.

Service Obsession Delivering Impactful Results against Clear Objectives. Displays Fanatical Discipline, Productive Paranoia. Empirical Creativity to ensure exponential growth (10X).

Figure 3 SARS Leadership Model

The leadership model sets a clear standard that codifies the SARS Leadership Code, by responding to three questions, viz.: 1. Who am I as a leader? 2. What is my leadership work? and 3. What do I stand for as a leader?

SARS Modernisation White Paper 2025/26 – 2029/30

» Inclusiveness - central to the organisational ethos, and intentional design are issues such as Gender Sensitivity and Employees with Disabilities

The role of leaders remains essential to the creation of the desired culture of engagement through the exemplification of a higher purpose orientation, true stewardship, care and growth, as well as performance excellence.

3.7.3 CAREER PROGRESSION

In support of Strategic Objective 4, we have introduced a 5 level “career ladder” that aims to provide a clear career path where demonstrated competence is an important criterion for progression. Every job family must be transcribed across each of the 5 levels setting out a clear job description, knowledge requirements, and demonstrated ability. Naturally, non- technical aspects such as attitude, work ethic, and overall performance will also be considered for progression.

The 5 career levels are:

1. Beginner: Generally, this level applies to entry level employees with no specific experience and drawn largely into the SARS Graduate and Intern Programme. In exceptional cases we may also draw from our own internal “non-professional staff (like our cleaning staff), or school leavers. 2. Intermediate: Employees, through a combination of course work, on the job-training, and self-study, may progress to the next level by means of an assessment of their acquired knowledge and demonstrated competence in their chosen field. 3. Proficient: This is the level required of every employee in every professional job family. This level of general proficiency requires an employee to have the ability to perform a wide range of tasks proficiently across all engagement channels. 4. Advanced: Employees, by their own election, natural progression, or promotion may develop a higher degree of expertise in a narrower field within their job family. The degree of self-reliance and extent to which others refer to their expert knowledge is a clear indicator of their competence at the advanced level. 5. Mastery: These are the principals in their field. They are subject matter experts and often straddle the domains of policy, practice, teaching, and coaching interactively. They are widely recognised as leaders in their field both within and beyond the organisation. Whilst it is the hope that everyone may aspire to become “Masters”, the degree of role complexity and effort, will determine a level of “natural selection” by a select few.

SARS Modernisation White Paper 2025/26 – 2029/30

4. SARS SITUATIONAL ANALYSIS AND COMPLIANCE LANDSCAPE

» and trade facilitation increased by 19 percentage points to 72%. • On building public confidence, the past 6 years have seen: » taxpayer service rising from 54% to 87%; » public trust up 48% to 75%; » and attitude to compliance up 11 percentage points to 77%. • As an attractive employer, SARS is recognised as the best employer by BCom/Accounting professionals, the most innovative public-sector organisation for digital transformation, in 2023, the most transformed public sector organisation in 2025, and increased employee engagement from 61% to 71%. • From a leadership perspective, we serve as Chairs of World Customs organisation, Africa Tax Administration Forum, OECD Global Forum Africa Initiative, Co-Chair of the Crypto Assets Reporting Framework, and as Vice Chair at the OECD Forum of Tax Administrations. » Digital and Operational Efficiency: Significantly implemented the SARS Digital Playbook to advance the aspiration of “Tax Just Happens”. • Introduced Auto-Assessment that has eliminated the need for 5.8 million individual taxpayers to file a return, achieving a 99% acceptance rate • Reduced assessment times to under 5 seconds consistently for taxpayers who are required to file • Refunds are paid in under 72 hours for almost 90% of taxpayers • Deployed machine learning models and AI not only delivered the world class service to taxpayers, whilst our fraud risk detection AI has prevented impermissible refund payments of R440 billion • Achieved 99.61% system uptime, 88.49% digital channel usage, and 98.10% risk detection rate

This situational analysis provides a refined overview of internal and external factors influencing SARS as it advances its modernisation agenda. It focuses on key strengths, weaknesses, opportunities, and threats relevant to building a smart, modern tax and customs administration. Overall, both external and internal factors present a more challenging operating environment to achieve a more acceptable level of voluntary compliance, which currently stands at around 68%. Modernisation priorities include digital transformation, AI integration, data-driven compliance, and enhanced stakeholder collaboration to achieve voluntary compliance, efficient revenue collection, and effective trade facilitation. 4.1 Internal Factors SARS has made significant progress over the past six years in rebuilding institutional capacity, emphasising governance, digital innovation and artificial intelligence, as well as the development of our people. The current level of capacitation, however, renders SARS less than optimal in executing its legal mandate. This will require, among other things, a significant review of government investment in SARS, as well as strengthening the governance and independence of the institution from external interference. Persistent resource constraints, skill gaps, and operational inefficiencies continue to hinder full mandate fulfilment, despite notable advancements. This has adverse implications for the long-term fiscal integrity of South Africa. 4.1.1 STRENGTHS » Institutional Progress and Performance: • Achieved clean audit reports successively, indicating good governance and a generally healthy control environment; • Employee engagement increased from 61.6% to 71%. • On our core mandate: » the 6-year CAGR revenue growth has been 7% in an economy that has grown nominally by around 3.7% CAGR; » the voluntary compliance index rose by 4 percentage points to 68%,

SARS Modernisation White Paper 2025/26 – 2029/30

4.2 External Factors External dynamics present opportunities for SARS to leverage global trends and domestic priorities while mitigating threats from economic volatility and illicit activities. These factors underscore the need for agile modernisation, including e-invoicing, AI-enhanced detection, and international partnerships. 4.2.1 DOMESTIC FACTORS 4.2.2.1 STRENGTHS • Government Policy: In July 2024, following the Opening of Parliament, the President announced and confirmed the Strategic Priorities for the 7th Administration of the South African Government. These priorities are aligned to the goals and objectives of the National Development Plan and Programme of Priorities of the Government of National Unity, and are encapsulated in the Medium-Term Development Plan as: » Strategic Priority 1: Inclusive Growth and Job Creation. » Strategic Priority 2: Reduce Poverty and Tackle the High Cost of Living. » Strategic Priority 3: A Capable, Ethical, and Developmental State. The work of SARS, as outlined in this Strategic Plan, is designed to enable government to realise these priorities. • Inflation: Inflation generally remains below the mid-point target of the South African Reserve Bank (SARB). In May 2025, SARB reduced the repo rate by 25 basis points, bringing it to 7.25%, bolstered by an inflation rate that slowed to 2.8% in April 2025. Inflation is below SARB’s mid-range target of 4.5% and signs are emerging of a recovery in economic growth, after weak performance through 2023 and the first half of 2024. In the near term, SARB expects output to benefit from various tailwinds, including lower inflation, higher disposable income, and extra spending from pension withdrawals via the new Two- Pot system. SARB’s policy path will likely remain flexible, driven by moderating inflation, although upside risks are rising. The high interest rate remains an impediment to economic growth. • Currency: The rand closed at R18.18/$ in December 2024. Donald Trump’s re-election as the U.S. president saw a

» Compliance and Enforcement: Recovered R20.2 billion through audits and investigations in 2023/24; 82.80% automation for complex cases; collaborations with law enforcement yielded R260.5 billion in collections. For 2024/25, net revenue collection reached R1.855 trillion, representing 100.55% of the revised estimate. » Workforce and Governance: Staff of 12,805; introduced Career Progression Framework, Talent Management Policy, and digital platforms for upskilling. Integrity initiatives include ethics e-learning for 2,817 employees, with a target for zero tolerance of integrity breaches by 2028/29. » 4.1.2 AREAS FOR FURTHER IMPROVEMENT » Funding and Resource Constraints: Budget growth of only 3.46% over ten years amid 260% caseload increase and 20% staffing decline; ICT investments at -0.24% of allocation (below 2% target). Requested R13.6 billion over the medium term but allocated only R3.5 billion, impacting modernization. A one-off R1 billion injection in 2024 provided temporary relief, but sustainable funding is needed to address an estimated R800 billion tax gap. » Talent and Engagement Issues: Difficulty attracting/retaining critical skills (e.g., in data science, AI) due to competition and finances; sub-optimal leadership and corporate practices affect employee-centric culture. Fragmented data across systems impairs effective taxpayer engagement. » Operational Gaps: Challenges in case management integration, dispute prevention, and knowledge management reduce efficiency. Procurement variations (e.g., R1.29 billion for ICT) highlight dependency on external vendors. Not all taxpayers/ traders are registered, fulfil obligations, or are detected for non-compliance; disputes require significant resources for administrative resolution, ADR, litigation, or settlements. » Revenue Performance and Compliance Shortfalls: Studies, including SARS assessments and independent sources like the Davis Tax Committee, indicate uncollected revenue, with voluntary payments and compliance program outcomes implying total revenue performance around 60% (see presentation “Making the Business Case for Investments in Tax Administration”).

SARS Modernisation White Paper 2025/26 – 2029/30

• Illicit Activities and Compliance Erosion: Crime, corruption, and illicit trade (R6.7 billion seizures) undermine social cohesion; Transnet inefficiencies and policy uncertainty affect trade. • Regulatory Changes: Constitutional Court ruling on tax confidentiality requires amendments; Zondo Commission recommendations demand governance reforms. • Unemployment: In Q1 2025, South Africa’s unemployment rate increased by 1 percentage point to 32.9%. The weak labour market and high structural unemployment rate do not bode well for employment taxes. Youth unemployment above 60% is worrying in that not only is it an issue of economic capacity, but a serious risk to social cohesion if not arrested. • Electricity: Electricity supply has stabilised, with Eskom marking 300 load-shedding-free days on 20 January 2025. Key operational successes include the return of Koeberg Unit 2, which is contributing up to 930 MW to the grid with an impressive Energy Availability Factor of 99.95%, and the restoration of Kriel Unit 6, which added 475 MW. Much still has to happen to restructure the electricity industry and attract more private investment across the value chain. • Trade & Logistics: The inefficiencies at Transnet remain a key risk for exports, coupled with uncertain global demand. Trade is influenced by economic globalisation. Cross-border transactions play a pivotal role in economic growth, facilitating international trade, commerce, and financial transactions. Economic globalisation comes with risks such as inflation and supply-chain insecurity. SARS will continue exploring flexible tax policies to support economic stability and growth.

depreciation of just over 3% against the dollar. The rand, however, has been riding on an improved domestic economic outlook amid positive developments that have reduced South Africa’s political risk and provided a more solid foundation for growth. Global risks to the currency include geopolitical tensions that may arise following the outcome of elections in several countries. • Cybercrime: Cyber insecurity is among the top ten risks identified in the World Economic Forum Global Risk Report 2024. Discouragingly, cyber espionage is still one of the risks expected to increase in severity. Cybersecurity presents opportunities for tax administrations because well-managed cyber risks and resilience can enhance reputation and reliability. • Digital transformation of government: It is encouraging that through the Presidency and Department of Communications and Digital Technologies the SA Government has adopted a “whole of government” (WOG) strategy for the digital transformation of government. Of importance is the foundational Digital Public Infrastructure across the WOG.

4.2.1.2 OPPORTUNITIES

• Government Alignment and Economic Recovery: MTDP priorities (inclusive growth, job creation) align with SARS goals; stabilized electricity (300 load-shedding-free days by Jan 2025), lower inflation (3% Dec 2024), and reduced repo rate (7.50%) boost activity and revenue. • Policy and Technological Initiatives: VAT/customs modernisation (e.g., e-invoicing with SARB); R13 billion tax relief for renewables; partnerships with DHA for ID systems and municipalities for VAT / mSCOA. • Stakeholder Engagement: 198 engagements with BASA/ practitioners; Trade Facilitation Index at 71.60% (above regional average); Two-Pot Retirement System enhances compliance.

4.2.2 Global Factors 4.2.1.2 OPPORTUNITIES

• Economic Growth and Trade: Projected 3.3% global GDP growth (2025–2026); leverage trade with China (4.6% growth forecast) and emerging markets via AfCFTA and WCO collaborations. • Technological Advancements: AI, data analytics, and digital platforms (e.g., OECD digital service taxes, “Amount A” Convention) enable real-time reporting, e-invoicing, and non- compliance detection.

4.2.1.3 THREATS

• Economic Challenges: Low GDP growth (0.6% in 2023), high unemployment (32.1% Q3 2024), poverty, and currency depreciation (R18.18/$ Dec 2024) strain fiscal capacity and widen tax gaps.

SARS Modernisation White Paper 2025/26 – 2029/30

• International Cooperation: SDG 17.1 supports capacity building; OECD AEOI (713 CRS packages received), FATF for transparency, and WCO for trade facilitation/security. Donations (e.g., R19.1 million for devices) aid digital upgrades.

• • • •

Resolve disputes administratively. Engage in alternative dispute resolution.

Engage in costly litigation.

Reach agreement by settlement.

And to be effective in achieving its strategic intent of voluntary compliance, SARS requires sustainable investment to: » Increase awareness and certainty of tax obligations. » Work toward a seamless, largely digital experience for fulfilling tax obligations. » Significantly invest in capacity and capability to detect and respond to non-compliance. SARS’s strategic intent of voluntary compliance requires sustainable investment to increase awareness and certainty of tax obligations, work toward a seamless, largely digital experience for fulfilling obligations, and significantly invest in capacity and capability to detect and respond to non-compliance. We have identified the following areas as examples where significantly more focus and investment are required to enhance detection, enforcement, and voluntary compliance: » Tax and financial crime • Illicit and illegal trade flow • Syndicated tax and customs crime • Trade based money laundering » Large and international businesses • Aggressive tax-planning • Base erosion and profit shifting » Individuals with high income and wealth - especially the ultra- wealthy » Ports of entry - physical and technological infrastructure » Emerging, Informal and cash economies » Businesses in the gig, shared, and social media economy » Leveraged products • Advanced rulings (private and public) • Advance-pricing agreements • Cooperative compliance • Authorised Economic Operators

4.2.2.2 THREATS

• Geopolitical and Economic Risks: Protectionism, US fiscal policies, and conflicts (e.g., Ukraine, Middle East) disrupt trade routes, commodity prices, and supply chains; global trade dropped 1.9% in 2023 . • Cyber and Fraud Threats: AI proliferation by criminals; cyber insecurity (top 10 global risk per WEF 2024) endangers data integrity and trust. • Illicit Flows: Sophisticated transnational crime requires enhanced AEOI and data sharing with FIC/OECD. 4.3 Addressing the Compliance Landscape - The “Tax Gap” In giving effect to its legal mandate, SARS must ensure that:

All taxpayers are aware of their obligations.

» All taxpayers are registered and comply with their obligations. » All taxpayers who fail to comply are detected and held accountable So that: 1. All revenues and duties due are collected 2. Tax and Customs Compliance improves 3. Legitimate trade is facilitated We also know that: » Not all taxpayers and traders who ought to register are registered. » Not all registered taxpayers and traders fulfil their filing and payment obligations. » Not all instances of non-compliance are detected. » Payments due are either never paid or paid only when SARS intervenes. » Not all disputes are timeously resolved and require significant engagement by SARS to:

SARS Modernisation White Paper 2025/26 – 2029/30

4.3.1 DOMESTIC RESOURCE MOBILISATION (DRM)

Revenue under-collection: The assessment, confirmed by various studies, reports a significant revenue under-collection. Two main components make up this revenue under-collection. The first is the theoretical Tax Gap, and the second is contingent items on balance sheet that holds financial value, such as undisputed debt, unresolved disputes, and outstaying returns. In this regard, SARS had reported an amount of ±R800 billion in under-collected revenue.

South Africa, during its G20 Presidency, has placed a renewed focus DRM. The case for this greater focus is based on a consensual view, supported by the IMF, is clear, and informed by:

Low tax/GDP levels mean there’s more revenue to collect - global average is 15% Unsustainable levels of debt places greater reliance on tax revenues Unpredictability of Donor and Aid Funding Address arbitrage between statutory vs effective tax rates Proliferation of Cross-Border & Domestic Tax & Financial Crime

100%

R2.541 trillion estimated true

R1.061 trillion gross tax gap (Known under recovery) – 42% of estimated liability.

tax liability due (100%).

42%

DRM remains the most cost-effective means to fund government programmes, and establishes a path to fiscal self- reliance over the long term The foundational elements of effective DRM include:

R1.480 trillion total taxes paid voluntarily and on time – 58% of total liability.

58%

R261 billion collections from SARS compliance programme (administrative actions) – 10% estimated tax liability or 15% of net recovery.

Understanding the Indivisible nexus between policy and administration Modernising revenue administration, leveraging enabling technology, applying Artificial Intelligence (AI), future proofing employees Expanding the tax base is imperative - in this regard: • Tax policies should be simpler, equitable, transparent, and encourage voluntary compliance • Informal and cash-based sectors must be incorporated into the formal sector Public Trust beyond reproach - sacrosanct for voluntary compliance

± R800 billion net tax gap – 32% under recovery from estimated liability.

Figure 4: Tax Account Reconciliation as at 31 March 2024.

Tax liability

Tax paid

SARS Modernisation White Paper 2025/26 – 2029/30

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