The country’s VAT gap reached 5.8 percent of GDP in 2024, up from 4.9 percent in 2017, according to an International Monetary Fund assessment. The increase was driven by a deterioration in the compliance gap, which rose from 2.0 percent of GDP in 2017 to 3.5 percent in 2024.
More than 90 percent of the compliance gap between 2017 and 2024 came from the assessment gap — VAT liabilities that were unreported or under-reported — rather than tax that had already been assessed but remained unpaid.
The IMF says VAT non-compliance is heavily concentrated in trade and transportation, and mining and manufacturing, with the four sectors together generating a large share of unpaid VAT. While the Fund says the data does not allow for a perfectly precise sector-by-sector breakdown, it identifies hard-to-tax activities as a potential challenge, including informal traders and complex value chains in mining and manufacturing. The assessment also found that sectors such as financial services and construction have smaller compliance gaps.
For tax expert Tumelo Rannau of Rans & Associates, the issue is not necessarily the size of businesses operating in these sectors, but the extent to which BURS can see what is happening between the filing of returns and an eventual audit. He said BURS generally gets sight of a taxpayer’s activity when returns are submitted or during an audit, limiting its ability to identify discrepancies as transactions occur.
“The issue is not necessarily because of size but monitoring and oversight as BURS can only have sight during audit or when returns are submitted,” Rannau said.
That limited visibility can make it difficult to establish whether the turnover declared to the tax authority reflects the actual level of business activity. Rannau said some of the ways businesses can under-report VAT include filing nil returns or using falsified invoices, which he said is common in the tendering space.
Asked what makes under-reporting particularly difficult to detect, he identified the absence of real-time transaction information as the main challenge.
“No real time visibility of transactions,” he said.
The proposed Electronic Billing System introduced under the Value Added Tax Amendment Act, 2025 and reinforced by the broader modernizing framework of the Tax Administration Act of 2026 is expected to change the information available to BURS. Rannau said electronic billing machines would provide real-time reporting of transactions, allowing the tax authority to follow transactions through the value chain and identify non-compliance earlier.
“The introduction of electronic billing machines will help in following the value chain as there will be real time reporting of transactions and therefore BURS will be able to trace non-compliance early,” he said.
He added that EBS would help BURS identify abnormalities while intelligence and investigation work could be used to pursue businesses that remain outside compliance.
The compliance gap also creates a competitive issue for businesses that are already meeting their tax obligations. Rannau said businesses that are not registered for VAT can gain a price advantage because they are outside the tax system, while registered businesses that do not fully comply can benefit through improved cash flow.
“For businesses that are not registered there is a price advantage but where the businesses are registered it is more of a cashflow ‘advantage’ because of the non-compliance,” he said.
Closing the gap could, however, bring more businesses into a system that has its own compliance costs. Rannau said smaller businesses could initially face higher costs as previously undeclared activity is brought into the tax net, although real-time reporting could eventually reduce the need for manual intervention and lower some compliance costs.
For more complex business structures, he said BURS and the Ministry of Finance would need to develop a deeper understanding of how the sectors operate and where those structures create opportunities for non-compliance or conflicts with tax law.
The fiscal implications extend beyond the VAT account. Rannau said the revenue shortfall places pressure on other sources of government income and could complicate efforts to manage the deficit.
“Strain on other sources of income and a potential loss on managing the deficit,” he said.
Rannau said the wider tax reforms could help address the compliance problem, particularly through the EBS, but said implementation would need to be properly managed.
“The EBS will help in closing the gap and should be well managed during the implementation stage to avoid any failures that could undermine the reform objective,” he said.
