South Africa Is Digitising VAT: What Can Other African Countries Learn?

From Uganda and Rwanda to Ethiopia and Nigeria, African countries are exploring how digital invoices and electronic tax systems can improve tax compliance. But experience across the continent shows that technology alone cannot guarantee better revenue collection, fair enforcement or a better business environment.

Tax collection is an important part of how governments pay for public services, including healthcare, education, roads and other infrastructure. Yet, in many countries, tax authorities face challenges such as under-reported sales, inaccurate records, unpaid taxes and difficulties verifying transactions between businesses.

Across Africa, governments are increasingly turning to digital technology to address these problems. Electronic invoicing, digital sales records and automated reporting systems are changing how businesses document transactions and how tax authorities monitor compliance.

South Africa is the latest country to consider a major change to its Value Added Tax (VAT) administration. Its proposed digital VAT model aims to make transaction information available to the South African Revenue Service (SARS) electronically, potentially in near real time. The system could help simplify VAT returns, identify discrepancies earlier and strengthen efforts to prevent tax under-reporting.

However, South Africa is not starting from scratch in Africa. Uganda, Rwanda and Ethiopia have already introduced electronic invoicing or digital sales reporting systems, offering useful evidence about the benefits and challenges of tax digitalisation. Nigeria has also begun implementing a national electronic invoicing system for large taxpayers.

Their experiences raise an important question: what can African countries learn from one another as they modernize their tax systems?

What South Africa Wants to Change

Under the existing VAT process in South Africa, registered businesses submit returns electronically and report the VAT collected on sales alongside the VAT they are entitled to claim on eligible purchases. Tax authorities may request supporting invoices and other documents to verify the information after the return has been submitted.

The proposed digital VAT model would change how this information reaches the tax authority.

It brings together electronic invoicing, systems that allow different platforms to exchange information, and electronic reporting. The goal is to enable relevant VAT transaction details to move securely between businesses and tax authorities in a standard digital format.

Over time, the information could help SARS per-fill VAT returns for businesses to review, identify unusual transactions and investigate potential discrepancies sooner. The longer-term proposal also includes more automated tax assessments.

The motivation is significant. Research cited in discussions around the reform estimated South Africa’s domestic VAT reporting gap at between 35 and 41 per cent across the 2016–2020 tax years. This gap represents the difference between the VAT declared and the amount expected under full compliance.

SARS has presented the reform as a way to strengthen compliance while reducing administrative work for businesses. However, the model remains a proposed reform, with implementation expected to take place in phases rather than immediately across the entire economy.

The experiences of other African countries can help show what the authorities should consider before moving forward.

Uganda: Digital Records Can Expose Inaccurate Claims

Uganda introduced its Electronic Fiscal Receipting and Invoicing System (EFRIS) in 2021. The system requires businesses covered by the rules to issue electronic invoices and report sales information to the Uganda Revenue Authority.

Initially, businesses could report transactions through different channels, including an online portal. In 2022, the authorities required around 5,000 larger businesses to connect their accounting systems directly to the platform, making the reporting process more automated.

Research examining this stricter requirement found that affected businesses reported 43 per cent fewer purchases, while their reported VAT liabilities increased by nearly 150 per cent.

These findings suggest that stronger electronic checks made it more difficult for some businesses to claim inflated purchases and reduce the VAT they owed.

However, the results also revealed a complication. Reported sales among the affected businesses fell by 39 per cent. Researchers suggested that some businesses may have responded to tighter checks on purchase claims by concealing sales instead.

This is an important lesson for other African countries. When tax authorities close one route for under-reporting, businesses may look for another unless the entire reporting process is properly monitored.

The findings also do not mean that cash collected by the government immediately increased by the same amount as declared VAT liabilities. Some businesses had accumulated VAT credits that could reduce what they actually needed to pay.

For governments considering digital tax systems, the lesson is clear: electronic invoicing can improve visibility, but authorities must continue monitoring business behaviour and distinguish between higher declared liabilities and actual revenue collected.

Rwanda: Technology Works Better When Authorities Follow Up

Rwanda provides another example of how digital tax administration can support compliance.

The country introduced electronic billing machines, commonly known as EBM systems, to help businesses issue electronic invoices and provide transaction information to the Rwanda Revenue Authority. The system has been expanded over time, and electronic invoicing has become an important part of the country’s tax administration.

Research examining Rwanda’s electronic invoicing system estimated that its introduction increased annual VAT declared after deductions by approximately US$11,000 per firm.

However, the same research found that audits conducted among firms using electronic invoicing increased subsequent annual declared VAT by an estimated US$33,400 per firm.

The difference points to an important issue: collecting digital information is only one part of improving tax compliance. Authorities must also know how to use that information to identify inconsistencies, select cases for investigation and follow up on possible under-reporting.

Electronic invoices can help establish whether a supplier’s reported sales match a buyer’s reported purchases. Where the figures do not agree, tax officials have information they can investigate.

For African countries investing in digital tax systems, Rwanda’s experience suggests that technology should be supported by trained tax officials, consistent enforcement and clear communication with businesses.

It also shows why governments should not measure success only by the number of businesses connected to a platform. They need to assess whether the system improves reporting, reduces errors and supports fair tax collection.

Ethiopia: Collecting Data Is Not Enough

Ethiopia’s experience provides another useful lesson.

Electronic sales registers introduced in Addis Ababa increased VAT payments among adopting businesses by at least 48 per cent, according to research cited in the analysis of South Africa’s proposed reform.

Digital records can help authorities compare information from different tax declarations and identify figures that do not match. However, the existence of these records does not guarantee that discrepancies will be resolved.

Research examining declarations from 2010 to 2016 found that about 42 per cent contained different sales figures for income tax and VAT. The analysis also indicated that tax officials did not fully use the available information to address these differences.

This highlights a common risk in digital transformation: governments may invest in systems that generate large amounts of information without building the processes and capacity needed to act on it.

For digital tax reforms to produce lasting results, authorities need clear procedures for reviewing inconsistencies, investigating suspected non-compliance and helping businesses correct genuine errors.

They also need to make sure that digital systems communicate effectively with one another. When information is separated across platforms that cannot exchange data, opportunities for better oversight may be lost.

Nigeria: E-Invoicing Is Already Part of the Conversation

Nigeria is also implementing electronic invoicing as part of efforts to modernize tax administration.

The former Federal Inland Revenue Service announced the national e-invoicing regime, known as the Electronic Fiscal System or Merchant-Buyer Solution, for large taxpayers from August 2025. In 2026, the Nigeria Revenue Service continued the rollout, setting a July 31 compliance deadline for large taxpayers to complete the required onboarding and integration.

The system is designed to support electronic invoice generation, validation and transmission, improving the visibility of business transactions for tax administration.

Nigeria’s experience matters because digital tax reform is not just a proposal being discussed elsewhere on the continent. It is already becoming part of the country’s own business and regulatory environment.

However, the introduction of an electronic invoicing platform should not automatically be treated as proof that tax compliance has improved or that government revenue has increased. Those outcomes require evidence from implementation, including how many businesses are complying, whether reported transactions are more accurate and how effectively authorities use the information collected.

Nigeria can learn from Uganda’s experience with changes in business reporting, Rwanda’s evidence on the value of audits and Ethiopia’s warning about failing to act on available data.

At the same time, South Africa and other countries can benefit from Nigeria’s experience with implementing a national e-invoicing framework, particularly around business integration, technical support and the practical challenges of adoption.

These systems are not identical, and their results cannot simply be transferred from one country to another. Differences in tax rules, business structures, enforcement capacity and digital infrastructure all matter.

Nevertheless, comparing these experiences can help African governments identify useful approaches and avoid repeating preventable mistakes.

What Does Digital VAT Mean for Small Businesses?

For businesses, digital tax reform can bring both opportunities and costs.

On the positive side, electronic invoicing can reduce paperwork, improve record-keeping and make it easier to reconcile sales, purchases and tax returns. Where systems work well, businesses may spend less time preparing returns and responding to requests for supporting documents.

Better records can also help businesses understand their finances, identify errors and maintain more reliable transaction histories.

However, these benefits are not automatic.

Businesses may need new accounting software, updated equipment, staff training and technical support to connect to digital platforms. Smaller enterprises with limited resources may struggle with these requirements, particularly when the rules are unclear or implementation deadlines are difficult to meet.

Governments must therefore consider how reforms will affect businesses of different sizes. Clear guidance, practical training, accessible support services and reasonable transition periods can help businesses comply without unnecessary disruption.

The handling of VAT refunds is another important issue. A business may be entitled to a refund when the VAT it can claim on eligible purchases exceeds the VAT it collects on sales. Delays in receiving legitimate refunds can tie up money needed to pay suppliers, workers and other operating costs.

Digital records should help tax authorities identify questionable claims more efficiently. They should not become a reason to delay legitimate refunds or subject every business to the same level of scrutiny regardless of its risk profile.

A well-designed system should make it easier for compliant businesses to meet their obligations while directing stronger checks towards transactions that genuinely require investigation.

The Wider Lesson for Africa: Technology Must Come With Accountability

The experiences of South Africa, Uganda, Rwanda, Ethiopia and Nigeria show that digital tax administration is about more than introducing new software.

First, governments need reliable and connected information. Digital invoices are most useful when authorities can compare relevant records and identify meaningful discrepancies.

Second, they need the capacity to act on that information. Collecting transaction data without investigating significant inconsistencies limits the benefits of the investment.

Third, tax authorities must communicate clearly with businesses. Taxpayers need to understand what information they must submit, how the system works, what support is available and what happens when genuine errors occur.

Fourth, governments must protect confidential business information and ensure that digital systems are secure, reliable and accessible. Strong data protection and transparent procedures are essential to maintaining trust.

Finally, success should be measured by more than the number of electronic invoices issued or businesses registered on a platform. Governments should examine whether reporting becomes more accurate, actual tax collection improves, compliance costs remain manageable and legitimate refunds are processed promptly.

These measures matter because tax revenue supports public services and development priorities. But the process of collecting that revenue also affects business confidence, investment and the ability of smaller enterprises to grow.

South Africa’s proposed VAT reform offers another opportunity for African countries to learn from one another. Uganda shows how businesses can change their reporting behaviour when checks become stricter. Rwanda demonstrates the importance of combining digital records with effective audits. Ethiopia highlights the consequences of failing to use information properly, while Nigeria’s ongoing rollout brings the practical demands of implementation into focus.

The wider lesson is that digital tax systems can strengthen accountability, but technology alone cannot guarantee fair or effective tax administration.

For African countries, the real measure of success will be whether these systems help governments collect the taxes they are owed while making compliance clearer, more efficient and more predictable for the businesses that support their economies.

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