R62 million VAT fraud case highlights the scale of tax refund issues in South Africa

The specialized commercial court in Palm Ridge sentenced him to 15 years for fraud with a five-year deferral and 10 years for money laundering. SARS Commissioner Dr. Johnstone Makubu stated that 'fraudulent VAT claims are not simple administrative errors. They are carefully calculated acts of criminality that deceive the country's tax base, harm honest taxpayers, and deprive the government of resources needed to provide essential public services.'

A Larger Problem

This case occurs against a much broader challenge related to VAT compliance and revenue leakage. In February, SARS reported that its administrative efforts had prevented R50.1 billion in inadmissible VAT refunds in the 2025/26 financial year to date, which is 2.3% more than the previous year. It is important to note that inadmissible refunds are not always fraud—this figure includes refunds that SARS deemed should not have been paid, and they cannot be equated to the cost of criminal VAT fraud. Nevertheless, the scale of this problem underscores the pressure on the VAT system, which is the second-largest source of tax revenue in South Africa.

According to SARS' annual report for 2024/25, R147.9 billion in inadmissible refunds and revenue leakage across all sectors were prevented. In 2024/25, SARS conducted 3757 audit cases, leading to assessments totaling R46 billion. The report indicated that 'these audits focused on deliberate non-compliance, including false declarations, income concealment, and fraudulent refund claims. Significant progress has been made in detecting and prosecuting tax crimes.'

SARS reported that 290 cases were profiled and referred for criminal investigation, with incomplete returns, lack of registration, and returns submitted without payment accounting for 56.20% of all referrals. Organized refund fraud, particularly related to VAT, became the second major factor at 25.86%, alongside income tax fraud and customs and excise violations.

Systemic Issues

Recent studies based on SARS audit and VAT declaration data have revealed a persistent gap between the internal VAT that should be declared and the amount that is actually declared. A working paper by SA-TIED and UNU-WIDER from April 2026 estimated the average VAT reporting gap at 40.6% between 2016 and 2020—a measure of VAT reporting non-compliance that, again, does not only reflect fraud.

A master's thesis on taxation from the University of Johannesburg noted that VAT fraud is committed by understating output tax, overstating input tax, failing to register sellers, using fictitious traders, exceeding declared but unpaid VAT amounts, and claiming non-refundable input VAT. SARS itself previously acknowledged weaknesses in its visibility of the supply chain regarding VAT, noting in an analytical memo on VAT administration modernization that VAT had the 'least supply chain visibility' among its types from a self-assessment perspective.

The memo stated: 'This lack of supply chain visibility exposes the treasury to revenue leakage risk, which is discovered late and requires frequent audits and checks.' Since VAT is largely self-assessed, sellers calculate the taxes they owe or the refunds they are entitled to using their own accounts and supporting documentation.