Artificial intelligence (AI) helped the South African Revenue Service (SARS) surpass the R2 trillion mark in net revenue collection for the 2025/26 financial year – a historic first – as it simultaneously unveiled its Modernisation 3.0 digital transformation project.
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The record collection, up from a base of R114 billion in 1994/95, was driven by VAT collection of R604 billion, with R37 billion brought in through targeted compliance interventions, while corporate income tax contributed R5 billion. Pay as you earn collections totalled R767 billion.
The result is R24.7 billion higher than estimated when finance minister Enoch Godongwana presented the 2025 National Budget – a document he had to present three times.
The revenue collection enabled the finance minister to save the nation the additional VAT increase he had originally communicated, SARS says.
Godongwana’s first tabling of the National Budget proposed raising VAT from 15% to 17%, which drew widespread opposition and was later reduced to 15.5% shortly before judgement in two legal challenges was due.
Outgoing commissioner Edward Kieswetter notes: “Every rand not only helps build a capable state that honours the social contract but also enables the state to deliver for all South Africans and strengthen fiscal integrity of South Africa.”
Intelligent tax
SARS also announced its Modernisation 3.0 alongside the record collection figures. The digital transformation project will upgrade its existing AI systems and envisages “a future where taxpayers and their representatives will be provided with a unique digital identity”.
This digital identity is secured by biometric and two-factor authentication and gives taxpayers a single view of all their SARS accounts. Citizens will be able to update details and make payments without contacting the agency directly, while SARS officials will have system access to resolve queries more quickly.
An intelligent case-management system will automate routine work, apply AI to drive voluntary compliance, and modernise VAT to enable automatic assessments. Customs upgrades will support a no-stop border post model and strengthen collaboration with border management agencies.
AI does the heavy lifting
Modernisation 3.0 builds on the SARS auto assessment system, it says. The approach automatically assessed six million taxpayers in the past year. Taxpayers that were due refunds received payment within 72 hours.
SARS assesses returns using third-party data, which is drawn from employers, banks, medical schemes, retirement funds and insurers, without input from the taxpayer, using AI and machine learning to detect compliance risks and close the tax gap.
“Although most taxpayers comply voluntarily, deliberate non-compliance and organised criminal activity persist, undermining the integrity of the tax system,” SARS says. Its response is to apply “technology, machine learning algorithms, agentic AI and sophisticated data science” to make “tax just happen”.
Compliance-revenue efforts accounted for 15.7% of net collections, down from 16.4% the previous year. The tax base grew, however, with SARS collecting R316.39 billion from identifiable compliance activities, up from R304.04 billion. Enhanced debt-collection initiatives brought in a further R110.9 billion.
SARS describes its technological upgrades as part of a broader plan to become “a smart, modern SARS” by 2030, with investments already “bearing fruit”.
Modernisation 3.0 will be supported by an instant payment system from the South African Reserve Bank, aimed at reducing cash use over time in favour of what it sees as more equitable digital systems.
In a recent presentation, governor Lesetja Kganyago said: “This modernisation is not just about updating systems or technology.
“It is about building a payments infrastructure that truly serves the people of South Africa – ensuring every person, no matter their financial situation, location or familiarity with digital tools, has access to payment options that are affordable, fast, safe and dependable.”
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