In its relentless pursuit of tax compliance, SARS has launched a series of initiatives aimed at streamlining tax processes through various automation enhancements. This includes the identification of specific areas of focus, to enhance detection, enforcement and voluntary compliance – enter SARS Modernisation 3.0.
Jashwin Baijoo
Partner and Head of Strategic Engagement & Compliance
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Following SARSs successfully implemented segmentation model, these key areas will be targeted to fill the “Tax Gap”, and includes, amongst other:
Through the leveraging of artificial intelligence (AI), data science and system modernisation, SARS have embarked on their 3-to-5-year plan to shift to a real-time risk profiling system, including automation of an intelligent tax administration platform.
AI Aiding Data Driven Compliance Insights
SARS’ compliance success, in this age of automation, can in part be attributed to their use of data driven insights, derived from both South African and international sources. These system modernisations allow the revenue authority to detect any degree of non-compliance and hold the perpetrating taxpayer, and in some instances, tax aggressive advisor, accountable.
Flowing from automated processing, the data driven insights inform SARS of all transactional records pertaining to specific taxpayers, and using AI, the “fine-tooth comb” is no longer needed to extrapolate these records into strong legal cases for non-compliance. This collaborative approach enables SARS to gain access to a comprehensive dataset, facilitating more robust evaluations of taxpayers’ financial activities.
Although this information gathering capability has been tried and tested, the issue was a lack of trained manpower to effectively process and prosecute those guilty parties – the solution, “building a smart digital tax administration platform, embedded in data science and artificial intelligence”.
This AI capacity bolstering technique has already been seen across SARS’ historic audit processes, being used to maintain thoroughness and accuracy, whilst deriving data driven insights almost instantaneously. This move underscores a broader trend towards the integration of technology in tax administration, promising to revolutionize the way tax compliance is monitored and enforced.
SARS’ AI-Enhanced Audit Capabilities Wreaking Havoc on Taxpayers
It may sound like the prologue to a Terminator movie, but with the Rise of the Machines, SARS has capitalised on the automation trend, enhancing their Audit capabilities to more than just a “quick count”, but rather proportions beyond anything previously thought possible!
Imagine having historically filed all your tax returns on time, making good on your dues to SARS, and your Compliance Status reflecting as fully compliant. Now imagine waking up to a Notification of Audit and Request for Relevant Material, “based on risk(s) detected”.
Excerpt from a SARS issued Notice of Audit on Personal Income Tax, dated March 2024
This has become the shocking reality for many historically compliant taxpayers, and SARS’ Audit Team appear to be strongly enforcing the zero-tolerance policy on any non-compliance. Aiding their cause, and easing the pressure of the job, are the data driven insights derived from AI use, including processing of taxpayer bank statements without any warning, or consent.
Criminality of Non-Compliance
SARS has, like all strategic movers, made distinct examples of the wealthy, influencers and large businesses, flouting tax laws, and being hung out to dry, often including some serious jail-time. We all know their names, and their tax debt numbers!
Taking it from the ground up, there are some basics you need to know to stay on the right side in SARS’ War on Non-Compliance, in the Age of AI. As an example, the man on the street is not aware that section 234 of the Tax Administration Act, provides a laundry list of actions and inactions, which constitute criminal offences.
This list includes acts committed based on an absence of tax literacy, such as retaining specific documentary items or issuing an incomplete document to SARS. On the flip side, failure to commit acts, such as the submission of a tax return, or notifying SARS of a change in registered particulars, may also result in criminal charges being laid against you.
Enhancing Voluntary Compliance Through Technology and Trust
Where you find yourself, or in the case of finance professionals, your clients staring down the barrel of a non-compliance cannon, it is imperative to ensure a timeous response to SARS, with all correct supporting documentation. If you fail at this first hurdle, and you have made an incorrect disclosure to SARS, you will feel the walls closing in when those Additional Assessments are raised, or Final Demands received for overdue tax debts.
The nail in the coffin is always the Understatement Penalties, capping at a bank-breaking 200% of the capital taxes due!
As a rule of thumb, all correspondence received from SARS should be holistically addressed by a by a strong multi-faceted tax, legal, and financial team – the “A-Team”. In instances of non-compliance with tax laws, legal professional privilege is a must, especially where SARS have suspicion of, or have already detected current/historic non-compliance, or “risk(s)”.
This will not only serve in safeguarding you or your clients against being prisoners of war but also allow for the correct legal stopper to be put in place preventing SARS from implementing aggressive collection measures. As compliance specialists, enlisting your correct A-Team ensures taxpayers and their astute practitioners will be correctly advised on the most appropriate solution to ensure full tax compliance.
