SARS AI Capabilities is making life difficult for Non-compliant Taxpayers in South Africa
AI is being used more often. The South African Revenue Service (Sars) is using AI to audit more accurately and thoroughly. This helps them improve their auditing capabilities. AI enables SARS to successfully counter criminality on levels never seen before.
Non-compliance tax collections on penalties have led to billions of rands of revenue for SARS and this is gaining more and more traction. The data artificial intelligence is providing to SARS is making life very difficult for non-compliant taxpayers with taxes due.
Imagine always submitting your tax returns on time. Imagine paying what you owe to Sars. Imagine your Compliance Status showing that you are fully compliant. Picture yourself waking up to an Audit Alert and Demand for Pertinent Information, "triggered by identified risk(s)".
Many taxpayers who have always followed the rules are now facing a harsh reality. Sars's audit team is cracking down on any non-compliance with a zero-tolerance policy.
AI use provides data-driven insights that help with their cause and reduce job pressure. This includes processing taxpayer bank statements without prior warning or consent.
Adjustments resulting from SARS Audits
Over the past two months, we have noticed a sharp increase in Sars audits. Taxpayers often overlook the Request for Relevant Material, leading to adjustments in many audit cases.
This implies that Sars is reaching a negative conclusion, resulting in increases in the figures included under "gross income" for you. Adjustments are made by analyzing taxpayer bank accounts. If a credit transaction cannot be explained, it is considered income.
The taxpayer is wholly liable for additional taxes levied on this upward adjustment amount.
It is noteworthy that to give effect to these adjustments. Sars is required to provide further evaluations, typically within a three-year timeframe from the date of the initial assessment.
Adjustment on the 3 year limitation to eradicate non-compliance
The three-year period of limitation, per section 99(1) of the Tax Administration Act (TAA), does not, however, apply, to the extent that the full amount of tax chargeable was not assessed, due to fraud, misrepresentation or material non-disclosure, per section 99(2) of the TAA, below:
(2) Subsection (1) does not apply to the extent that:
(a) In the case of assessment by Sars, the fact that the full amount of tax chargeable was not assessed, was due to
- Fraud;
- Misrepresentation; or
- Non-disclosure of material facts.
Recently, there has been a lot of news about tax dodgers facing consequences from their local and international tax authorities. A recent and relatable case in South Africa is the imprisonment of celebrity chef Lusizo Mvula. He is facing a 10-year prison sentence for defrauding Sars.
Mvula was found guilty of fraud and money laundering by the Johannesburg Specialised Commercial Crime Court. He may only be able to work in the kitchen while in prison.
Focus on avoiding penalties and prosecution
If you or your clients are being audited by Sars, it is important to respond quickly with all the required documents. As finance professionals, it is crucial to provide the necessary supporting documentation promptly. This will help ensure a smooth audit process and avoid any potential issues. Many taxpayers wait until after they have been audited to seek advice. This often leads to them paying more in the end. It is a common mistake that taxpayers make. It is important to seek advice before being audited to avoid paying extra.
The final blow is invariably the underestimated fines, which can reach a staggering 200% of the owed taxes.
It is important to respond promptly to any letters or emails from Sars. You should have a team of tax, legal, and financial experts ready to help. They can provide comprehensive support and guidance in dealing with any issues raised by Sars.
It is crucial to have a strong and diverse team to handle any correspondence effectively. Legal professional privilege is important when dealing with tax law non-compliance, especially when Sars suspects or has identified risks. This privilege allows communication between a lawyer and their client to remain confidential. It is crucial for protecting the client's rights and ensuring a fair legal process. Without legal professional privilege, clients may be hesitant to seek legal advice or representation.
This will not only safeguard you or your clients against potential jail time but also allow for the correct legal stopper to be put in place, preventing Sars from implementing aggressive collection measures.
Compliance specialists need the right team to help taxpayers and their advisors meet audit requirements and prove compliance. The team will assist in finding the best solution for compliance by discharging all the required information when SARS comes knocking to do an audit.
Don't be one of those taxpayers who wake up too late to the new impact that artificial intelligence and machine learning is having on the tax landscape. Taxpayers are urged to get their compliance in order before anything else as machine learning algorithms are successfully countering non-compliance.
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