SARS coming after your data in South Africa

SARS has increased its focus on compliance with third-party data submission obligations, as it implements its plan to build a modern, data-driven tax administration in South Africa. 

The revenue service uses this data to make submitting tax returns easier for individuals, as well as to enhance compliance from taxpayers. 

PwC senior manager Adelheid Reyneke outlined in the firm’s latest Synopsis why it is important for individuals to comply with these requirements and explained how SARS uses this data.

Reyneke said SARS has significantly increased its focus on compliance with these third-party data submission obligations in recent times. 

She explained that it is important for individuals who have a legal liability to submit this data to comply with this obligation, and typically as quickly as possible. 

SARS uses this data to pre-populate individual tax returns, verify the accuracy of taxpayer submissions, and identify any discrepancies or risks. 

This enables the revenue service to detect and prevent tax fraud or evasion, improving overall taxpayer compliance. 

It is estimated that South Africa has a tax gap of over R800 billion, which is the gap between the value of tax legally owed and the amount actually collected. 

Closing this tax gap is vital to shoring up the government’s finances, with the National Treasury reliant on SARS increasing collections in a stagnant economy to avoid having to raise tax rates and execute its policy of fiscal consolidation. 

The increased focus on third-party data submissions has been coupled with SARS’ efforts to use artificial intelligence (AI) to crack down on non-compliance. 

In some cases, the revenue service has used these tools to impose penalties of up to 200% for unexplained income or non-compliance. 

Often, SARS uses the discrepancies identified to launch an audit into a taxpayer’s affairs to establish where income is earned and whether they have complied with the necessary tax obligations. 

The adjustments often stem from an analysis of taxpayer bank accounts, and where a credit transaction is unexplainable, it is deemed to form part of income.

Additional taxes are then levied on this upward adjustment amount, for which the taxpayer is wholly liable.

Current technological advancements, including machine learning, now grant SARS access to taxpayer information from crypto trading/investing platforms. This allows the revenue authority to determine crypto taxes owed.

Who must comply

Third-party data is generally submitted to SARS via IT3 returns and other specified reporting channels, Reyneke explained.  

The obligations involved apply to a defined set of persons and entities and cover detailed transactional and beneficiary-level information.

These obligations fall upon third parties that include banks, financial institutions, insurance companies, medical schemes, fund administrators, attorneys, estate agents, trusts, and Section 18A–approved donation entities. 

The information given to SARS typically includes interest, medical and insurance payments, tax‑deductible donations, trust distributions, tax‑free investments, and related data.

Reyneke said there is also an extensive “other reporting persons” list, which greatly expands the scope of individuals and businesses that have to give SARS data. 

These persons include individuals who purchase livestock, produce, timber, ore, minerals or precious stones from a primary producer. 

It also specifies individuals who carry on business as a property practitioner and pay or receive amounts related to investments, interests, or rental of property. 

Reyneke urged individuals and businesses to assess whether they fall into any of these reporting categories and verify the completeness of data collected. 

Non-compliance may constitute a criminal offence, with a sentence of a fine or imprisonment for a period of up to two years, she warned. 

Early identification of data gaps and implementing proper compliance processes will reduce non-compliance risk and support the submission of accurate data. 

For individuals, the impact is more predictable, with SARS using discrepancies in the data to kickstart audits into tax affairs. 

These data-driven insights inform SARS of all transactional records pertaining to specific taxpayers. Using AI, the human resourcing element is significantly reduced in “risk detection” and subsequent compliance-centric actions.

This collaborative approach enables SARS to gain access to a comprehensive dataset, facilitating more robust evaluations of taxpayers’ financial activities.