SARS is cracking down on these taxpayers in South Africa

SARS is intensifying its crackdown on South African taxpayers by using AI-driven, real-time risk profiling under Modernisation 3.0 to aggressively target high-net-worth individuals, large businesses and the gig economy.

This was explained by Tax Consulting SA’s Partner and Head of Strategic Engagement & Compliance, Jashwin Baijoo.

In its relentless pursuit of tax compliance, Baijoo said SARS has launched a series of initiatives to streamline tax processes through various automation enhancements.

This includes identifying specific areas of focus to enhance detection, enforcement, and voluntary compliance. This project is known as SARS Modernisation 3.0.

Following SARS’s successfully implemented segmentation model, these key areas will be targeted to fill the “Tax Gap”, and include, amongst others:

• High-net-worth individuals;
• Large and international businesses; and
• Businesses in the gig, shared and social media economy.

Through leveraging artificial intelligence (AI), data science, and system modernisation, SARS has embarked on a 3-to-5-year plan to shift to a real-time risk profiling system. Part of this plan includes automating an intelligent tax administration platform, Baijoo said.

SARS’ compliance success in this age of automation can in part be attributed to its use of data-driven insights derived from both South African and international sources.

These system modernisations allow the revenue authority to detect any level of non-compliance and hold the perpetrating taxpayer accountable, and, in some instances, the tax-aggressive advisor.

Flowing from automated processing, the data-driven insights inform SARS of all transactional records pertaining to specific taxpayers.

“Using AI, the ‘fine-tooth comb’ is no longer needed to extrapolate these records into strong legal cases for non-compliance,” Baijoo said.

“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 the guilty parties.

The solution, Baijoo said, is “building a smart digital tax administration platform, embedded in data science and artificial intelligence”.

This AI capacity-supporting technique has already been seen across SARS’ historical audit processes, used to maintain thoroughness and accuracy whilst deriving data-driven insights almost instantaneously.

This move underscores a broader trend towards integrating technology into tax administration, promising to revolutionise how tax compliance is monitored and enforced.

SARS wreaks havoc on taxpayers

Baijoo explained that, through the use of technology, SARS has capitalised on the automation trend, enhancing its Audit capabilities beyond a “quick count” to 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’.”

Unfortunately, Baijoo said 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 the processing of taxpayer bank statements without any warning or consent.”

Like all strategic movers, SARS has made distinct examples of the wealthy, influencers and large businesses, flouting tax laws and being hung out to dry, often including serious jail time.

“We all know their names and their tax debt numbers,” Baijoo said. “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 due to a lack 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.”

Nail in the coffin for taxpayers

Baijoo urged taxpayers and financial professionals who find themselves, or their clients, staring down the barrel of the non-compliance cannon to ensure they respond timeously to SARS with the correct supporting documentation.

Those who fail at this first hurdle and make an incorrect disclosure to SARS will feel the walls closing in when Additional Assessments are raised, or Final Demands are issued 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, supporting documentation stressed that all correspondence received from SARS should be holistically addressed 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 has 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.”