SARS going after one group of taxpayers

The South African Revenue Service (SARS) is targeting high-wealth individuals (HWIs), employing advanced technology like AI to streamline audits and using third-party data for more information.

This is according to tax experts at Tax Consulting SA, Jashwin Baijoo and Michelle Phillips.

The experts explained how, in the world of tax, HWIs are known for accruing their wealth by navigating complex, multi-layered investment structures, both locally and offshore.

“This results in these affluent individuals having to regularly traverse intricate regulations and calculations to ensure compliance,” they said. 

“However, recent developments indicate that the collection focus on HWIs is intensifying, with SARS employing advanced technology to streamline audits and bolster efficiency.”

The most recent developments show that SARS’ HWI Unit is now asking for relevant material on provisional tax filings, which has historically been associated with audits or verifications. 

The HWI Unit takes it one step further, requesting detailed computations for submitted returns and income and deduction forecasts for the next six months.

“This may come across as SARS assuming taxpayers can see into the future, and unreasonably so, but realistically, it is simply SARS using its powers per section 46 of the Tax Administration Act, read together with paragraph 19(3) of the Fourth Schedule to the Income Tax Act,” they explained.

To use the discretion afforded to the SARS commissioner most effectively, the revenue service has turned to AI to bolster its auditing capabilities. 

“By leveraging cutting-edge AI algorithms over raw manpower, SARS aims to cast its collection net as wide as possible, including on future taxes,” the experts explained. 

“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 has also been raiding third-party data sources to pick up any semblance of non-compliance.

These 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,” they said.

They warned HWIs managing intricate financial portfolios that these developments signal a need for heightened diligence in tax record keeping and reporting.

SARS is clear in its mandate to collect revenue and eradicate non-compliance by whatever means necessary.

They said HWIs can anticipate heightened verification protocols from SARS. 

“Recently, individuals have reported receiving letters from SARS requesting detailed information regarding provisional taxes,” they said. 

“These requests, citing specific legislative provisions, highlight the meticulous scrutiny under which HWIs’ tax affairs are now placed.”

“When viewed in conjunction with the Approval for International Transfer (AIT) process imposed as of April 2023, being applicable for outbound fund movements, usually in large sums of money, the net is tightening on the wealthy.”

They warned that the introduction of the AIT process is not to be taken lightly, as where taxpayers are not forthcoming, “SARS most likely already knows what you think you’re hiding”.