SARS fraud clampdown

The South African Revenue Service (SARS) prevented the outflow of R101 billion in fraudulent refunds in the 2023/24 financial year but remains concerned about weaknesses in its refund system.

On 2 April, SARS announced that South Africa’s preliminary tax collection beat estimates despite significant growth in refunds, logistics constraints, record power outages and a faded commodity boom.

The revenue service collected R1.74 trillion in the fiscal year through March 31, according to Commissioner Edward Kieswetter.

The period’s tax take was about R10 billion more than projected in the February budget, representing a 3.2% increase from the 2023 fiscal year.

The higher-than-anticipated income means the budget deficit as a percentage of gross domestic product for the past fiscal year could be better than the National Treasury’s February projection of 4.9%.

Kieswetter said the revenue service returned R414 billion in refunds to taxpayers – the highest quantum in SARS’ history. 

This is up 8.6% from the previous year and consisted largely of value-added tax (VAT) refunds, which made up R343 billion of the total.

The commissioner said he remains concerned about fraud and the abuse of SARS’ refund system. 

However, Kieswetter said that in the period under review, SARS was able to prevent the outflow of R101 billion of impermissible or fraudulent refunds.

This is considerably more than the previous year when SARS’ fraud risk detection process stopped fraudulent refunds worth R61 billion.

The commissioner said SARS made particular progress with flagging fraudulent VAT refunds.

Due to the growing risk of VAT fraud, SARS increased its focus on augmenting refund verification with AI-enabled broad-risk detection tools.

This prevented the outflow of impermissible and or fraudulent refunds totalling R55.3 billion in VAT, up R11 billion compared to last year. 

In 2023, Kieswetter said data science and artificial intelligence (AI) are integral to SARS’ fraud detection processes and efficiency. 

“Of the 14 million returns we have processed to date, through our fraud risk detection, we have stopped 1.7 million – just by doing that, we have prevented impermissible or fraudulent refunds of R61 billion,” he said in 2023.

Kieswetter used SARS’ processing of VAT refunds to explain how the fraud detection process uses AI.

SARS receives almost 4 million VAT refunds. Of these, nine out of every ten go through without SARS knowing about it – it is processed, risk-profiled, and refunds are approved through AI.

He added that 8 out of 10 VAT returns are stopped and flagged, but most are completed within 21 days.

The returns that are not completed in this time frame are affected by SARS’ “own challenges”, including capacity restraints and uncooperative taxpayers.