In the words of American statesman Benjamin Franklin, in this world, nothing can be said to be certain, except death and taxes. The South African Revenue Service (Sars) is determined to add a third caveat: taxpayer compliance.
After a record collection of R2 trillion in taxes in the 2022/23 financial year, this year’s tax season for individuals and non-provisional taxpayers kicked off on 7 July.
According to Mahomed Kamdar, tax specialist at the South African Institute of Professional Accountants, the tax authority is looking to maintain, if not exceed, previous levels of collections. Crucial to this is taxpayer compliance.
In support of this, Kamdar says, Sars has embarked on a digital transformation journey, introducing new digital initiatives and innovations. He says the tax authority has moved away from a solo approach to tax administration – that is, relying on taxpayer information with accompanying supporting documents.
“Tax has become more integrated with the provisions of other services and is no longer viewed as a stand-alone activity. In other words, tax collection has become less reliant on voluntary compliance.”
He explains that Sars is using technology tools to perform third-party verification, such as medical scheme contributions, bank interest, property, and vehicle registration.
“The chance of being caught out increases exponentially.”
The use of data, artificial intelligence, and algorithms
Artificial intelligence (AI) has enabled Sars significantly to expand its scope of detecting tax fraud, beyond data obtained through declarations.
“Sars implemented several machine learning models that leverage multiple asset and income stream data sources to detect non-, as well as under-declaration of tax liability.”
Kamdar says, in the case of tax, AI is used to determine trends, taxpayer behaviour, and other information that impact tax returns or the calculation of taxable income.
“In the era of smart machines, the advancement in technology has improved the ability of Sars to detect irregular or suspicious trends in tax returns.”
He adds that technology tools will also improve the efficiency and speed with which Sars will be able to assess taxpayers. An example is auto-assessment, which was introduced in 2020.
Now three years later, Kamdar says auto-assessment is here to stay.
“And it will only improve in the future through the development of AI-powered tools, which, in turn, will increase the mode of revenue collection.”
Linked to this, he says, is the creation of a robust connective tax network whereby Sars can access information from third parties.
“This information serves as part of a Big Data network. In the future, sales, and purchases by companies and sole proprietors could be recorded in a centralised information platform for authorised users to extract and utilise.”
He says, given the state of technological development, the tax authority could well “auto” assess VAT 201 on behalf of vendors. A VAT 201 declaration is a form prescribed by Sars, where VAT vendors declare their Input and Output tax and/or diesel where necessary.
“This will take indirect taxes to a new height, where the assessments can be done in real-time based on the recording of the transaction in an inter-connected digital platform and environment. This is possible for retail outlets using cash registers which could be linked to a central database from which Sars obtains information.”
Besides upgrading its internal processes, Sars can now seamlessly share data with authorities worldwide to discover foreign caches of undeclared income.
Kamdar says it is important to note that the sharing of tax information locally or globally does not violate the provisions of the Protection of Personal Information Act.
“The provisions of Popi simply do not apply to the collection of tax revenues. Taxpayers are legally obliged to disclose information required to complete a tax return.”
How secure this information will be, however, is something that will most likely way heavy on taxpayers’ minds.
With state departments not having the best reputation when it comes to being protected against cyber threats (the Postbank late last year revealed in Parliament that it had lost more than R18 million to cybercrime attacks in a three-month period), how secure this information will be is a concern.
In a Moneyweb@Midday interview with Sars head of communications Siphithi Sibeko last week, journalist and radio host Jeremy Maggs said he assumed that measures were in place to protect taxpayer information during the process – “that there was not going to be a breach of security here”.
“Certainly not,” responded Sibeko. “Our laws that we administer dictate that taxpayer confidentiality is topmost. So, whatever we do, we have that in mind, informing any of our actions.”
