The SA Revenue Service (Sars) has “a long way to go” before its service reached an acceptable level and it was “striving hard” to strike a better balance between customer service and risk management, commissioner Edward Kieswetter told a meeting of Parliament’s finance committees this month.
He cited, among other things, instances of poor service from staff, the high number of complaints, cases that were taking longer than 21 days to resolve, and long waiting times and dropped calls as indicative of the “significant service challenges” facing Sars.
Kieswetter said it was urgent that Sars modernised its service platform. It was stepping up the use of artificial intelligence and machine learning, to improve its risk assessment, and was migrating taxpayers to online channels.
He said Sars was understaffed. It has 163 VAT auditors who have resolved 308 000 cases and 274 personal income tax (PIT) auditors who have resolved 1.362 million cases.
The extent to which Sars could employ more personnel and upgrade its IT systems depended on the funding it was granted by National Treasury, he told MPs.
‘Our risk engine is agnostic’
At the same time, Kieswetter was adamant in rejecting allegations that Sars was acting as a law unto itself or was heavy-handed in its dealings with taxpayers.
He said almost 85% of all Tax Court appeals have been resolved through engagement between Sars and taxpayers. Sars and the taxpayer reached a settlement in 25% of the appeals, 29% of the appeals were withdrawn by taxpayers, while Sars withdrew 30%.
Sars litigates about 10% of Tax Court appeals, of which to date Sars has won 21 of 28 cases, including every appeal that Sars has made to the Constitutional Court and the Supreme Court of Appeal.
Sars also litigates to enforce compliance, with a success rate of 85% in all the courts in the past two years.
Turning to Sars’s management of VAT risk, Kieswetter said the evidence does not support the claim that Sars bullied “the little man” and let the bigger entities get off.
“Our risk engine is agnostic as to who the taxpayer is and responds only to the risk rules and the algorithms that we write. You are selected for verification not because you are a little guy or a big guy but because you are a risk to the fiscus, potentially non-compliant and maybe even criminal.”
He said it was noteworthy that most of the cases selected by Sars’s risk engine involved habitual non-compliers, “which means our risk engine is spot-on when it selects a taxpayer for compliance”.
With regard to PIT, he said the “overwhelming evidence” was that most taxpayers have “a pleasant, if not a seamless” experience. In the current year, Kieswetter said 93% of taxpayers received an assessment in less than five seconds and 85% received a refund within 72 hours.
‘Taxpayers are struggling’
But Sharon Smulders, the South African Institute of Chartered Accountants’ project director for tax advocacy, told MPs that although Saica appreciated Sars’s IT and staff constraints, “taxpayers were really struggling”.
Saica constantly received complaints about refunds, particularly VAT refunds, not being paid out timeously, which was putting businesses at risk.
Linked to this was that when businesses apply for a settlement of debt, “somehow your (Sars’s) systems are not linked. They cannot get a tax clearance certificate. That prevents them from getting more business […] It is really affecting the SMMEs.”
She said Sars’s verifications have “huge ramifications” for taxpayers, because there is no time limit on them. “Taxpayers are submitting their documentation, yet there’s no traction.”
Statistics from the Tax Ombud showed that most objections were settled in favour of taxpayers, so Sars and taxpayers were spending a lot of unnecessary time to dispute objections that should never have arisen in the first place, Smulders said.
Ernie Lai King, the head of 1 Road Consulting, said something had to be done about Sars’s “unfettered powers” when it comes to VAT audits, and the withholding of VAT and diesel rebate refunds.
Audits can carry on “forever”, while refunds are withheld, “causing terrible cash flow problems” for taxpayers who have a history of compliance, he said.
Taxpayers’ only recourse is litigation, which can take up to eight years.
He, Saica, the SA Institute of Tax Professionals and the SA Institute of Professional Accountants would like to engage with the commissioner and National Treasury to address “the one-sided rules” in favour of Sars when it comes to VAT audits.