SARS Modernisation 3.0 – Compliance Crackdown in the Age of AI
In its relentless pursuit of tax compliance, SARS has launched a series of initiatives aimed at streamlining tax processes through automation enhancements. This includes identifying specific focus areas to improve detection, enforcement, and voluntary compliance – enter SARS Modernisation 3.0.
Following SARS’s successful segmentation model, these key areas will be targeted to reduce the “Tax Gap”, including:
- High-net-worth individuals
- Large and international businesses
- Businesses in the gig, shared, and social media economy
By 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, including automation of an intelligent tax administration platform.
AI Aiding Data-Driven Compliance Insights
SARS’s compliance success in this age of automation is partly attributed to their use of data-driven insights, derived from both South African and international sources. These system modernisations enable the revenue authority to detect various degrees of non-compliance and hold the perpetrating taxpayer—and in some instances, tax aggressive advisors—accountable.
Through 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. This collaborative approach grants SARS access to a comprehensive dataset, facilitating more robust evaluation of taxpayers’ financial activities.
Although this information-gathering capability has been tried and tested, the challenge was a lack of trained manpower to effectively process and prosecute guilty parties. The solution has been to build a smart digital tax administration platform, embedded in data science and artificial intelligence.
SARS’ AI-Enhanced Audit Capabilities Wreaking Havoc on Taxpayers
It may sound like the prologue to a Terminator movie, but with the Rise of the Machines, SARS has capitalized on automation trends, enhancing their audit capabilities beyond a simple “quick count”—now reaching proportions previously thought impossible.
Imagine having historically filed all your tax returns on time, making good on your dues to SARS, and having your Compliance Status reflect as fully compliant. Now imagine waking up to a Notification of Audit and a request for relevant material, “based on risk(s) detected”.
This has become a shocking reality for many historically compliant taxpayers, as SARS’ Audit Team strongly enforces the zero-tolerance policy on any non-compliance. Easing their workload are data-driven insights derived from AI, including processing taxpayer bank statements without prior warning or consent.
Criminality of Non-Compliance
SARS has made distinct examples of wealthy individuals, influencers, and large businesses flouting tax laws, often leading to serious jail time. Their names and tax debt numbers are widely known.
From the ground up, it is important to know basics to stay compliant amid SARS’ War on Non-Compliance, especially in the age of AI. For instance, section 234 of the Tax Administration Act lists numerous actions and inactions constituting criminal offences.
This list includes acts committed out of lack of tax literacy, such as retaining specific documentary items or issuing incomplete documents to SARS. Conversely, failure to act—such as not submitting a tax return or not reporting changes in registered particulars—may also lead to criminal charges.
Enhancing Voluntary Compliance Through Technology and Trust
If you or your clients face potential non-compliance issues, it is imperative to respond promptly to SARS with all correct supporting documentation. Failure at this stage, or incorrect disclosures, may result in Additional Assessments or Final Demands for overdue tax debts.
The most severe penalty is the Understatement Penalty, which can reach a bank-breaking 200% of the taxes due.
As a rule, all correspondence from SARS should be handled by a strong, multi-faceted tax, legal, and financial team—the “A-Team”. In cases of suspected or detected non-compliance or “risk(s)”, legal professional privilege is essential.
This safeguards taxpayers and practitioners against aggressive collection measures, ensuring proper legal defenses are in place. Enlisting the correct A-Team ensures taxpayers receive optimal advice to achieve full tax compliance.
