In a world slowly being taken over by AI, the South African Revenue Service has capitalised on this trend, enhancing their Audit capabilities to more than just a “quick count”, but rather proportions beyond anything previously thought possible!

Imagine having historically filed all your tax returns on time, making good on your dues to SARS, and your Compliance Status reflecting as fully compliant. Now imagine waking up to a Notification of Audit and Request for Relevant Material, “based on risk(s) detected”.

Excerpt from a SARS issued Notice of Audit on Personal Income Tax, dated March 2024

This has become the shocking reality for many historically compliant taxpayers, and SARS’ Audit Team appear to be strongly enforcing the zero-tolerance policy on any non-compliance. Aiding their cause, and easing the pressure of the job, are the data driven insights derived from AI use, including processing of taxpayer bank statements without any prior warning, or consent.

Audit Adjustments Effected by Additional Assessments

In the last 2 months, we have practically seen a significant spike in SARS Audits, which in most cases result in the Audit being Finalised with Adjustments, due to taxpayers missing the Request for Relevant Material. What this means for you, is an adverse finding being made by SARS, and manifested in upward adjustments on amounts included in “Gross Income”.

The adjustments often stem from an analysis of taxpayer bank accounts, and where a credit transaction is unexplainable, is deemed to form part of income. Additional taxes are then levied on this upward adjustment amount, which the taxpayer is wholly liable for. 

It is noteworthy that to give effect to these adjustments, SARS must issue Additional Assessments, which issuance period is usually limited to within 3 years from the date of the Original Assessment. 

Lifting Limitations to Eradicate Non-Compliance

The 3-year period of limitation, per section 99(1) of the Tax Administration Act, does not however apply, to the extent that the full amount of tax chargeable was not assessed, due to fraud, misrepresentation or material non-disclosure, per section 99(2) of the TAA, below:

(2) Subsection (1) does not apply to the extent that -

(a) in the case of assessment by SARS, the fact that the full amount of tax chargeable was not assessed, was due to -

(i) fraud;

(ii) misrepresentation; or

(iii) non-disclosure of material facts;

When it comes to the lifting of limitations, the local and international news has recently been flooded with tax dodgers facing the wrath of their respective revenue authorities. One of the most relatable cases in South Africa, and also most recent, is the incarceration of Celebrity Chef, Lusizo Mvula, who stares down the barrel of a 10-year imprisonment term for defrauding SARS.

Chef Mvula found himself being rightfully convicted on multiple charges of fraud, as well as money laundering, by the Johannesburg Specialised Commercial Crime Court and can only hope for kitchen duty once behind bars!

Avoid Penalties, and Prosecution

Where you find yourself, or in the case of finance professionals, your clients facing a historic audit from SARS, it is imperative to ensure a timeous response, with all correct supporting documentation. We have seen in the market a number of ill-advised taxpayers seeking the correct counsel only after the fact and paying the price for it, such as when those Additional Assessments are issued post-Audit Finalisation. The nail in the coffin is always the Understatement Penalties, capping at a bank-breaking 200% of the capital taxes due!

As a rule of thumb, any and all correspondence received from SARS should be holistically addressed by a by a strong multi-faceted tax, legal, and financial team – the “A-Team”. In instances of non-compliance with tax laws, legal professional privilege is a must, especially where SARS have suspicion of, or have already detected, “risk(s)”. 

This will not only serve in safeguarding you or your clients against potential jail-time, but also allow for the correct legal stopper to be put in place preventing SARS from implementing aggressive collection measures. As compliance specialists in their own right, enlisting your correct A-Team ensures taxpayers and their astute practitioners will be correctly advised on the most appropriate solution to ensure the burden of proof is fully discharged in any Audit.

Written by Jashwin Baijoo, Head of Strategic Engagement & Compliance at Tax Consulting SA