SARS is coming down hard on taxpayers – but there’s some good news for trusts

 ·24 Apr 2024

The South African Revenue Service (SARS) is leaning heavily on its AI and automated processes, which, according to tax experts, is resulting in a surge in new audits and ‘wreaking havoc’ on taxpayers.

Luckily for trusts caught in the net, though, the taxman is now opening up automated dispute services via eFiling to them, with some limits.

According to SARS, the trust dispute process via eFiling will be the same as the process currently applicable to Personal Income Tax – however, suspension of payment will not be included for trusts at this stage.

“A trust is now able to lodge the relevant dispute (RFR01, RFRE, NOO or NOA) on eFiling or at the SARS Branch. The manual ADR1 form for objections is no longer accepted for Trusts from 20 April 2024,” it said.

SARS has made it clear that trusts and their beneficial owners will be key targets going forward as it tries to meet its collection targets and curb non-compliance.

In 2023, it expanded its third-party reporting standards to include trusts – local and foreign, where applicable – which are required to submit returns containing third-party information as specified by SARS.

Affected taxpayers have until May 2024 to comply with these new obligations.

The full document on how to go about a dispute can be found here.

Surge in audits

The extension of automated dispute processes comes as tax experts flag a surge in audits from SARS in the wake of its AI-driven audit capabilities, which are digging into bank accounts and a wealth of third-party information processors to sniff out tax dodgers and non-compliance.

Jashwin Baijoo, Head of Strategic Engagement and compliance at Tax Consulting SA, said that SARS’ push into automated processing using AI has resulted in the taxman fiercely pursuing a zero-tolerance policy on any non-compliance, even impacting historically compliant taxpayers.

This is because SARS is leaning into the data-driven insights derived from AI use, including processing taxpayer bank statements without any prior warning or consent, he said.

“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,” Baijoo said.

“What this means for (taxpayers) is an adverse finding being made by SARS, 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, it is deemed to form part of income. Additional taxes are then levied on this upward adjustment amount, which the taxpayer is wholly liable for.”

The tax specialist said that taxpayers who receive a historic audit from SARS should deal with the matter promptly and with all correct supporting documentation to avoid potential penalties which could cost them dearly.

“The nail in the coffin is always the Understatement Penalties, capping at a bank-breaking 200% of the capital taxes due,” Baijoo said.

Read: SARS is eyeing South African bank accounts

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