SARS is coming after these taxpayers hard

The South African Revenue Service (SARS) has announced the start date for tax season 2024, and while it feels like the taxman is getting more aggressive, it’s not necessarily everyday taxpayers who are in its crosshairs.

Over the past few years, SARS has ramped up developments on the tech side, leaning into machine learning and artificial intelligence to streamline and automate a lot of the smaller admin tasks with filing taxes.

By widening its net of third-party data and having algorithms examine less complex tax affairs more closely, the revenue service has made it easier for individual taxpayers to become compliant and more difficult for would-be evaders to dodge their obligations.

This has also freed up the service’s human resources to hone their craft and focus more precisely on specific areas of tax, where billions of rands tend to slip through the net.

1. Trusts and beneficial owners

One of SARS’s biggest focuses over the past year has been trusts, to the point that these groups now have their own ‘filing period’ starting 16 September 2024 to 20 January 2025.

New legislation introduced in 2023 made it so that all trusts registered in South Africa are required to comply with the amended Tax Administration Act No. 28 of 2011, whereby certain additional disclosures are required to be made around a new term referred to as the ‘beneficial owner’ of the trust.

This new definition became effective on promulgation – on 22 December 2023.

Changes to tax processes in this regard showed up in 2023 already, with SARS requiring additional questions to be included in tax returns, such as the beneficial ownership declaration page to record all beneficial owners and additional mandatory supporting information that should be disclosed in the return.

In 2024, trusts will have to jump through even more compliance hoops, which are laid out here.

2. Foreign employers

As of the end of 2023, foreign employers must register as “employers” with SARS – meaning they’re now mandated to withhold and pay PAYE.

This change also came into effect with the promulgation of regulations on 22 December 2023, applicable to a foreign employer who conducts business through a South African permanent establishment.

Before the amendment, a foreign employer with no ‘representative employer’ in South Africa with the authority to pay remuneration need not deduct PAYE from the amounts it pays to South African employees as these individuals will pay the income tax due as provisional taxpayers.

However, in the February 2023 budget, the National Treasury proposed to align provisions on foreign employers to ensure consistency between resident and foreign employers, which is now the case.

New immigration law changes allow foreigners to work in South Africa on a remote visa and not be required to register for tax, but this is only if they earn more than the equivalent of R1 million and do not exceed six months in a 36-month period.

3. New industries

With the rise of e-commerce and independent energy producers in South Africa, SARS has indicated that these sectors are ripe for future “maximum revenue collection”.

The group’s annual performance plan for 2024/25 identified these sectors as some of the new areas it could tax as it seeks more revenue.

It said it would develop strategies to “collect tax optimally” from “ever-growing” online transactions and e-commerce while also monitoring the “growing alternative-energy sub-sectors” to ensure enhanced compliance levels and maximum revenue collection.

4. Banks and tax practitioners

SARS is seeking to hold banks and tax practitioners liable for their clients’ dodgy practices, saying they have the responsibility to do more to prevent organised corruption and financial crimes and combat illicit capital flows and tax evasion.

Commissioner Edward Kieswetter said earlier this year that these financial groups and representatives tend to treat their clients’ behaviours as box-ticking exercises and do not deal with systemic risk issues.

“Banks would like to plead plausible deniability. It’s better for them not to know that someone is a crook because crooks are profitable clients,” he said.

Tax practitioners, meanwhile, are having their licences revoked if they do not manage their own tax affairs properly, followed by criminal proceedings.

5. High Net-worth Individuals

Another notable and well-documented target of the taxman is the rich. SARS set up a specific HWI unit to better deal with rich South Africans, which the service has characterised as having “complex” tax affairs.

The taxman has shown that it is not afraid to go after billionaires and will ‘weaponise’ its tax processes to bring the wealthy to heel.

HWIs are known for accruing their wealth through the navigation of complex, multi-layered investment structures, both locally and offshore. This results in these affluent individuals having to traverse intricate regulations and calculations to ensure compliance regularly.

However, SARS is counteracting this by employing advanced technology to streamline audits and bolster efficiency – including making “relevant material” requests on provisional tax filings, which is something that was historically associated with audits or verifications.

The HWI Unit takes it one step further, requesting not only detailed computations for return submitted, but also income and deduction forecasts for the next six months. This shows that SARS is casting its net as widely as possible while also turning to AI algorithms to bolster its activities – including the focus on future taxes.

The taxman successfully collected an additional R12.5 billion in taxes from this group last year.

6. Crypto traders

A more recent development is SARS coming after crypto traders and crypto-related assets (CA).

In South African tax law, crypto assets are considered financial instruments under the Income Tax Act. This means that any profits resulting from dealing in crypto assets may fall within the tax net and be subject to disclosure and possible liability towards SARS.

Historically, those trading in these assets have been reticent to declare any profits made from trades – and SARS wants to rectify this.

A common misconception amongst the crypto community is that a “taxable event” only occurs upon the disposal of a CA, which results in the realisation of “real world money,” aka a fiat currency profit/gain.

Any sale, exchange (CA for CA), or disposal of crypto assets is likely to be considered a taxable event.

Like selling a house, capital gains tax liability arises if the profits received from the sale of crypto assets exceed the initial cost and are at a lower rate of taxation than if the proceeds of the sale were deemed to be normal income.

If SARS views the profits from crypto dealings as income, they will be taxed at marginal rates applicable to individuals (up to 45%) or companies (27%).

7. SMMEs and Company Directors

SARS is currently pilot-testing its “SMME Compliance Programme,” reportedly at about 80% completion.

This programme has the goal of correcting non-compliant behaviour amongst SMMEs proactively.

Viewing SMMEs in isolation, their contributory portion to tax has surged to R466.8 billion, a notable 10% increase year-on-year – however, the sector still has high levels of non-compliance.

The taxman is also fighting non-compliance among company directors.

A new ‘drastic’ measure to force compliance is to hold individuals vicariously accountable for the financial management of their companies—as directors have a fiduciary duty to ensure that their companies comply with tax laws.

SARS is willing to issue summonses to directors to get the message across.

Under South African law, it is a criminal offence for company directors not to submit their corporate income tax returns and those pertaining to payroll taxes and VAT.

The Tax Administration Act means that directors who fail to ensure the timely submission of their companies’ returns will face major penalties, such as fines and, in some instances, imprisonment.

The criminal summonses issued by SARS indicate the beginning of legal proceedings that could lead to prosecution.

Read: Blocked from tax returns and threats of fines and jail time – SARS warns of new scam