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BUDGET 2021: SARS gets financial injection

Last Updated Mar 2021

Johannesburg, 26 February 2021 – In the 2021 Budget Speech, the Minister of Finance, Tito Mboweni, allocated an additional R3 billion to the South African Revenue Service (SARS) to improve technology, data and machine learning capability and upskill SARS officials to improve the efficiency and effectiveness of SARS, writes Marelize Loftie-Eaton, the Chairperson of the SAICA Tax Administration Act and Tax Technology Committees.

In the last two years, SARS re-established an Illicit Economy Unit (Unit) that investigates complex illicit fund flow crimes and other corruption cases, including, but not limited to State Capture, the illicit tobacco industry, PPE tender fraud and the fraud in relation to COVID-19 grants. This Unit, which joined forces with the Hawks, FIC, NPA and SARB to ensure that there is full disclosure of all information obtained by the different regulators and agencies, has raised considerable assessments and obtained many preservation orders. This collaborative approach will de-risk the criminal networks and have the desired outcome for all these organisations and for the wider taxpayer base in South Africa. In the past, these regulators and agencies worked in silos to meet their own objectives. The current objective is to stop corruption in the public and private sector to ensure a stronger economy and repay the massive state debt. With the success and effectiveness of this unit, it will be surprising if SARS does not add specialised resources to curb the illicit flows and corruption.

It is a step in the right direction that SARS will establish another specialised audit unit that will deal with investigations into the tax affairs of high net worth individuals that sail close to the wind with highly complex financial structures to reduce their tax liabilities. SARS has already identified a batch of taxpayers that will receive communications as early as April 2021 and, as suggested by Judge Dennis Davis, these communications will most probably lead to in-depth lifestyle audits. SARS will in all likelihood reap even greater financial benefits if it stops harassing the elderly taxpayers with providing proof of medical aid slips, querying the format of a travel logbook or similar audits that is time consuming and adds pennies to the coffers. It is time that SARS focuses on the big guns and industries where there is a high level of white-collar crime and not on tax-compliant companies and individuals that are regularly audited despite getting clean audits every year.

The Minister indicated that SARS will expand specialised audit and investigation skills. This can be interpreted that they will employ more skilled auditors; however, it can mean that SARS will train existing staff. Training is one of the areas that has been neglected for years. It is clear from some assessments and the reasons for disallowing an objection that the assessor or auditor has not considered all the facts, has limited knowledge of the legislation or uses a sense of humour argument to raise an unfounded liability against a taxpayer that has no means to follow the dispute resolution processes.

The focus on the abuse of transfer pricing, tax base erosion and tax crime will be intensified, and this will come at an increased cost. With the international sharing of information under the Common Reporting Standards of the OECD and the Country by Country reporting, SARS is in an excellent position to identify the taxpayers that under-declare income or erode the tax base.

All of the reasons the Minister provided to justify the R3 billion boost will yield positive results for SARS and the economy of South Africa; however, it is imperative that SARS improves its debt collection processes and upskill collectors as the increase in assessments raised can also result in more tax debts when taxpayers revolt against paying taxes. It is therefore important that SARS improve the integrity of their data and follow due processes when it collects outstanding debt. In the last couple of months SARS lost numerous cases where due process was not followed in the collection process. Debt is a constant in any business, therefore it is vital to have a robust debt collection process and follow all legal steps to recover amounts owing.

Tax compliance and the payment of taxes is still the responsibility of each taxpayer in South Africa and compliance will increase if there is an improvement in the quality of assessments raised, clarity is provided, and the SARS system constraints are resolved. With improved technology and skilled resources SARS can become the excellent revenue authority it was and the R3 billion will assist the organisation to meet its goals.

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