SARS uncovers non-compliance through data-driven risk detection

The South African Revenue Service (SARS) announced in December 2021 that it was having “early success” in expanding the use of data from domestic and international sources to improve the integrity of outcomes and enhance its capability to detect instances of non-compliance.

Having collected over ZAR172 billion revenue from compliance efforts in 2020, has collected ZAR115 billion from compliance activities so far in 2021, of which one-third was from the automatic risk profiling of taxpayers using data and machine learning. Criminal Investigations had yielded more than 70 convictions in 2021.

Of the previously reported 26,000 individuals with economic activity and/or assets exceeding ZAR1 million, almost 1,000 had been identified as being involved in money laundering and other serious crimes.

Of the initial batch of 275 individuals with assets abroad detected using the Automatic Exchange of Information (AEOI) progamme, the first 50 individuals had been selected for further scrutiny in relation to assets in tax havens, with more to follow. SARS was working with the IRS in the US, utilising the Foreign Account Tax Compliance Act (FATCA), which has assisted in connecting a number of South Africans with links to the ‘Pandora Papers’ disclosures, and investments into a number of states.

On the government procurement of PPE, SARS analysis of the Central Supplier Database (CSD) had highlighted large numbers of vendors who supplied services to government but were not tax complaint. Specifically, it identified some 1,900 entities, each earning more than ZAR1 million between March 2020 and May 2021 from government contracts, totalling ZAR6.3 billion that were not registered as VAT vendors. A further 2,380 VAT-registered vendors had filed nil returns, despite having earned collectively over ZAR9 billion from government contracts.

The work of regularising the affairs of these taxpayers was underway. An initial ZAR220 million additional assessments had been raised, almost ZAR75 million in fraudulent refunds prevented and debt collection efforts were in progess. In each instance, SARS would consider whether criminal prosecutions were applicable.

Using whistle-blower reports as well as third-party data sources, SARS recently deployed over 90 employees to execute one of the largest search and seizure operations. This operation had identified 11 entities at four different sites and 27 taxpayers for potential fraudulent disclosures in respect of a number of years. All assets had been preserved whilst the investigations proceed.

Examples of domestic third-party sources included banks, retirement funds, medical insurance providers, the properties deeds office, the companies register, the national register of motor vehicles, the National Treasury central supplier data base, as well as the national population register.

International data sources included the automatic exchange of information on South Africans with offshore financial assets from about 100 foreign jurisdictions, as well as several mutual administrative agreements with other revenue organisations.

“Our vision to build a smart modern SARS with unquestionable integrity is beginning to bear fruit,” said SARS Commissioner Edward Kieswetter. “We still have a long way to go but are encouraged that our strategic approach is beginning to show early impact … SARS remains committed to build on its capability to enforce the law and pursue those who wilfully or criminally seek to break it.

SARS said that taxpayers who are non-compliant should engage with SARS, via the voluntary disclosure programme (VDP) to determine if their disclosure would qualify for the relief provided in the VDP. Where disclosure does not qualify for the relief, it strongly recommended that taxpayers should seek to regularise their tax affairs via the various mechanisms that are currently available. The VDP programme had processed more than 1,000 applications that has resulted in ZAR2.5 billion in revenue so far in 2021.