The South African Revenue Service (SARS) has recently intensified its focus on high wealth individuals (HWIs), demanding more detailed documentation and greater transparency. With SARS’ adoption of advanced technologies and AI-driven audits, it’s crucial for business owners to understand this new landscape and the increased importance of income tax compliance. We discuss the recent developments and what they mean for provisional taxpayers.
The New Landscape for High Wealth Individuals
HWIs are known for accruing wealth through complex, multi-layered investment structures both locally and offshore. These individuals navigate intricate regulations and calculations to remain compliant. However, SARS has recently ramped up its efforts to scrutinize these taxpayers more closely, leveraging advanced technology to streamline audits and enhance efficiency.
Detailed Requests for Documentation
Provisional taxpayers, especially those registered as HWIs, now face detailed requests for documentation, including income and deduction forecasts for the next six months. Historically, such detailed requests were associated with audits or verifications. But now, the HWI Unit is asking for relevant material on provisional tax filings and going a step further by requesting detailed computations for returns submitted.
SARS’s Legal Authority and Use of AI
This may seem like SARS expects taxpayers to predict the future, but it’s simply using its legal powers per Section 46 of the Tax Administration Act, read together with Paragraph 19(3) of the Fourth Schedule to the Income Tax Act. To maximize the effectiveness of the discretion afforded to the commissioner of SARS, the tax authority has turned to artificial intelligence (AI).
By leveraging cutting-edge AI algorithms over raw manpower, SARS aims to cast its collection net as wide as possible – even including future taxes. This AI capacity-bolstering technique has already been seen across SARS’s historic audit processes, maintaining thoroughness and accuracy while deriving data-driven insights almost instantaneously.
Data-Driven Insights and Increased Scrutiny
The use of AI means that SARS no longer needs a ‘fine-tooth comb’ to extrapolate transactional information and turn it into strong legal cases for non-compliance. This collaborative approach enables SARS to gain access to a comprehensive dataset, facilitating more robust evaluations of taxpayers’ financial activities.
New Compliance Measures at SARS
Starting a compliance initiative with the end in mind is something SARS is known for, and by ensuring full disclosure of all interests, both local and foreign, gauging whether a taxpayer is living beyond their means becomes much less onerous. For HWIs managing intricate financial portfolios, these developments signal a need for heightened diligence in tax record-keeping and reporting.
Wealth-Seeking Missiles Launched
HWIs can anticipate heightened verification protocols from SARS. Recently, individual tax payers have reported receiving letters requesting detailed information regarding their provisional taxes, citing specific legislative provisions. This meticulous scrutiny aligns with the Approval International Transfer (AIT) process imposed as of April 2023, which applies to outbound fund movements and usually involves large sums of money.
The introduction of the AIT process is not to be taken lightly. Where taxpayers are not forthcoming, SARS most likely already knows what you think you’re hiding. This aligns perfectly with a smarter, modernized SARS, with access to third-party data already having been effective in instances such as that of Airbnb Ireland last year.
Navigating the Next Six Months
As filing season approaches, HWIs are bracing for a period of increased strain. With SARS’s enhanced audit capabilities and a sharper focus on verification, ensuring compliance has never been more critical. The next six months are poised to test HWIs’ ability to navigate evolving tax regulations and demonstrate meticulous record-keeping.
Closing thoughts
The most prudent approach is to heed SARS’s warning that non-compliance will be both hard and costly for taxpayers. Where taxpayers find themselves in potentially precarious positions of now disclosing previously undeclared interests or foreign income, the best practice is to seek advice from the tax professionals at the MMS Group.
Reach out to our team either through your MMS contact, or via our website.