Tax compliance is a cornerstone of any business operation, and recent actions by the South African Revenue Service (SARS) underline its increasing focus on transparency and accuracy in revenue declarations. Understanding these developments is crucial for maintaining income tax compliance.
The New Reality: Revenue Declarations Under Scrutiny
SARS has stepped up its efforts to identify discrepancies between declared revenue on income tax returns and actual bank deposits. When SARS identifies a mismatch, taxpayers are being required to explain why their declared revenue does not align with the detected deposits. Unsatisfactory explanations can lead to estimated or additional assessments and penalties.
The process compares what a taxpayer declared as revenue in their tax return to the amounts deposited into their bank accounts. For example, if a taxpayer declared revenue of R1 million, but deposits indicate R10 million, SARS will question the discrepancy and may raise an additional assessment for the “undeclared revenue.”
Enhanced Capacity and Data Utilization
SARS’s ability to flag discrepancies has been significantly improved by access to third-party data from banks and financial institutions since 2012. Recent enhancements in SARS’s capacity and systems through the adoption of AI to process this data, allow for more efficient verification of declared information against actual deposits.
We have seen an increased audit focus on individual taxpayers, particularly targeting discrepancies exceeding R500,000. These audits reveal massive variances that justify SARS’s pursuit of undeclared revenue cases. SARS continuously seeks new methods to obtain a comprehensive view of taxpayers’ affairs, including bank account movements, worldwide income, and assets both within and outside South Africa.
The Burden of Proof
The onus is on taxpayers to reconcile and explain discrepancies on a line-by-line basis, often with supporting evidence. This rigorous process can take weeks and involve significant resources. If taxpayers fail to provide satisfactory explanations, SARS may proceed with additional assessments.
Those who do not respond or provide inadequate reasons for unexplained deposits, risk facing revised assessments. The revised assessments can be challenged through formal dispute mechanisms, but these procedures are often time-consuming and costly.
Non-Compliance and Consequences
Instances of non-compliance are not uncommon. Taxpayers must appreciate that they are ultimately responsible for the accuracy of their tax returns. Filing an incomplete or incorrect return is a criminal offense, and once alerted to discrepancies, taxpayers must engage with SARS promptly.
This latest compliance drive appears to be focusing mainly on individual taxpayers. The broader effects of this drive will likely become more apparent in the coming months. The key takeaway is the importance of vigilance and transparency in including all income in your tax return to avoid additional assessments, penalties, and interest.
Navigating Estimated Assessments
Taxpayers should be particularly cautious about receiving estimated assessments. Unlike original or additional assessments, estimated assessments cannot be objected to without first submitting the relevant information. In legal terms, taxpayers cannot request reasons for the assessment or ask for payment suspension pending a challenge against overstated assessments.
Understanding the nuances between different types of assessments is critical. If a taxpayer receives an estimated assessment, they must provide the required information before they can formally object.
Practical Advice for MMS Group clients:
Conduct Regular Reviews
Continuously review and reconcile the information declared on tax returns with actual bank deposits to ensure accuracy.
Engage Promptly
If alerted by SARS to discrepancies, respond immediately and provide clear, detailed explanations with supporting evidence.
Educate Stakeholders
Ensure that decision-makers within your organization understand the importance of accurate revenue declarations and the potential consequences of non-compliance.
Prepare for Audits
Be ready for potential audits by maintaining organized, detailed records and having a clear process for addressing any discrepancies that may arise.
Stay Informed
Keep up-to-date with the latest developments shared by our team to proactively manage risks.
Conclusion
SARS’s enhanced scrutiny of revenue declarations underscores the need for meticulous compliance practices. By understanding and adapting to these changes, clients will navigate the complexities of modern tax regulation effectively.
For any further inquiries or assistance, don’t hesitate to reach out to our team. Stay compliant, and ensure your financial declarations are as transparent and accurate as possible.