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AI is coming for your taxes

SARS will be using artificial intelligence, machine learning and third-party data to identify wealthy tax evaders.

While a general wealth tax was not announced in the 2021 Budget, taxpayers need to brace for a more targeted approach to tax collection, says Chris Potgieter, managing director of Old Mutual Wealth Trust Company.

“The National Treasury will be investing an extra R3 billion to expand specialised audit and investigative skills at SARS, including modernising IT infrastructure and investing in artificial intelligence (AI) and data analytics,” he says. “This will allow SARS to cut through vast swathes of data to pinpoint errors, red flag problem areas and help tighten up compliance in general.”

According to the National Budget speech delivered by Finance Minister Tito Mboweni last week, complex tax structures of wealthy South Africans are set to come under scrutiny as tax avoidance is tackled more aggressively.

Potgieter’s advice to individuals is to get their tax affairs in order.

“While AI is not a new phenomenon, it has advanced rapidly over the last decade,” he says. “Although there are still many debates around AI’s pros and cons, its use in the fight against tax evasion instead of implementing a broad wealth tax is positive.”

A large proportion of the auditors’ time is spent collecting and analysing data.

“Treasury has realised it needs to be practical while improving its own capacity to target clear tax evasion cases, which are slipping through the cracks,” says Potgieter.

Generally, sectors such as Government, wholesale trade, and natural resources are least advanced in AI deployment.

“This move by SARS is a welcomed pre-emptive step to ensure fair and effective tax collection and an indicator of the structured, data-driven approach to tackling this issue.

“This investment will also allow for greater participation by SARS in global tax compliance initiatives that seek to clamp down on base erosion and profit shifting, among other tax avoidance techniques.”

Other governance failures at the institution are, meanwhile, being addressed. The Large Business Centre is being re-established, and operational policies related to VAT refunds, settlements and debt collection contracts are also being amended.

In another move to target improved revenue collection, Finance Minister Tito Mboweni mentioned that the Davis Tax Committee’s insights would also be leveraged. In line with these recommendations, SARS will focus on consolidating wealth data for taxpayers through third‐party information.

“SARS will now have more resources to do targeted lifestyle audits and to use alternative sources of information to look into discrepancies between spending and declared tax income,” says Potgieter.

“This may include using the national vehicle register (eNaTIS system) as well as property registers to assess wealth and then compare that to what an individual has disclosed and effectively this could be a potential trigger event for a full audit.

“As a whole, through the absence of significant tax hikes, adjustments to the public sector wage bill and a drop in the corporate tax rate, Budget 2021/22 supports economic recovery and provides a boost of confidence. Potgieter.

” Execution risk remains, especially with regards to the wage bill and SOE’s, but this budget will go some way to counter excessive pessimism about South Africa as we continue to rebuild the country post-2020.”

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