As stakeholders await more information about the commission tasked with the inquiry into tax administration and governance at the South African Revenue Service (Sars), some tax practitioners have reported a marked increase in verification or audits.
Hendrik van Deventer, chief operating officer at Stellentrust, says requests for supporting documents to verify the information submitted in tax returns have increased substantially. They find that Sars requests supporting documents almost every time any deductions or credits are claimed.
There are definitely more such requests than in the past, he says.
Keith Engel, chief executive officer of the South African Institute of Tax Professionals (Sait), says there has been a flawed narrative that Sars has become a renegade agency desperate to get revenue under the leadership of commissioner Tom Moyane.
But the truth is that the industry has been watching a trend over the last five to ten years where Sars has become increasingly aggressive to collect additional revenue by using “procedural tactics”, he says.
A lot of their members say that while they used to get comebacks on about 5% to 10% of tax return submissions, the numbers have increased to around 50% to 80%, which are often followed by another process.
Engel says a lot of procedural steps are being added, thereby effectively pushing the burden heavily onto the taxpayer, also with regard to certain tax refunds.
Although more refunds are given more readily, some taxpayers have found that they immediately get a query and potential assessment saying they have to prove why they were entitled to a refund. If not, they had to pay the money back with interest.
“So they are using a burden of proof strategy to put a very heavy onus on taxpayers and so they make an assertion without proof. You have to prove you are innocent and that has been a revenue activation strategy that has been growing over the last five [to] ten years and now it’s becoming much more intense as their need for revenue becomes more desperate.”
Tax revenue is projected to fall almost R51 billion short of earlier estimates this year, the largest downward revision since the 2009 recession. National Treasury said on November 7 the inquiry into Sars would help to assess what factors were responsible for the under-collection of revenue by Sars and what steps the authority had to take to improve performance management systems. Sars argues that it has largely been incorrectly blamed for the downward revision.
Engel says tax practitioners find that they face an increasing compliance burden when interacting with Sars to defend taxpayers against what they perceive as unsubstantiated allegations, but because of Sars’ concern about corruption, tax practitioners may find themselves talking to a machine, instead of the auditor who made the tax assessment.
He says while the assessor might have reasonable grounds to be looking for information, the fact that there is no direct communication between the Sars official making the assertion and the party who has to respond, means that the taxpayer has to enter into a guessing game where they submit documents which may not be good enough.
“Sars has created a wall between the taxpayer and the assessor because they are afraid of corruption, but by doing that they’ve lost communication [with the taxpayer] and that is adding to the compliance burden and adding to the frustration and I think Sars recognises that,” he says.
Rupert Oberholster, tax practitioner at Pro-Accounting, says he has only seen a small increase in the number of verification or audits requests. These requests usually relate to significant increases in a taxpayer’s medical expenses from one year to the next or where the taxpayer claimed considerably more kilometres than in a prior period.
However, Sars has been stricter with these requests during the current tax season, and has asked for information it hasn’t previously requested – for example a sales invoice for a car in addition to a taxpayer’s logbook, he says.
Although the Tax Ombud recently found that Sars unduly delayed tax refunds in certain cases and recommended various remedial actions, Van Deventer says it doesn’t appear that the situation is improving.
In some instances, Sars has delayed the process by requesting supporting documents for VAT periods going back five to seven years. VAT registrations in particular have been a nightmare, he says.
Sars says the level of audits conducted is in the region of 21% across all Personal Income Tax (PIT) returns, which is in line with previous years.
“This refers to all Personal Income Tax returns, including credits, debits and nil returns. In respect of credit (refund) assessments we are currently stopping 15%.”
It did not provide specific details about verification requests.
Sars says it has noted media references alleging that it is auditing lower amounts.
“We are in the process of obtaining the merits of this case, as it is very difficult to provide a response without specific case details.”
In October, Sars said its risk mitigation measures have saved the fiscus R20 billion in fraudulent claims across all tax types in the current financial year and that it paid roughly R120 billion in refunds.
During his Medium-Term Budget Policy Statement, finance minister Malusi Gigaba said Treasury has noted a slippage in tax compliance.
Most individual taxpayers (non-provisional taxpayers) have until November 24 to submit their tax returns.