Tax season: From AI to auto-assessment, here’s everything you need to know to win

Tax season doesn’t need to be a disaster. Several best practices have been put in place to help you get file your taxes seamlessly as possible.

Chi Chi Gule chats with Mahomed Kamdar, Tax Specialist, South African Institute of Professional Accountants (SAIPA), as he outlines the key steps one can incorporate to ensure deadlines are met, compliance is achieved, and key resources at your disposal to consider.

What are the do’s of individual filing to ensure a smooth tax filing experience?

Firstly, determine whether you, the taxpayer, earns income from sources other than a salary. Once the taxpayer earns income from sources other than being a salaried employee during the year of assessment, then the person is a provisional taxpayer. If the taxpayer was a provisional taxpayer in a prior tax-year, there is no guarantee that the same taxpayer will forever be a provisional taxpayer or vice versa. The taxpayer could have changed the nature of their transactions recently thereby terminating their provisional tax status. If the status of the taxpayer has changed then the timeframe for the submission of tax return also changes. This could result in late submission of tax returns and consequently, administrative non-compliance penalties can be invoked, if the timeframe for the submission of tax returns adhered to is for provisional taxpayers although the provisional tax status of the taxpayer has ended.

Secondly, you must have all supporting documents which provide evidence for the information submitted in the tax return before submitting a tax return electronically. In this way, you will not `panic’ when audited by SARS because all documentary evidence is already available in a format which can be easily forwarded to SARS.  As far as possible, avoid searching for documentary evidence on the eve of a SARS audit. Doing this would remove stress for both the taxpayer and tax practitioner.

Finally, confirm that your bank details, IRP5 statements, cell numbers and email addresses are correct. If you find that your tax refunds have been transferred to your `old’ accounts, SARS will not be responsible for the incorrect destination of tax refund. SARS could also impose administrative non-compliance penalties if the taxpayer fails to disclose their correct personal contactable details.

What are the don’ts of individual filing to ensure a smooth tax filing experience?

Don’t hide non-salaried income from SARS even if you are auto assessed.  Although the income could be exempt or falls below the threshold, it must be included in the gross income of the individual. It is possible that a taxpayer is auto assessed and SARS is not aware other income stream. Under these circumstances, the taxpayer should amend the assessment and not `accept ‘the results of the auto assessment.  The result of auto assessment can be reversed in the future should SARS uncover the additional income stream. Under these circumstances, SARS could impose the vicious understatement penalty.

Definitely do not delay on your submission of tax returns because of inconveniences like load shedding, unless there is a valid reason which SARS will accept. Retain documents and other forms of evidence to support the reason for late submission. SARS holds the view that taxpayers have an advanced knowledge of when load shedding will occur, and taxpayers should work around these load shedding schedules to submit tax returns.

Thirdly, taxpayers should not hide their capital gains after selling their fixed immovable primary residence or their holiday homes.  This is especially important for the completion of provisional tax.

Mahomed Kamdar, Tax Specialist, South African Institute of Professional Accountants (SAIPA)

What are some of the new and improved ways SARS is tightening up on compliance?

SARS has embarked on a digital transformation journey, introducing new digital initiatives and innovations to support tax compliance. SARS has moved away from a solo approach to tax administration, that is, placing reliance on the information provided by taxpayers with accompanying supporting documents. Tax has become more integrated with the provisions of other services and is no longer viewed as a stand-alone activity. In other words, tax collection has become less reliant on voluntary compliance. SARS is using technology tools to perform 3rd party verification, such as medical aid contribution, bank interest, property, and vehicle registration. The chance of being caught out increases exponentially.

How is improved technology, the use of data, artificial intelligence and algorithms enabling SARS to boost compliance with tax obligations?

Artificial intelligence has enabled SARS to significantly expand its scope of detecting tax fraud, beyond data obtained through declarations. SARS implemented several machine learning models that leverage multiple asset and income stream data sources to detect non-, as well as under-declaration of tax liability. In the case of tax, AI is used to determine trends, taxpayer behavior and other information that impact tax returns or the calculation of taxable system. In the era of smart machines, the advancement in technology has improved the ability of SARS to detect irregular or suspicious trends in tax returns.

Technology tools will also improve the efficiency and speed with which SARS will be able to assess taxpayers. Auto assessment is a permanent feature of our tax system; it will improve in future through the development of AI-powered tools and will increase the mode of revenue collection. Linked to this is the creation of a robust connective tax network, whereby SARS can access information like personal details from 3rd parties. This information serves as part of a “Big Data” network.

In the future, sales, and purchases by companies and sole proprietors could be recorded in a centralised information platform for authorised users to extract and utilise. Given the state of technological development, SARS could well `auto’ assess VAT 201 on behalf of vendors. This will take indirect taxes to a new height, where the assessments can be done in real time based on the recording of the transaction in an inter-connected digital platform and environment. This is possible for retail outlets using cash registers which could be linked to a central database from which SARS obtains information.

Additionally, SARS is not only upgrading its internal processes. It is now capable of seamlessly sharing data with authorities around the world to discover foreign caches of undeclared income. It is important to note that the sharing of tax information locally or globally does not violate the provisions of the Protection of Personal Information (POPI) Act 4 of 2013. The provisions of POPI simply do not apply to the collection of tax revenues.  Taxpayers are legally obliged to disclose information required to complete a tax return.

How do auto-assessments work? What are the next steps to take if you are unhappy with your auto assessment?

Auto assessments begin with data collection. SARS receives data from employers, medical schemes, banks, retirement annuity funds, and other institutions.  Legislation requires service providers to provide data which SARS can access for verification. This data is used to assess whether there is a refund due to the taxpayer or whether an amount must be paid to SARS. If SARS is satisfied that the data and tax calculation is correct, then SARS will issue an assessment to the individual taxpayer via eFiling or the SARS MobiApp. At the same time, SARS will also send the individual taxpayer a message via the taxpayer’s preferred channel of communication (like SMS or email) to let the taxpayer know that assessment is ready for the taxpayer or their tax practitioner to view. From Friday 30 June 2023, SARS will communicate directly with selected taxpayers via SMS notifying taxpayers of their auto-assessments.

In 2023, taxpayers who are eligible for auto assessment will also receive a letter from SARS confirming that they fall within the auto assessment scope during the 2023 tax filing system. This is a new development when compared with the 2022 tax filing system. Taxpayers will know in advance that they are candidates for auto assessment. The issuing of letters by SARS provides taxpayers with an early opportunity to examine if they were incorrectly subjected to auto assessment.

SARS will issue auto assessment letters from 1 July 2023, even though the 2023 filing season will only begin on 7 July. The early release of auto assessment letters provides taxpayers with two key benefits, namely: increased time to review the auto assessment and determine whether they are correctly subjected to auto assessment, and secondly enhanced accuracy, as a thorough examination of the assessment outcome ensures that any potential errors or discrepancies can be identified and addressed in a timely manner.

If a taxpayer is not pleased with the outcome of their auto assessment, SARS will be allowing individual taxpayers until 23 October 2023 to file an amended return which is also the deadline to submit tax returns by non-provisional taxpayers who have not been auto assessed. If a taxpayer agrees with their auto assessment, and a refund is due, then there is nothing more for them to do – simply wait for the refund, which you can expect within 72 hours. If you owe SARS, then you must make a payment either via eFiling, SARS MobiApp or via EFT on or before the payment due date (30 days after statement date).

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