Identifying how SARS gets access to financial information, and how to stay compliant.

CH Consulting |
19 June 2024

Ensuring compliance with tax laws is a critical responsibility for individuals and businesses in South Africa. The South African Revenue Service (SARS) has developed comprehensive methods to access and verify financial information to maintain the integrity of the tax system. This article explores how SARS gains access to financial data, the mechanisms used to detect tax evasion, and the best practices for staying compliant with tax obligations.

How Does SARS Gain Access to My Financial Information?

SARS has several ways to access information about your finances in order to ensure compliance with tax laws and regulations. Here are the primary methods SARS uses to obtain financial information: 

  • Tax Returns and Declarations: When you file your annual tax returns, you provide detailed information about your income, expenses, deductions, and credits. SARS uses this information to assess your tax liability.
  • Third-Party Data: SARS receives financial data from various third-party sources, including:

 

 

 

  • Banks and Financial Institutions: Banks are required to report information about interest earned, account balances, and other financial transactions.
  •      Employers: Employers report their employees’ income, benefits and PAYE (Pay As You Earn) withheld via the issuing of an IRP5 (Employee tax certificate).
  •      Investment Firms: Companies managing investments report dividends, capital gains, and other investment income.
  •      Other Government Agencies: SARS may receive information from other government departments like the Department of Home Affairs and the Companies and Intellectual Property Commission (CIPC).

 

 

 

  • Audits and Investigations: SARS conducts audits and investigations to verify the accuracy of tax returns and ensure compliance. This may involve reviewing bank statements, invoices, receipts, and other financial documents.
  • Information Sharing Agreements: SARS participates in international information sharing agreements, such as the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA). These agreements allow for the exchange of financial information between countries to combat tax evasion.
  • Online Data: SARS may use information available from online sources and social media to identify discrepancies or unreported income.
  • Voluntary Disclosure Program: Taxpayers can disclose previously undeclared income or correct errors in their tax filings voluntarily. This program encourages compliance and helps SARS gather accurate financial information.

How have people been caught before?

In South Africa, individuals and businesses attempting to evade taxes are caught through various mechanisms employed by SARS. Along with investigations into some of the methods mentioned above, here are some examples of how SARS identifies tax evasion:

  • Data Matching and Analysis: SARS uses advanced data analytics and artificial intelligence to cross-reference information from multiple sources. Discrepancies between declared income and financial data obtained from banks, employers, and other third parties can trigger audits.
  • Lifestyle Audits: SARS may conduct lifestyle audits to compare an individual’s declared income with their apparent lifestyle. Significant discrepancies, such as luxury purchases or properties not aligned with reported income, can lead to further investigation.
  • Whistleblowers: SARS encourages individuals to report suspected tax evasion. Whistleblowers can provide valuable information leading to investigations and audits. There are protections and potential rewards for whistleblowers who provide actionable information.
  • Social Media and Public Information: SARS monitors social media and other public sources for signs of unreported wealth or income. Public displays of wealth inconsistent with declared income can prompt further scrutiny.
  • Collaboration with Other Agencies: SARS works closely with other government agencies such as the South African Police Service (SAPS) and the Financial Intelligence Centre (FIC) to investigate and prosecute cases of tax evasion.
  • Technology and AI: The use of sophisticated technology and artificial intelligence helps SARS identify patterns and anomalies in financial data, making it easier to detect potential tax evasion.

Through these methods, SARS can effectively identify and prosecute individuals and businesses attempting to evade taxes, ensuring compliance with tax laws and maintaining the integrity of the tax system.

How Do I Remain Compliant?

Staying tax compliant in South Africa involves understanding your tax obligations, keeping accurate records, and timely filing and paying your taxes. Here are the best practices to ensure you remain tax compliant:

    • Register with SARS: Ensure you are registered with SARS and have a tax reference number.
    • Know Your Tax Responsibilities: Understand the different types of taxes applicable to you (e.g., income tax, VAT, PAYE, capital gains tax).
    • Maintain Proper Documentation: Keep all financial records, including receipts, invoices, bank statements, and contracts, for at least five years.
    • Track Income and Expenses: Regularly update records of all sources of income and business expenses.
    • Submit Tax Returns on Time: Be aware of the deadlines for filing your tax returns and ensure they are submitted on time.
    • Complete Returns Accurately: Ensure all information on your tax returns are accurate and complete. Errors can lead to penalties and audits.
    • Hire a Tax Professional: Consider hiring a certified tax consultant or accountant, especially if your tax situation is complex. As a result of their knowledge and experience they can provide expert advice and ensure compliance.
    • Regular Consultations: Have regular consultations with your tax advisor to stay updated on any changes in tax laws and regulations.
    • Stay Informed About Tax Laws: Stay informed about changes in tax laws and regulations that might affect you. SARS and other reputable financial news sources can provide updates.
    • Use the SARS eFiling System: Use the SARS eFiling system to file returns, make payments, and access various tax-related services online. This system simplifies compliance and provides a record of transactions.
    • Meet Payment Deadlines: Ensure that all taxes owed are paid by the due dates to avoid interest and penalties.
    • Set Up Reminders: Use reminders and alerts to keep track of important tax dates and deadlines.
    • Engage in Tax Planning: Engage in regular tax planning to optimize your tax position and ensure you are taking advantage of any deductions, credits, or exemptions legally available to you.
    • Respond to SARS Promptly: If you receive any communication from SARS, respond promptly and provide any requested information or documentation. Ignoring SARS can lead to further issues.

By following these best practices, you can ensure that you remain compliant with South Africa’s tax laws and avoid any penalties or legal issues related to non-compliance.

Takeaways

SARS employs a range of strategies to access and verify financial information, from requiring detailed tax returns to leveraging sophisticated data analysis and international agreements. Understanding these methods is essential for taxpayers to remain compliant and avoid penalties. By keeping accurate records, filing timely and accurate tax returns, and staying informed about tax laws, individuals and businesses can navigate their tax obligations effectively and maintain good standing with SARS.

You are welcome to book a call if you want us to consult on your specific circumstances or complete your calculation and return on your behalf.

You can also email us at info@chconsulting.co.za if you have any questions; or check out our Google Reviews to see what other customers have experienced when working with us.