Here’s a question worth considering:
How much does SARS already know about your financial affairs before you open your tax return?
The answer is: quite a lot.
Your employer has submitted your IRP5. Your bank has reported interest and investment information. Your medical scheme has supplied relevant details. Retirement funds and other financial institutions are increasingly feeding information directly into the SARS system.
That is why much of your tax return may already be pre-populated.
We have moved from telling SARS what happened to increasingly checking what SARS already knows.
From eFiling to Artificial Intelligence
eFiling began the transformation of tax administration, but the biggest changes have happened behind the scenes.
SARS has become increasingly data-driven. Automation, data analytics and artificial intelligence allow it to compare large amounts of information from different sources.
If the interest you declare does not match the information supplied by your bank, the discrepancy can be flagged.
This is good news for compliant taxpayers. Returns can be processed more quickly, refunds may be paid sooner and there is less paperwork.
However, as SARS becomes better connected, it becomes increasingly difficult for income and transactions to remain invisible.
VAT Is Moving in the Same Direction
This is particularly important for business owners.
SARS has outlined plans to modernise the VAT system, including electronic invoicing and electronic reporting.
Imagine Business A sells goods or services to Business B. Business A declares output VAT, while Business B claims the corresponding input VAT.
In a more connected digital environment, SARS could increasingly match both sides of that transaction.
This could make fraudulent invoices and improper VAT claims easier to identify. For legitimate businesses, however, it could eventually mean less administration and more substantially pre-populated VAT returns.
We have already seen this development with personal income tax. VAT could be heading in the same direction.
What Should Taxpayers Do?
There are three important lessons.
First, check rather than simply accept.
A pre-populated return is not necessarily correct. Check your IRP5, bank interest, medical information, investments and deductions before accepting an assessment.
Second, businesses need accurate digital records.
If SARS moves towards electronic invoicing and more real-time reporting, businesses that rely heavily on manual records and paperwork may increasingly fall behind.
Third, do not assume SARS is unaware of something simply because you have not declared it.
Financial information is increasingly being linked across systems.
SARS describes its longer-term ambition with a simple phrase:
“Tax just happens.”
We are not there yet, but the direction is clear. Paper returns became eFiling, followed by pre-populated returns and auto-assessments. Now the focus is shifting towards electronic invoices, digital VAT and greater sharing of transaction data.
For compliant taxpayers, this should mean simpler, faster and more efficient tax administration.
But the message is clear:
The SARS of tomorrow will increasingly rely on information it has already received.
SARS may increasingly know the answer before it asks the question.