Representatives from SAIPA recently attended a conference hosted by the University of Cape Town and the University of Amsterdam, highlighting the use of artificial intelligence (AI) in detecting tax fraud and the continuous development and upgrading of AI products.
It is anticipated that tax authorities worldwide will increasingly rely on software for their operations. Although SARS did not participate in this conference, it is expected that they will follow the path taken by their international counterparts. While SARS already utilises AI for auto-assessing taxpayers, it is important to note that the software industry consistently improves its products, giving rise to the saying “software engineers never sleep”.
The ongoing development of AI software will allow SARS not only to auto assess a larger number of taxpayers in the coming years, but to assess taxpayers more accurately as well, thereby reducing the risk of errors. It is currently not known whether there will be any significant changes to the auto assessments process in the 2023 tax-year.
Not so fast, SA emigrants
South African resident taxpayers earning foreign income should not assume they can permanently evade the attention of SARS or any other tax authority. Global third-party information exchange is an integral part of the international financial system, aiding in anti-money laundering efforts and detecting financing of terrorist activities. Tax authorities actively share information, emphasizing the need for compliance.
SARS receives information on foreign assets through automatic exchange of information systems with other tax authorities, facilitated by tax treaties. Taxpayers should be aware that SARS has a three-year period for auditing income tax and non-disclosure of income could remove prescription periods.
Taxpayers who believe that they are no longer considered South African taxpayers due to residing abroad should ensure that their actual tax circumstances align with the records in the SARS database. An individual taxpayer can only safely claim to be a non-resident of South Africa for tax purposes if he/she is in possession of a letter from SARS confirming the non-resident tax status. In future, South African tax residents living abroad and without this letter from SARS may also be subject to auto assessment by SARS.
SAIPA has playfully suggested that legitimate out-of-pocket medical expenses incurred by individual taxpayers may be included in future auto assessments.
Say goodbye to tax havens?
The days of transferring income to foreign low-tax jurisdictions (widely known as tax havens) may also be limited.
As tax authorities continue to exchange information and AI tools advance, there may be increased scrutiny on income located these tax jurisdictions as well. These tax authorities are already compelled to adhere to economic substance requirements, necessitating an active business presence, skilled staff, assets and local professional tax practitioners or professional accountants. These measures may create increased work opportunities for professional accountants and tax practitioners.
Taxpayers should anticipate more automatic assessment, accurate evaluations, and increased collaboration among tax authorities. Staying informed and ensuring compliance with tax regulations is vital in this evolving AI-driven domestic and international tax environment.
