How AI and SARS Are Transforming the Tax Landscape

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How AI and SARS Are Transforming the Tax Landscape

• 23 January 2025
• Digital Tool
• Mark Silberman

In recent years, artificial intelligence (AI) and automation have revolutionised the management of tax compliance, with SARS (South African Revenue Service) leading the charge through innovative initiatives. From enhanced data collection and integration to the modernisation of tax systems, the tax environment is evolving rapidly. For tax practices, adapting to these changes is not just advisable—it is essential.

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SARS’s Data-Driven Revolution

SARS has expanded its focus on collecting and integrating critical data. Key areas of focus include:

• EMP501 Reconciliations: Comprehensive records of employee tax submissions, enabling SARS to gain detailed insights into payroll taxes, cross-reference company tax filings, and verify individual returns.
• IT3T Trust Distributions: Detailed reporting on trust distributions ensures accurate tax declarations for beneficiaries and trustees, while helping identify undeclared income.
• ITR14 Shareholder Disclosures: Capturing data on shareholders and beneficial ownership ensures companies meet reporting requirements and that individuals’ personal taxes align with their declared business interests.
• Beneficial Ownership Reporting: Enhancing corporate transparency helps combat tax evasion and money laundering activities.
• Data from International Sources: SARS is implementing systems to collect data from overseas accounts and transactions to ensure global compliance and uncover undisclosed income or assets.

By integrating these datasets, SARS is creating a comprehensive compliance ecosystem that enhances its ability to detect non-compliance, enforce tax laws, and reduce evasion. This interconnected approach leaves little room for errors or omissions, increasing the pressure on tax practices to ensure accuracy and transparency.

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SARS’s Use of Automation

Automation has become a cornerstone of SARS’s operations. Leveraging AI-powered tools, SARS is:

• Automating risk assessments to swiftly identify potential non-compliance and flag high-risk taxpayers for audits or investigations.
• Pre-populating tax returns using existing data, reducing manual input while requiring taxpayers to validate the pre-filled information.
• Streamlining taxpayer interactions through modern digital platforms like eFiling and the SARS MobiApp, improving efficiency and accessibility.
• Analysing large datasets to detect patterns of tax evasion, such as mismatched employer and employee declarations, unreported trust distributions, and discrepancies in VAT submissions.

Additionally, SARS is focusing on cryptocurrency obligations. Taxpayers are legally required to declare cryptocurrency transactions, and SARS is actively monitoring these activities to ensure compliance, with plans to expand its capabilities in this area.

These advancements are transforming SARS into a data-driven tax authority, making it imperative for tax practices to modernise their systems.

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What Tax Practices Must Do to Stay Ahead

To keep pace with SARS’s initiatives and maintain compliance, tax practices must take the following critical steps:

1. Build AI Systems Tailored to Tax Operations

AI systems are now indispensable for modern tax practices. These systems can:

• Automate repetitive tasks such as tax return preparation, data reconciliation, and error detection.
• Analyse compliance risks across client portfolios by identifying anomalies or potential non-compliance issues.
• Provide insights to help clients optimise their tax positions while staying compliant.
• Stay updated on regulatory changes via automated alerts and intelligent recommendations.

2. Connect All Companies and Trusts

Tax practices must unify all entities within their portfolios to ensure compliance. Integration allows firms to:

• Monitor compliance in real time, preventing entities from falling through the cracks.
• Detect inconsistencies, such as unreported income or discrepancies in ownership data.
• Provide clients with a comprehensive view of their tax status, helping them avoid penalties and reputational damage.
• Seamlessly manage IT3T uploads and ITR14 disclosures in line with SARS requirements.

3. Adopt a Risk-Based Approach

A risk-based approach to compliance involves:

• Identifying vulnerabilities, such as trusts, payroll, and VAT.
• Proactively addressing risks through regular audits and data verification checks.
• Documenting compliance measures to protect against financial and reputational damage in the event of an investigation.

4. Automate Processes Across the Board

Automation can greatly enhance efficiency and accuracy in all aspects of tax practice operations, allowing professionals to focus on high-value tasks like strategic planning and client advisory. Benefits of automation include:

• Faster turnaround times for submissions.
• Reduced human error in calculations and data handling.
• Improved tracking of deadlines and compliance requirements.

5. Stay Informed with AI-Powered Learning Tools

AI-powered tools can help tax professionals remain informed and skilled. These tools:

• Deliver real-time updates on regulatory changes and compliance requirements.
• Provide training resources to ensure team members are adept in emerging areas of tax law and technology.
• Enable efficient research into complex tax law queries, saving time and improving accuracy.

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The Importance of Unified Compliance

Managing companies and trusts in isolation is no longer viable. With SARS integrating data from EMP501, IT3T, ITR14, and beneficial ownership, tax practices must adopt equally interconnected systems. Failing to unify client data and monitor compliance holistically could result in penalties and reputational damage.

By connecting all entities, tax practices can:

• Identify and resolve compliance issues before they escalate.
• Provide clients with actionable insights into their tax obligations.
• Align with SARS’s interconnected compliance approach, minimising the risk of audits and penalties.

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Preparing for the Future

SARS is accelerating its modernisation efforts, and tax professionals must do the same. By implementing AI-driven systems, automating processes, and integrating data, tax practices can stay ahead of regulatory changes while delivering greater value to clients.

The future of tax compliance is here—are you ready?

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Final Thoughts

AI and automation are reshaping the tax landscape, with SARS setting the pace. Tax practices that embrace innovation, invest in advanced systems, and unify their data will thrive in this new era. As SARS continues to enhance its data collection and AI capabilities, the need for proactive, technology-driven compliance solutions has never been more critical.

By taking these steps, tax practices can remain relevant, competitive, and fully compliant in an ever-changing tax environment.

FAQs

1. How is SARS using AI to improve tax compliance in South Africa?

SARS is using artificial intelligence and machine learning to detect anomalies in tax returns, track undeclared income, match third-party data, and identify high-risk taxpayers. AI enhances SARS’s ability to perform smart audits and ensure accurate tax assessments.

2. What role does artificial intelligence play in modern tax administration?

AI enables tax authorities to process large volumes of data, predict non-compliance, automate return processing, and deliver faster, more accurate taxpayer services. It's transforming traditional tax systems into data-driven digital ecosystems.

3. Can AI help detect tax fraud and evasion in South Africa?

Yes. AI tools can analyse patterns of suspicious behaviour, flag inconsistencies in submissions, and uncover hidden income streams by cross-referencing data from banks, employers, and third parties—making it harder for taxpayers to hide fraud.

4. How does AI impact the way taxpayers interact with SARS?

AI is improving the user experience by powering SARS’s chatbots, automating responses, pre-populating tax returns, and offering real-time guidance. It makes taxpayer engagement more efficient, reducing wait times and human error.

5. Is AI replacing human tax auditors at SARS?

No, AI is not replacing auditors but enhancing their efficiency. AI handles data-heavy tasks, while human auditors focus on complex issues, decision-making, and enforcement. The combination improves both speed and accuracy in tax administration.

6. What are the benefits of AI for tax practitioners in South Africa?

AI helps tax professionals by:

• Automating repetitive tasks

• Improving accuracy in calculations

• Assisting with data analysis and forecasting

• Enhancing client service through faster response times

It allows practitioners to focus on strategic, high-value work.

7. Can AI in SARS make mistakes with tax assessments?

While AI greatly improves accuracy, errors can still occur if the underlying data is incorrect or misinterpreted. Taxpayers should still review assessments and consult a professional if discrepancies arise.

8. How can taxpayers prepare for SARS’s use of AI and digital tools?

Taxpayers should:

• Keep accurate digital records

• Ensure all income is fully disclosed

• Use eFiling and other SARS tools efficiently

• Stay informed about tax laws and AI developments

Being transparent and organised helps avoid compliance issues.

9. What is SARS’s long-term vision with AI integration?

SARS aims to become a smart, modern tax authority, using AI to increase compliance, efficiency, and service delivery. Its vision includes real-time risk detection, seamless taxpayer engagement, and minimal manual intervention.

10. Does the use of AI by SARS affect small business owners and freelancers?

Yes. AI enables SARS to better monitor self-employed individuals, freelancers, and small businesses by matching declared income with third-party data. This increases the expectation for accurate, transparent record-keeping across all taxpayer types.

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