We have seen a significant increase in South African Revenue Service’s (SARS’) performance of audits as provided for in the Tax Administration Act of 2011 and other tax legislation. According to the 2013/2014 SARS Annual Report, SARS conducted in excess of 1.8 million audits, which represented a 14% increase on their 2012/2013 financial year.
A process of modernisation of the VAT system that was launched in 2011, also incorporated strong verification and audit measures. The first phase of the re-engineering of the system yielded significant results and VAT claims were revised and substantially lowered. The new process has established a platform for SARS to grow its VAT audit capability in the future. With the wider use by SARS of Digital Checks, they have also now introduced cross checking of information available to them through the increased information available in your Annual Tax Return, their automated requests for supplementary information and on other departmental data bases. This has allowed SARS to easily identify inconsistencies in information, attach higher risk ratings to Taxpayers and raise additional assessments.
There are a number of methods that SARS uses when identifying taxpayers for audits including:
- Random selection of taxpayers. All registered taxpayers stand an equal chance of being audited by SARS and cases for further investigation are identified on a purely arbitrary manner.
- SARS interdepartmental referral. Different departments within the ranks of SARS share information and flag a taxpayer for an audit depending on possible non-compliance risks identified.
- Referral by the general public. SARS has a fraud hotline in place where the general public can alert SARS of possible fraud and non-compliance by taxpayers.
- Discretionary selection. Certain high risk industries may be selected by SARS from time-to-time for purposes of conducting audits on all taxpayers involved in those industries.
- Computer generated selection. By utilising information captured on e-Filing, SARS’s computer system is programmed to identify taxpayers for audits by looking at specific criteria and tendencies in information provided.
- Refund Audits: When the refund exceeds certain pre-determined parameters, the taxpayer is flagged for an audit to ensure that fraudulent and fictitious refunds are not claimed.
Our solution is to proactively perform the checks and balances that will be performed by SARS’s systems before you submit your tax return. This will reduce the subsequent time you will need to spend providing SARS with correct and relevant documentation in the case of an audit. It will also alert you to any potential red flags that may trigger the audit.
We call this process the “Proactive IT14SD Reconciliation” and we urge you to let us help you with this critical check, preferably at your financial year end prior to the submission of your final VAT and PAYE returns for the year or failing that when we prepare your Annual Financial Statements. The cost for us to perform this business-critical procedure pales in comparison to the costs that could be levied by SARS in the form of interest and penalties, if discrepancies are identified during their audit processes. Furthermore the cost of engaging us or other professionals to extract this information and attending to the correspondence with SARS, is well in excess of more than double the cost of us doing it in advance of the submission of the final tax return.
Please confirm with us whether you would like us to plan the completion of your “Proactive IT14SD Reconciliation” at your year-end or as part of our year end AFS compilation procedures.