SARS is ramping up audits using AI and third-party data, often without prior warning, leading to steep penalties of up to 200% for unexplained income or non-compliance.

Jashwin Baijoo, Associate Director and Head of Strategic Engagement & Compliance at Tax Consulting SA, explained that SARS, with a R535.9 billion debt book, is looking for any means to expedite seamless collections.

To do this, SARS can leverage Artificial Intelligence and data-driven insights from third-party information, including processing taxpayer bank statements without prior warning or consent.

This empowers the revenue collector to fully capitalise on their legislative power to audit taxpayers based on “risk(s) detected”, typically going back 5 years.

“Imagine having historically filed all your tax returns on time, making good on your dues to SARS, only to wake up to a Notification of Audit and Request for Relevant Material,” Baijoo said.

“This has become the new normal for many South African taxpayers, be it individuals or companies.”

Baijoo explained that since the start of 2025, Tax Consulting SA has seen a significant spike in SARS Audits. In most cases, people miss SARS’s request for documents, so the audit is finalised without their input.

This usually leads to SARS making an adverse finding against the taxpayer. The taxman will then increase the tax paid on their gross income.

The adjustments often stem from an analysis of taxpayer bank accounts, and where a credit transaction is unexplainable, it is deemed to form part of income.

Additional taxes are then levied on this upward adjustment amount, for which the taxpayer is wholly liable.

Current technological advancements, including machine learning, now grant SARS access to taxpayer information from crypto trading/investing platforms. This allows the revenue authority to determine crypto taxes owed.

“It is noteworthy that to give effect to these adjustments, SARS must issue Additional Assessments, which in extreme cases of non-compliance, may impose ‘Understatement Penalties’ of up to 200% of the tax due,” Baijoo warned.

Delays will cost taxpayers

Baijoo explained that SARS has made significant progress in modernising its systems to detect fraud and enhance compliance.

It is also building its tax collection capacity and has a track record of in-depth Audits when any inkling of non-compliance is detected.

These data-driven insights inform SARS of all transactional records pertaining to specific taxpayers. Using AI, the human resourcing element is significantly reduced in “risk detection” and subsequent compliance-centric actions.

This collaborative approach enables SARS to gain access to a comprehensive dataset, facilitating more robust evaluations of taxpayers’ financial activities.

This results in risk detection and the subsequent issue of a “Notification of Audit and Request for Relevant Material.”

Taxpayers have a limited time to respond before Audit Findings and Finalisation are issued. Baijoo stressed that where taxpayers face a historic audit from SARS, it is imperative to ensure a timely response with all correct supporting documentation.

“We have seen in the market a number of ill-advised taxpayers seeking the correct counsel only after the fact and paying the price for it, such as when those Additional Assessments are issued post-Audit Finalisation.”

“The nail in the coffin is always the Understatement Penalties, capping at a bank-breaking 200% of the capital taxes due!”

He advised that, as a rule of thumb, all correspondence received from SARS should be holistically addressed by a strong multi-faceted tax, legal, and financial team.

“In instances of non-compliance with tax laws, legal professional privilege is a must, especially where SARS have suspicion of, or has already detected, ‘risk(s)’.”

“This will not only serve in safeguarding you against potential jail time but also allow for the correct legal stopper to be put in place, preventing SARS from implementing aggressive collection measures.”