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The Influence of Sars Auto Assessments on Digital Transformation

At SAIPA’s 2023 Accounting iNdaba, industry leaders explored the impact of digital transformation on tax returns in South Africa, particularly with the introduction of auto assessments by the South African Revenue Service (SARS). Panelists unpack the importance of collaboration between industry stakeholders and SARS for a smooth transition, noting the critical role of data integrity and proactive engagement for the success of the ongoing transformation journey led by SARS.

The humble tax return is undergoing a profound transformation, propelled by the relentless progress of technology. In the midst of this paradigm shift, the South African Revenue Service (SARS) has implemented auto assessments, raising questions about the redistribution of risk between tax authorities, taxpayers, and tax practitioners. At the SAIPA 2023 Accounting iNdaba, a panel of our industry’s leaders convened to share their perspectives and shed light on the implications, challenges, and opportunities accompanying the era of digital transformation, now expedited by the launch of auto assessments.

Shifting the Burden or Enhancing Efficiency?

Ettiene Retief, Chairman: SAIPA Centre of Tax Excellence, sees the transfer of risk by SARS not as a burden shift but as an enhancement in administrative efficiency. He emphasises that the responsibility for filing, disclosing, and ensuring accuracy has always resided with the taxpayer.

“SARS, by leveraging available tools and data, aims to improve its efficiency in pinpointing issues and non-compliance. While there may be a perceived shift in risk, the fundamental responsibility for tax affairs and proper disclosure has consistently rested with taxpayers themselves.”

Leana van der Merwe: Technical and Standards Executive adds nuance to this perspective, stating, “Despite undergoing auto assessment, I still have a tax practitioner who reached out and suggested a thorough examination of the assessment.

“This dual involvement highlights the growing role of tax practitioners in the digital age, extending now beyond traditional compliance tasks.”

Evolution of Processes and the Critical Role of Data

Retief traces the evolution of processes, emphasising the transformative impact of eFiling and similar technologies. He highlights the central role of data, stating that it stands at the core of this transformation, poised to become the most fundamental aspect for both practitioners and tax-related processes. “I’m aware that opinions on auto assessments vary, with some embracing it and others expressing reservations.”

“However, a key takeaway from auto assessment is the observable shift in the number of returns being filed without the need for proactive pursuit of the taxpayer.”

Retief states.

Evolution of Processes and the Critical Role of Data

Retief traces the evolution of processes, emphasising the transformative impact of eFiling and similar technologies. He highlights the central role of data, stating that it stands at the core of this transformation, poised to become the most fundamental aspect for both practitioners and tax-related processes. “I’m aware that opinions on auto assessments vary, with some embracing it and others expressing reservations.”

Mark Kingon, Stakeholder Relations at SARS, provides historical context to the concept of auto assessment, dating back to 2008, and notes that the value practitioners bring extends far beyond the scope covered by auto assessment. “SARS cannot afford to have long queues extending around blocks, necessitating manual filling of forms. The goal, through digital transformation, is to alter this behaviour so that people no longer have to spend a day waiting in queues to submit a return when it can be seamlessly provided,” Kingon states.

Addressing Risks and Abuses in the Realm of Donations

Retief and Kingon then tackled specific challenges relating to Section 18A deductions, addressing risks and abuse in the realm of donations. “While autoassessment aids in reducing volumes, it’s essential to acknowledge that mistakes can happen,” Kingon illustrates with a personal example in which his son received a refund without filing actively, while his own auto-assessed form was incorrect due to the absence of sec 18A supporting documentation. “However, these issues are part of an ongoing journey,” he points out, “Using my experience as an example, I anticipate that next year, with the incorporation of sec 18A data, such errors will be rectified.”

“It is a progressive journey, and it is important not to view it negatively, but rather as an opportunity to provide greater value to clients.”

On the subject of sec 18A, this is an area where there is the risk of abuse. “The shift involves acquiring data through certificates, allowing for pre-population into the return, as opposed to the traditional approach of post-validation that corrects discrepancies afterward. However, this places the responsibility on compliant nonprofits, which will become an integral part of the business process for 18A organisations seeking donations, and accordingly the cost of compliance, which is an unavoidable aspect in any case,” Kingon explains.

Automation for Compliance and Increased Customer Base

Khanyisa Cingo-Ngandu, Head of Tax at SNG Grant Thornton, advocates for embracing automation for the benefit of compliant taxpayers. She sees automation as not only simplifying compliance for willing taxpayers but also enabling revenue authorities to target those who are reluctant to comply.

Cingo-Ngandu observes the positive impact on tax practitioners, creating opportunities to assist clients seeking to utilise Voluntary Disclosure Program (VDP) processes. “This trend is evident in countries like Kenya, as highlighted in recent reports by ATF and the OECD, where automatic information sharing resulted in a significant uptick in VDPs. Knowing that the revenue authority has access to your information prompts individuals to seek the assistance of tax practitioners, and this is positive news for every practice,” she clarifies. 

Adapting to Changes: Challenges and Opportunities

Hein Pretorius, a Professional Accountant, identifies a challenge for older practitioners in adapting to new technology, indicating a likely need to force this change to ensure a smooth transition.

Firdoze Abdool Sattar, Associate Director at Deloitte Africa Tax and Legal, sees a broader challenge in the mindset shift and ensuring that companies have the necessary budget for evolving tax functions, which will require the integral role of tax in organisational transformation to be redefined.

“The challenge lies in persuading large organisations to recognise that the responsibility for tax compliance is a collective responsibility of the entire organisation.”

“Integrating tax considerations into the broader transformation will be essential, particularly when implementing new SAP or Oracle systems. Neglecting tax in these technological shifts will lead to noncompliance issues, especially with the increasing emphasis on real-time reporting,” Abdool Sattar notes.

Data Integrity: The Linchpin of Digital Transformation

Jashwin Baijoo, Head of Strategic Engagement & Compliance at Tax Consulting SA, speaks to the dual challenge practitioners face – integrating into systems and balancing clients. He mentions the importance of upskilling in technology and collaborating with SARS through tools like tax checks and compliance bots, while bringing to light the potential threat of budget cuts and the delicate balance practitioners must strike in navigating a rapidly evolving technological landscape within budget constraints.

Kingon returns to the critical aspect of data integrity, addressing challenges with deregistered and liquidated companies and calls attention to ongoing efforts to refine data sets for proactive compliance measures. He acknowledges recent challenges with SMS notifications and outlines initiatives for VAT modernisation, including securing monthly IT3B data from financial institutions. 

The Challenge of Industry-Wide Transformation

The discussion shifts to the challenge of data management within various industries, while exposing the complexity in transforming existing setups to accommodate shifts in tax considerations. The panel agrees that there is a need for a standardised and comparable set of data for analysis, while acknowledging industry-specific challenges in diverse sectors.

Moving forward, ensuring the comparability of data will be critical, especially for large organisations where the focus must be on developing a system that fosters comparability between tax and accounting data. Here, it will be important for SARS to engage with taxpayers to verify that reports drawn from the data reflect the true state of the business Kingon says.

“As a profession, we need to proactively stay ahead, ensuring the correctness of the data set so that SARS can seamlessly implement changes. It’s a matter of adopting a proactive approach, akin to putting the horse before the cart, to ensure a smooth transition and compliance with historical tax obligations,” Retief asserts. 

Collaboration for a Seamless Transition

Kingon conveys SARS’ commitment to collaborating with industry stakeholders to co-create data interface specifications. He mentions the importance of clear data specifications to ensure industry participants are well-prepared for implementation when the time comes, encouraging joint effort in addressing likely challenges related to e-invoicing, cybersecurity threats, and concerns around data sharing.

Fostering Trust and Recognising Compliance Efforts

Retief speaks to the delicate balance in the current compliance landscape, where taxpayers oscillate between fear and frustration, advocating for a shift in the narrative from avoiding punishment to acknowledging and rewarding compliant behaviour. In response, Kingon outlines SARS initiatives that aim to provide a gold standard for exemplary clients and differentiate treatment based on compliance levels.

Looking to the Future: Certainty and Collaboration

Tax practitioners are encouraged to embrace digital transformation and observe global practices, and to play an active role in the development of clear legal guidelines. Future developments building on the foundation of auto assessments will require certainty, including system functionality, legislative provisions, and guidance from SARS. In order to navigate the changes that will be required to tax legislation, industry stakeholders must collaborate and engage closely with SARS. Achieving the robust reporting and the enhanced transparency envisioned by the revenue authority will not be possible without such engagement. The discussion concludes with a unanimous agreement from the panel on the centrality of data integrity to the success of the digital transformation journey first begun by SARS with eFiling, and now accelerated with auto assessments.