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Revenue augmentation


In an apparent effort to win the war against non-compliance, it appears SARS has taken to augmenting taxpayer’s revenue. Whilst perhaps not a new thing, it certainly seems to be taking place on a larger scale than in the past. Stated differently, it seems more and more taxpayers are being asked to explain deposits in their bank accounts.

Revenue augmentation is a process of comparing what a taxpayer declared as revenue in his or her tax return to the amounts actually deposited into taxpayer’s bank accounts. If the taxpayer declared in his or her tax return, say, R1m but the deposits in a taxpayer’s various bank accounts suggests revenue of R10m, SARS will require of the taxpayer to explain why SARS ought not to raise an additional assessment to tax the difference of R9m – representing, according to SARS, undeclared revenue.

Whilst that seems like a pretty straightforward thing for a taxpayer to explain, the reality is that it quite simply is not. For SARS to raise these assessments, all they need to do is look at the deposits, do a quick math calculation and, “bob’s your uncle”. It appears to be a quick and simple process.

Taxpayers on the other hand, cannot simply respond by stating that, for instance, “those deposits are all loans”, and “those deposits are all inter account transfer” or that “considering the movement in the loan balance on my company’s AFS, those deposits can only be loan repayments” or “your calculation is wrong”.

You see, tax law, places the burden of proof on taxpayers. For the taxpayer to explain why SARS ought not to tax things like inter-account transfers and loan repayments, etc, the taxpayer is often told to reconcile amounts on a line-by-line basis and explain, on a line-by-line basis, with evidence, why a particular deposit does not stand to be included in that taxpayer’s gross income. Can they do that? Well, they appear to be very fond of the High Court judgment CSARS v M[1], which says they can (differences in facts are “mos” not something that ought to be considered on a case-by-case basis).

To try and explain why this is low hanging fruit, let me try to put this in context. For SARS to augment a taxpayer’s revenue (i.e. to compare deposits to what was declared) by proposing an often-preposterous assessment, cannot, we think, take more than a couple of hours (you see they have data showing total deposits across all accounts). For the taxpayer to fend off that assessment often takes weeks (fact dependent) of data crunching and evidence collection. Not going through this extensive line-by-line exercise is most likely going to end up in SARS collecting or trying to collect the amount assessed despite these assessments often (but not always, to be fair) being ultimately incorrect. 

To further illustrate why this is low-hanging fruit, let’s consider procedural law for a second. These assessments are often, but not always, a particular type of assessment called an “estimated assessment”. You see, taxpayers cannot object to these particular type of estimated assessments. This also means they cannot, in law, request reasons for the assessment nor can they, in law, ask for payment of the often-overstated assessment to be suspended pending a challenge against these assessments. Rather, the taxpayer must ultimately explain on a line-by-line basis why each deposit is not taxable. Going through this tedious exercise is almost unavoidable.

In short then, taxpayer who find themselves in these positions will truly experience and understand what it means when it is said that the balance of power favours the revenue authority. 

Now, keen readers (and some other people) will be quick to point out that this process is followed typically in cases where the taxpayer is not compliant[2] or because the taxpayer was not cooperating with SARS.[3] They would, of course, be right. The sentiment then seemingly being that if you failed to file a tax return or fail to send SARS relevant material then you must “mos maar” face the full might and fury of the revenue collector– after all, being in this position is the taxpayer’s own doing.

Whether there is truth or value to this sentiment (whether from a moral or legal perspective) is not something we are going to attempt to answer here save to ask two simple questions:

  • Is it reasonable to raise a tax bill on a basis that is inherently most likely incorrect and most likely grossly overstated and leaving it to the taxpayer to prove SARS wrong in due course?
  • Does a taxpayer’s punishment for non-compliance include paying tax on non-existent income?

I recall a High Court judgment where the taxpayer was a motor company, presumably based in the Pretoria East region, that suggested that SARS must have proper grounds for raising an assessment despite the burden of proof being on the taxpayer. Further, tax law allows for several forms of punishment of non-compliant taxpayers, none of which (to our knowledge) includes raising assessments on non-existent income.

This process of revenue augmentation probably does a stellar job of winning the war against serious instances of non-compliance. This is fantastic. Perhaps, however, a more targeted approach and selection criteria could be employed as opposed to what seems to be a large scale roll out of a process to collect low hanging fruit. 

In the meantime, those taxpayers who are collateral damage in the war against non-compliance will do well to seek out professional assistance. You see, it is only after you have gone through the tedious exercise of discharging your onus or proof that it will be clear you are collateral damage and not, in fact, the enemy.  

Unicus Tax specialists SA is a tax dispute resolution specialist firm. We have assisted numerous taxpayers in the process of illustrating that they are, in fact, not the enemy in the war against non-compliance.

[1] (A5036/2023) [2023] ZAGPJHC (6 July 2023).

[2] I.e. has failed to submit a tax return.

[3] i.e. the taxpayer has not responded to at least two requests from SARS for relevant material.

Every effort was made to ensure accurate reflection of the law and the tax principles discussed in our articles or as set out on our website at the time of publishing on the website. Tax law develops all the time and it is therefore recommended that views expressed in the past be vented by users for current applicability and accuracy.  Comments made and views expressed in our articles and on our website does not constitute advice to any person or company. Unicus Tax Specialists SA will not be liable for any loss or damage of whatever nature or form caused due to reliance on this article.

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