In an era defined by rapid technological advancement, the concept of “voluntary disclosure” is experiencing a seismic shift. Taxpayers, who once viewed the opportunity to come forward and declare financial irregularities to the South African Revenue Service (“SARS”) as an empowering choice, are now faced with a pressing dilemma: Are these disclosures genuinely voluntary, or have they morphed into coerced confessions fuelled by the fear of artificial intelligence (“AI”) surveillance?
The Supreme Court of Appeal (“SCA”) has clarified the meaning of “voluntary” in the context of voluntary disclosures[1], emphasizing that true voluntary action must stem from a taxpayer’s own initiative without coercion or external pressure. According to the SCA, a disclosure is considered voluntary if the taxpayer comes forward to reveal previously undisclosed information without being compelled by any imminent audit or enforcement action. This definition underscores the importance of genuine intent in the disclosure process, suggesting that any fear or intimidation surrounding the act can fundamentally alter its nature.
In light of this legal interpretation, the use of advanced technologies like artificial intelligence by SARS raises significant questions about the true voluntariness of taxpayer disclosures. When taxpayers perceive that they are being monitored by sophisticated AI systems capable of uncovering discrepancies, the line between voluntary and coerced action becomes blurred. As a result, individuals may feel compelled to disclose information not out of a desire to rectify past mistakes, but rather to mitigate the risk of potential penalties, thereby undermining the very essence of a voluntary disclosure.
THE RISE OF AI IN TAX COMPLIANCE
AI is reshaping many sectors, and tax enforcement is no exception. SARS has begun employing advanced machine learning algorithms capable of analysing extensive datasets to detect irregularities that human auditors might overlook. According to an article on ITWeb[2], “Artificial intelligence (AI) and machine learning are assisting the South African Revenue Service (SARS) to weed out criminality and non-compliance. This, as the tax authority’s compliance programme added R293.7 billion to revenue results as at the end of March − an increase of R61.9 billion (26.7%) from the previous year’s R231.8 billion.”
The AI technology allows SARS to uncover discrepancies, identify patterns of tax evasion, and flag suspicious transactions with unprecedented accuracy. As SARS increasingly highlights its use of artificial intelligence and machine learning to detect non-compliance, the very essence of voluntary disclosure is called into question, this approach inadvertently complicates the concept of voluntary disclosure, as taxpayers may perceive the act of coming forward as less of a choice and more of a necessity driven by fear of detection. This shift raises critical questions about the integrity of voluntary disclosures; if taxpayers feel compelled to disclose due to the threat of AI surveillance, the very foundation of these disclosures may become undermined.
For many, the stakes are high, the voluntary disclosure process has transformed into a high-stakes race between the taxpayer and SARS, with each party vying for the upper hand. Taxpayers find themselves in a precarious position, weighing the benefits of coming forward under the voluntary disclosure program against the looming threat of SARS using advanced AI to identify non-compliance first. This race intensifies the urgency for individuals to disclose any irregularities in their tax affairs before they are discovered, fundamentally altering the nature of voluntary disclosure.
NAVIGATING THE FINE LINE
“The revenue authority has been vocal about utilising emerging technologies and deriving insights from data for its tax collection efforts”[3]. SARS is strategically amplifying its achievements with AI to send a clear message to taxpayers about its heightened detection capabilities. This calculated strategy raises a critical question: is this the end of voluntary disclosure as we know it? By creating an atmosphere of fear and uncertainty, SARS may inadvertently discourage individuals from coming forward with disclosures, one might wonder if this strategy is counterproductive.
If taxpayers attempt to apply for voluntary disclosure programs but are deemed non-compliant based on the argument that they do not meet the criteria outlined in section 227 of the Tax Administration Act because their disclosures were not truly voluntary, it places SARS in a favourable position. In such cases, SARS would gain insight into taxpayers’ irregularities without having to extend leniency typically associated with voluntary disclosures. This approach could allow SARS to uphold strict enforcement measures, effectively revealing the truth about tax compliance while simultaneously discouraging taxpayers from using the VDP as a safe harbour. As a result, the delicate balance between encouraging voluntary compliance and maintaining enforcement may shift further in favour of SARS.
In a world where AI reigns supreme and the taxman is always watching, the landscape of voluntary disclosures has potentially transformed into a high-stakes game.
While voluntary disclosures are evolving and becoming increasingly challenging, there still remains a window of opportunity for those willing to navigate it wisely with the appropriate assistance. Although it might seem like voluntary disclosures are becoming futile, they are not entirely out of reach.
Unicus Tax Specialists SA specialises in VDP applications and boasts a 100% success rate. We are well-versed in the intricacies of the system and can provide invaluable guidance to help you explore your options. Acting proactively is crucial, as failing to disclose before SARS discovers any discrepancies could result in penalties as high as 200% and even the risk of imprisonment. With the right support, you can still find ways to make voluntary disclosures, ensuring that you secure your compliance. The door may be closing, but it hasn’t shut completely, there is still time to act.
[1] SA Tax Guide. (2023). The meaning of voluntary in a voluntary disclosure: The SCA weighs in. [online] Available at: https://www.sataxguide.co.za/the-meaning-of-voluntary-in-a-voluntary-disclosure-the-sca-weighs-in/#:~:text=In%20the%20recent%20judgment%20of%20Purveyors%20South%20Africa [Accessed 30 Sep. 2024]
[2] ITWeb. (2023). SARS doubles down on AI, machine learning after revenue gains. [online] Available at: https://www.itweb.co.za/article/sars-doubles-down-on-ai-machine-learning-after-revenue-gains/rxP3jqBEyeoMA2ye [Accessed 30 Sep. 2024]
[3] Web. (2023). Data-driven efforts help SARS uncover non-compliance. [online] Available at: https://www.itweb.co.za/article/data-driven-efforts-help-sars-uncover-non-compliance/8OKdWqDYBQRvbznQ [Accessed 30 Sep. 2024].
