PARLIAMENT
Is the SA Revenue Service’s risk algorithm the glitch in the tax collector’s matrix?
Since a risk algorithm that selects taxpayers for tax return verification is not a person, the tax collector cannot be fingered as a bully, South African Revenue Service commissioner Edward Kieswetter has told parliamentarians.
‘The claim that we bully the little man and we allow the bigger entities to go is not borne out by the evidence. Our risk engine is agnostic to who the taxpayer is and responds only to the risk rules and the algorithms that we write.
“You are selected for verification not because you are a little guy or a big guy but because you are a risk to the fiscus, potentially non-compliant and maybe even criminal.”
That’s South African Revenue Service (Sars) commissioner Edward Kieswetter on value-added tax (VAT) returns, sketching a similar pattern for individual personal tax returns.
“Noteworthy, more than two-thirds, or 66%, of cases selected by our risk engine, again, comes from habitual non-compliers, which means our risk engine is spot-on when it selects a taxpayer for compliance.”
Chasing up this so-called compliance revenue meant extra billions for the national purse in 2021 – a total of R46-billion to be exact. It’s just over R12-billion more in compliance revenue than the year before.
Kieswetter’s comments on Friday, 4 March came at the end of public hearings on the fiscal framework for Budget 2022 by Parliament’s finance committees in responses to various comments and criticism and public input amid an overall positive view of Sars – “the unsung hero”, as labour federation Cosatu put it.
With 274 personal income tax so-called verification auditors and 163 VAT verification auditors, it’s all about the algorithm.
He said that “1.4 million or just short of 20% of these (personal tax return) cases are selected – not by us, but by our risk engine – for further verification.”
Of those, 66% were from habitual non-compliers, as the tax boss put it, adding that R8.2-billion in compliance revenue had been raised this way.
Sars’s “verification work”, as Kieswetter described it, meant more than half of the R2.9-billion claimed for home office expenses (R1.8-billion) was disallowed.
On the VAT returns front, of the 3.8 million submissions, 320,000 were “selected by our risk engine for further verification – there’s no Sars opinion here who is selected,” according to Kieswetter, adding that this had raised R15-billion.
None of this revenue – along with an additional R1.9-billion and R21.5-billion of cases dating back to 2020 – would have been available to the state had Sars not done its work, said the tax boss.
Deputy Finance Minister David Masondo, Finance Minister Enoch Godongwana, Treasury director-general Dondo Mogajane, Sars commissioner Edward Kieswetter and Reserve Bank governor Lesetja Kganyago address the media at the Imbizo Media Centre in Cape Town ahead of the 2022 Budget speech. (Photo: Elmond Jiyane / GCIS)
Taxpayers overwhelmingly had “a pleasant and almost seamless experience”, except those deemed non-compliers by Sars – or at least its algorithm.
“Here we make no apology for dishonest or non-compliant taxpayers (that) they will have a different experience – hard and costly… We are the vanguard, the last line of defence to ensure government receives its money due to it.”
However, it also emerged how R10-billion in tax refunds was paid out over December 2021 and January 2022 – even though audits were still under way. “We felt the risk that these taxpayers exposed Sars to was quite minimal,” Sars chief revenue officer Johnston Makhubu told parliamentarians on Friday, referring to Sars leadership’s “deliberate action”.
Since 20 February, Daily Maverick has written about the frustration of ordinary taxpayers floored by Sars’s guilty-unless-you-prove-otherwise attitude, the reversal of tax refunds into tax owing, repeat verification, and difficulties with lodging objections, including a personal reflection on continuing verification enforcement after a tax refund was paid.
Kieswetter’s tweet in response to the personal reflection (“It is regrettable when journalists use the privilege of their platform to ventilate their personal tax affairs”) came up again on Friday when DA National Council of Provinces delegate Dennis Ryder raised it without mentioning names.
“I know you had a go at one of the journalists for taking a personal tax matter and writing an article about it. I don’t think that was entirely unfair because I think there are many people who are suffering,” said the DA’s self-proclaimed “Kieswetter fan”, who had earlier outlined how Sars processes stall once a query, or even an objection, is lodged.
The tax boss stayed on message: “The issue of raising individual tax matters on a public platform, or in this forum, we consider highly inappropriate. We would encourage all taxpayers to come to us to resolve their particular matter, but also not to extrapolate their experience as the general experience.”
But the parliamentary public hearings – despite an overall supportive and complimentary view of Sars under Kieswetter – raised issues.
The South African Institute of Chartered Accountants (Saica) said taxpayers were “struggling” and “experiencing huge frustrations”, particularly small businesses regarding VAT returns.
“When you have a settlement of debt, somehow your (Sars) systems are not linked, they cannot get a tax clearance certificate that prevents them from getting more business… It is really affecting the SMMEs,” said Saica senior tax executive Sharon Smulders.
PwC head of national tax technical, Kyle Mandy, pointed out that instead of problem areas, it seemed the same taxpayers are audited year after year, even if compliant.
Or, as the South African Institute for Taxation (Sait) put it: “If you as revenue official believe you have to raise so much money you do it in the easiest way you can. Unfortunately that often means picking on small ones.”
Against the backdrop of the public hearings input, National Council of Provinces finance committee chairperson Yunus Carrim said some complaints about Sars had “some legitimacy and credibility” as more could be done on VAT refunds and also diesel rebate returns.
“I think all of us as MPs, myself included, have been getting a steady increase in complaints. Although it’s very difficult to intervene because on tax issues it’s very hard to do so.”
Coincidentally, Carrim made a call for the Office of the Tax Ombud to brief Parliament’s finance committees.
Of 2,967 complaints in the 2020/21 financial year, the independent tax complaints entity resolved 1,340, according to its latest annual report.
After the tax ombud hit the web and airwaves in various awareness activities, including #TaxpayersRightsMatter, the aim in 2022 is to, among other things, publish a compendium of taxpayers’ rights.
“Significant progress is being made in regaining public trust in the revenue collector,” said Finance Minister Enoch Godongwana in the foreword to the ombud’s 2020/21 annual report.
The finance minister was similarly supportive of Sars when DA MP Alf Lees asked a series of parliamentary questions on VAT refunds.
“The South African Revenue Service, in processing all refunds, will always seek to balance the protection of the fiscus from illegitimate refund claims and the optimal processing of all those refunds that are legitimate. This balance is further enhanced when considering that more than R50-billion in illegitimate refunds are prevented from flowing out of the fiscus every year.”
On Friday, the Sars emphasis was on compliance and deterrence rather than Sars strategic objective number nine – “build public trust and confidence in the tax administration system”.
But picking up the cues from the public hearings and parliamentarians, the tax boss pledged to do better on “the journey of rebuilding Sars”, adding: “We regard even one instance of service failure as one too many.”
‘Significant progress is being made in regaining public trust in the revenue collector,’ said Finance Minister Enoch Godongwana in the foreword to the tax ombud’s 2020/21 annual report. (Photo: Gallo Images / Fani Mahuntsi)
But the focus really remained on compliance, now also for the taxi industry where Sars is risk-profiling 300 taxi owners, each with at least 20 vehicles, in businesses with a value of at least R200-million.
“They must be handled without fear or favour and they have to honour their (tax) obligations. We are unambiguous.”
Like action on State Capture beneficiaries, for example, it’s a wait-and-see.
“It is disappointing, but I guess not surprising that the narrative sometimes comes across that the taxpayers are the good guys and that Sars is the big bully,” Kieswetter said in his concluding remarks to Parliament’s finance committees, also addressing the online audience given the meeting was public and remains on Parliament’s YouTube channel.
“… (I)f there are instances where it is demonstrated we have been heavy handed, I invite any feedback and can give you the sincere commitment that we will address that.”
No contact details were provided then. But it’s public record the Sars commissioner is on Twitter (@EdKieswetter), as is Sars (@sarstax). Both timelines refer disgruntled taxpayers to [email protected] as well. DM
Right of Reply: National Council of Provinces finance committee chairperson Yunus Carrim contacted the DM on Thursday 10 March with regards to comments attributed to him, to say:
“In an otherwise fairly accurate article, Marianne Merten quotes me agreeing with some of the complaints about Sars. Yes, I did. But my main point was that, despite its weaknesses, overall Sars is performing very well. And even suggested that, while more money is certainly not the only answer, the appropriations committee considers allocating more funds to them. In any case, these extra funds are likely to lead to bigger returns to the fiscus. And the committee’s report reflects this overall approach.”
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Absolute rubbish. I’m an individual income tax payer. I’m tax compliant, and have never, ever, had a run-in with SARS. Yet, seemingly because I pay provisional tax (I’m a pensioner, with some investments) I am selected for “verification” every year! Result: submit the information SARS already have (from Coronation etc.), wait a few months, and get a refund. The unnecessary manual checking just provides “employment” to SARS cadres, who are now “working” from home.
I couldn’t agree more. Every year they verify me and never make an adjustment because I’ve always been scrupulously honest. The algorithm obviously needs to be looked at. They also need to look at their terminology as well- to call a verification a Case and give it a number seems as if you’re being put in the dock. They need to work extremely hard to regain the trust of the taxpayer, particularly as we know that a large % is going be stolen or misspent. Having said that, Kieswetter despite his arrogance,is much better than Tom Moyane .
I am 79. Every year I am selected because I have large Dental and Eye accounts I have to pay above the Medical Aid. “You are selected for verification not because you are a little guy or a big guy but because you are a risk to the fiscus, potentially non-compliant and maybe even criminal.” Non-compliant, even criminal. Kieswhoever can try to kiss his own … . I will do whatever I can to dodge him.
1. I submit or help submit 4 personal tax returns a year. Mine, my wife, daughter and son. None have involved refunds in last 5 years. I now as a matter of course convert all docs to pdfs on my computer and save them in a folder because, on average, we are selected for verification and are required to submit supporting docs about 50% of the time. Now I just sigh, and upload the preprepared docs. And we have NEVER had one cent added to our taxes from that verification procedure. But SARS keeps on trying, I believe mindlessly, presumably becaue we have been identified as high risk. How? Why?
2. My daughter has a small restaurant and I submit her VAT return every second month. For the first 5 years of operation, no refunds were ever due to her, and she may have been required to submit VAT schedules twice out of 30 returns. During the pandemic in some periods there were refunds due, in other months the net VAT payable to SARS was much lower than before the pandemic. For 10 consecutive VAT returns covering 20 consecutive months, she was selected for verification, we had to submit schedules of input and output tax and in some cases had to submit several tax invoices. With the first verification and with all verifications thereafter I included a note, a short version of which went something like this. Dear SARS the business is a restaurant and in this pandemic the restsuarant was closed for many months, in other months was takeaways only, and even in the best months its turnover is only 70% of prepandemic levels. So Net VAT payable is understandably lower. And yes we were due refunds in a few VAT periods as the restaurant was completely closed yet we still had overheads to pay, on which there was a VAT component. Now can someone exercise some judgement and not merely select this business for VAT verification because its turnover and net VAT payable is much lower than prepandemic times. I never received an answer other than to say that VAT verification procedure had been completed. Not a cent in extra VAT was ever claimed and all refunds claimed were paid. Some algorithm.
We are a small company that is involved in industrial engineering sales in the instrumentation/electrical field, but over the years we mostly (many times 100% in the past 10 years) sell outside of South Africa, so all our Invoices are VAT-Free. During the past 10 years, or so, we have experienced 3 or 4 VAT audits when our refund was outside of the “norm”. Last year (2021) we had 4 out of 6 VAT audits with the last one in November ’21. Unfortunately – for us – our sales in October and November were significant with a VAT refund calculated at some R167k. This immediately raised an “audit” and, although we provided the relevant documentation on December 3rd 2021 (confirmed during a call to SARS as received), we have not received our refund to date. Weekly calls to SARS gets a plethora of different excuses which includes our FICA details have not been up-dated since 1982 !! (FICA did not exist in 1982 and we are fully Tax compliant, in all respects) We have been elevated many times since January 2022 and I sent an email to SARS outlining the numerous call made, elevations promised, involvement of Team Leaders to our plight to the email address given above, and…. you guessed it Postmaster at SARS stated that our email was undelivered to one and all parties listed. To date we have lost R9.7k in settlement discounts, let alone interest on R167k and credibility with our suppliers.
“Here we make no apology for dishonest or non-compliant taxpayers (that) they will have a different experience – hard and costly… We are the vanguard, the last line of defence to ensure government receives its money due to it.” And every taxpayer would like to see that the tax they pay is scrutinised and spent in such a manner that they get the services they deserve. Where is this vanguard??
Maybe they need a new AI programmer for their algorithm.
On his numbers the average compliance revenue recouped from tax returns selected for verification was just shy R6,000 per case. I would venture the time cost of SARS employees and the taxpayers and accountants is vastly more.
Physical cash is probably hard to organise (unless you are Bosasa, a taxi owner, a tobacco smuggler, Myeni or a crooked cash in transit company).
One would think that the best feed into the algorithm would be throughput analysis on bank accounts by way of an automated feed from the banks (that have taxpayer and VAT numbers). it might be worth asking somebody on a R500k salary about the R5m turnover on their bank account.
And please go have a look at those safe deposit boxes at the old US embassy…
Please tell us more about these safe deposit boxes?
Zondo commission heard the evidence about Singh, Gigaba and others that had multiple large safe deposit boxes. I think the business is called Knox Vaults
“Our risk engine is agnostic to who the taxpayer is and responds only to the risk rules and the algorithms that we write. ”
Of course – and that is precisely why you guys ARE the bullies – because YOU write the algorithms. Don’t try that old fraud on us “It’s the computer’s fault, not mine”. We know exactly what you’re about SARS.
Kieswetter would do well reading “Noise” by Sunstein, Kahneman & Sibony where the authors show that algorithms can indeed be biased depending on the data used from which they were derived.
“Like action on State Capture beneficiaries for example-its a wait and see”
A single meaningless line(except to confirm what we all know) on one of the most important issues facing the country.
The various posts on this topic last week clearly reflected the anger and frustration with SARS for lack of action and results in bringing the perpetrators of widely publicised state capture to book.
Quite clearly, either not a priority for SARS or they are being warned off and running scared.
Kieswetter may bask in the reflected glory of the massive windfall from the resource sector and the low hanging fruit.
Only when SARS actually start the heavy lifting and show some success can they be termed “heroes” unsung or not!
Just look at all the systemic problems at SARS, as identified by the Office of the Tax Ombudsman. Then look at the delays. SARS shows no real commitment in resolving or addressing these issues. http://www.taxombud.gov.za
Putting the blame on an algorithm! Last time I checked, these were written by flesh and blood humans.
As others here, I think the algorithm needs serious updating (perhaps suggesting specific surnames 🙂
I am selected year after year and NO irregularities are found. Is it that difficult to realise then that some people still have a set of basic moral values?
Kieswetter’s “it’s must be unbiased – it’s an algorithm” defence is so shallow and so unsound you have to wonder if he honestly thinks the public will swallow it or if he is actually too dim to see the gaping holes in his department’s “logic”.
As a provisional taxpayer I also get asked to provide documents every year. The notification arrives minutes after I press the “submit” button. That I’m used to – so like others I have my docs ready before submitting.
But the latest twist has been requests in the last 2 years for documents that don’t apply to my return at all. First it was documents to support a claim for using a home office – a claim that I have never made. Then it was documents to support an investment that wasn’t made in the tax year being reviewed. So much for the much vaunted algorithm, when it doesn’t even use the factual information it has to hand.
So just spare us the sententious lecturing, Mr Kieswetter, and start taking our complaints seriously. Nothing will improve with your current attitude.
Blah Blah Blah Kieswetter. If I’m selected for a VAT audit every month and after suppling documentation it is decided that all is in order, how is it that I keep being audited? Clearly things are flawed. Clearly the SARS AI hasnt been programmed not to keep running into same wall and expecting different results.
Pity the risk engine doesn’t finger corrupt officials….
Bullshit. I have ALWAYS been 100% compliant and selected for verification four years in a row now.
Join the party, Samantha (I mean figuratively of course), though joining the PARTY would probably help you avoid the verification process; it works for Jacob!