Business Maverick

REVENUE RECOVERY

How SARS used AI and proactive measures to claw back R210bn this tax year

Illustrative image | Commissioner of the South African Revenue Service Edward Kieswetter. (Photo: Dwayne Senior / Bloomberg via Getty Images)

There has been an increase in SARS debt, which now stands at an undisputed R300bn.

Last year, the Minister of Finance allocated R1-billion a year (over three years) to the SA Revenue Service (SARS) for its modernisation programme. SARS commissioner Edward Kieswetter says the use of AI and proactive measures have resulted in the recovery of R210-billion for the first 11 months of the current tax year.

“When the economy is doing well, people tend to more easily pay their debt due to SARS. Compliance behaviour is directly linked to the general mood within the country and particularly the economy,” he says.

“In the current environment, where we have seen millions of job losses, and inflationary pressure, people tend to close ranks and hold back on SARS payments,” Kieswetter says.

There has been an increase in SARS debt, which now stands at an undisputed R300-billion.

“The R300-billion is what is owed by people who are not denying or disputing that they owe the money. They simply don’t have the money, or they have reprioritised their spending and SARS is not very high on the list.”

Kieswetter says one of the areas where SARS uses artificial intelligence is debt propensity modelling.

“This is where we build machine learning algorithms to go through the entire textbook and to highlight instances where there is the highest propensity to recover the debt, and with minimum resources. We then focus on those entities.

“Let’s say, there are two entities, both owing us R5,000 and one entity is a profitable trading business while the other is in business rescue and no longer active or dormant. We know that we have a lower probability of recovering our money from the dormant company, so if it boils down to one call, we will call the active, profitable company,” he says.

Having said that, in the current tax year, VAT refunds have grown 12%, outstripping VAT returns which have grown by 5.5%. “So, the growth in VAT refunds is outstripping VAT collections,” Kieswetter adds.

As at 31 January, SARS clawed back the R210-billion for the current financial year through the following interventions:

  • R70-billion from AI/debt propensity algorithms. This resulted in the closure of almost 2.1 million cases of debt; the issue of more than 100,000 final letters of demand, and almost 24,000 civil judgements.
  • R67-billion from the use of data science. SARS used data science to evaluate around 14 million income tax, VAT and company returns received by the end of January. “Only 1.5 million were flagged as high risk. We have about 550 auditors who work through those returns, engage with the taxpayers – that engagement results in a final verification,” Kieswetter says.
  • R57-billion from refund risk management. This is where SARS acts to prevent refunds that are either fraudulent or not permissible. Kieswetter says the biggest culprit is VAT returns, and by the end of January this year, SARS prevented R34-billion of impermissible/fraudulent VAT returns; R13-billion of impermissible/fraudulent personal income tax returns and R10-billion of impermissible/fraudulent corporate tax returns.
  • R9-billion additional taxes were recovered from potential customs fraud. This occurs when people either import illegal goods (cigarettes, narcotics, medicines) or misdeclare (understate) the value of legal goods they have imported. By the end of January, SARS stopped and seized 5,500 instances of cargo with a declared value of R5.1-billion. This process also yielded almost R8-billion in fraud detection and leakage prevention for customs.
  • R5-billion was recovered from almost 850 illicit trade (tobacco and alcohol) interventions that resulted in 550 detentions and 160 seizures. DM
Gallery

Comments - Please in order to comment.

  • William Kelly says:

    And the legitimate VAT refunds? SARS talks a big game about fairness, and blah blah.. It’s actions however betray it for what it has become, the arm of a parasitic government sucking harder and harder on the corpse of what is left of the economy, delivering nothing but a failed state in return. Gaze up my works ye mighty and despair….

    • ANTHONY MCGUINNESS says:

      SARS collections only fund an already over inflated Public Sector, which, by the Romaphosa’s ANC’s recent Manifesto, promised another 3 million Public sector jobs. I wonder if AI is able to perform miracles.

    • Oliver Scholtz says:

      And then the taxpayer has to deploy more of their already dwindling disposable income towards private services, which are good (generally) but don’t come cheap.

  • Sam Bowker says:

    I was one of their victims. The way SARS now audits is similar to a dishonest lawyer drawing out a court case, in the end it becomes more profitable for you to focus on better things and let simply them keep their ill-gotten gains. However owing to their last performance – (I’m auditing this statement on the grounds that someone from SARS may know how to read)

  • Ray mac says:

    Mafia state Bank.

  • Beyond Fedup says:

    Very true comment! With the power and resources that they have, why are they not pursuing, shaming and jailing the real state capture kingpins? My perception is that they go full throttle after the ordinary taxpayer to squeeze the last grip of blood whilst treading ever so gently after the big thieves. Is it because these scoundrel are most often from the rotten ruling party and elite???

    • Karel Vlok says:

      If our esteemed political parties, all of them, got a slice of those ill gotten gains, protection money if you wish, it is unlikely that the State machinery want them exposed lest they have to return the protection loot, like in the Gijima saga.

    • Gareth Searle says:

      because sars are not the police or the judituary . Can we not celebrate success ?

  • Mike Lawrie says:

    So SARS decides on who must pay and who needs not? Surely they have to act without favour or fear? Why must Peter pay for Paul because the latter appears to have no money? Who gave SARS such authority to decide on such a matter? That is grossly unfair.

    • D Rod says:

      So it 90% of all other things in South Africa. Some animals are more equal then others in this zoo…. Law is only and selectively applied to the ones that are likely to comply. Which is about 10-15% of population.

  • Ben Harper says:

    You want to grow the income from tax – hit the taxi industry

  • Phil Baker says:

    Is he admitting that the majority of South Africans have effectively gone on tax strike…..??? That would be revolutionary
    If some group civil; class action case were brought against SARS asserting that they are collecting taxes to pay for services that the government is either incapable or unable to provide then it would be SARS that is knowingly committing fraud

  • Grumpy Old Man says:

    What SARS are also doing is actively looking for reasons not to process refunds – because they are not hitting there own collection targets!
    I have never not declared nor paid my tax (& I have never missed a tax deadline date) but SARS are ‘refusing’ to process my refund until I provide an explanation to them why I OVERPAID them by R135,00 at the date of my last assessment.

  • Jan Nel says:

    SARS is what keeps our country afloat. If it was not for them we would be much closer to a civil war.
    We live in a country where the governing party sees it fit to have people to “vote for living” as opposed to actually “earning a living wage”.

  • jcdville stormers says:

    SARS when are you trying to extradite Fenton from UK who is wanted on 453 tax charges in SA???

  • Vincent Britz says:

    SARS – The killer of innocent taxpayers and the freedom maker for the corrupt and elite.

  • Geoff Coles says:

    If you are in business rescue, or won’t pay what is due….or, thinking of Taxi Industry or people like Zuma and other cadre thieves and corrupt, publish their names..

  • MIKE WEBB says:

    SARS are robbers. Oct sent 2nd set of authentication docs for medical claim. Came back within 4 hours. They obviously had not even looked at it. Requested a reassessment the same day, 24 Oct. Still waiting. 4 Months. Phoned a month ago. I’m in a queue! When they demand tax from you, tell them to join the queue

    • Grant S says:

      Same story Mike, took two years to resolve what sounds like the same issue, as some daft idiot at SARS refused to acknowledge several different indisputable forms proving medical aid contributions I had made. What’s the point in submitting your documentation if SARS decides not to acknowledge its validity until it suits them. Audited year after year, never a penny owed to them other what’s assessed and submitted by my tax consultant, but I’m obviously an easier target to harass than the big money spinners. Fair and equitable treatment… bollocks. Meanwhile we’ve got politicians blatantly living lives well beyond their means running around without a care in the world.

  • paul Volker says:

    Did all that clever AI not lead them to Phala Phala or one of Mashatile’s mansions?

  • Confused Citizen says:

    24 000 civil judgement in favour of SARS! Where is the legal system when there is fraud, corruption and other crimes?

  • John Gabriel says:

    Congratulations. A pleasure to get good news and to hear of a government department being proactive.

  • Jennifer D says:

    It’s amazing how innovative these guys can be if it’s about getting money from people for no return. As long as they don’t do the work that they are committed to be doing in return for the money they are taking, they are in essence stealing. That he stands there proudly telling us he has stolen another xxx billion which he plans to hand over to a corrupt government to buy themselves more shoes and cars, is despicable.

    • Grant S says:

      Bang on the proverbial money Jennifer. Plenty of AI to go after what is largely a compliant tax base, but no power to tackle government corruption where the beneficiaries must have large transactional banking trails littering digital debris all over the place.

      • Bob Dubery says:

        If the tax base is “largely compliant” then why was it necessary to go after that base, and why was so much uncovered?

        Of course they could uncover a lot more with some old fashioned methods. Like popping into the hair salons and thai massage parlours that are mushrooming where I live, getting a hair cut or whatever and then checking the book keeping.

        Some years ago I was in Zimbabwe. Our friend their ran a tea room. I noticed a man who just sat in the corner and asked my friend who that was. He said “he’s from the tax man. He’s just going to watch the till for three months, then tell me that he expects me to declare income of four times that amount for the financial year.”

  • Sonja Bakker says:

    The majority of the comments are so correct. SARS is delaying payments of a couple of thousands and it is just not financially viable to try and recover the short amount. It is so unethical but works like a charm. I have had clients who had to wait for years for a refund and every time it is a couple of thousand short. The taxpayer would rather just accept what they can get instead of what they are legally entitled to.

  • Graeme J says:

    What absolute rubbish. This is not “AI”. This is just big data analytics and it has been around for decades.

    • Bob Dubery says:

      If you get people to crunch the numbers, or write programs, build databases etc then it’s good old data analytics. If you have a machine that can be taught how to do that and then does it, that’s AI. AI isn’t always sexy.

      • Graeme J says:

        I totally understand the difference.

        What SARS is using is not AI… it is just good old data analytics. The latest hype about “AI” is just the latest in marketing junk by the IT vendors.

        • T'Plana Hath says:

          OR … That’s because ‘AI’ in this case stands for ‘Artificial Insemination’ and this is just another example of SARS trying to f*ck us, LOL.

  • Middle aged Mike says:

    What percentage of that was recovered from the nomenklatura? Not a serious question obviously.

    • Bob Dubery says:

      Usually we won’t know. SARS, and before them The Receiver, have always been very on point regarding confidentiality and won’t disclose the other party’s name without a very good reason.

      In the 70s I was avoiding call up. The SADF asked The Receiver for my address. I’ve seen the correspondence (shown to me by a disgusted lieutenant when destiny eventually caught up with me). They played it with a dead straight bat saying that any information they had about entities registered with them was confidential, would only be disclosed to third parties if a court so ordered, and that they could neither confirm nor deny that they had any information about a person with my name and ID number.

      • Middle aged Mike says:

        The reason that they withhold the information now differs from what it was but the excuse is the same. Hands up all those who think that the delightful Mr Zuma’s records, if revealed would show him to be anything other than a walking a tax free zone.

  • Marc Wilson says:

    Considering the South African Revenue Service’s (SARS) approach of using AI to prioritize tax debt recovery from active and profitable businesses over dormant ones, I wonder about the potential long-term effects on business behavior and overall tax compliance. While this method may efficiently recover debts in the short term, could it inadvertently encourage businesses to appear dormant to avoid tax scrutiny? Moreover, this strategy seems to focus on a segment of businesses that are already contributing to the economy. Would introducing incentives, such as discounts for businesses that agree to settle their tax debts promptly, create a more balanced and proactive tax compliance environment? I’m curious about perspectives on balancing the need for immediate revenue recovery with fostering a culture of widespread and fair tax compliance.

    And yes I had to use ChatGPT to refine my question 🤣

  • Nervina Kernels says:

    The spaza shops owned by foreigners with illegal status in SA, who have not followed to law to open businesses to begin with, the ‘cash-only’ cellphone shops in malls across SA operated by foreigners with dubious status in SA, the ‘cash-only’ hair salons and what not, also operated by foreigners usually illegally in the country… What of them? Or is it enough to extract everything from law abiding citizens.

    • Middle aged Mike says:

      You missed the overwhelmingly south african owned taxi industry and most of the deployed cadre leaches in your list of criminally inclined tax dodgers there.

  • Paul Watson says:

    Good to get some info on the debt but to say this is AI is to jump on the LLM/generative AI hype wagon. People will think ChatGPT. It is propaganda to make it appear SARS is innovative. The AI they are using is Machine Learning and on the statistical side at best. It has been around and in use for decades.

    • Graeme J says:

      100%. See my comments above.

    • Middle aged Mike says:

      As with most of what comes out of a deployed cadre’s mouth it’s worth salting heavily before lightly applying ones mind to it. This just reminded me that in my culture ‘deploying a cadre’ is what one does in the smallest room of the house.

  • Tim Price says:

    The thousands of civil judgments are not an indication of some kind of efficiency in our justice system. They are granted automatically on the say so of SARS with no notification to the tax payer. The court rubber stamps them. SARS have been known to forge ahead and take judgment in the face of a contested penalty assessment which they have failed to respond to. They need to het their real intelligence sorted out…

  • Matthew Quinton says:

    SARS
    “We use Artificial Intelligence to collect more money”
    ANC
    “We use Real Stupidity to spend more money”

  • Gareth Searle says:

    can we just put SARS in charge of every government portfolio ?
    not kidding, they can have sport, education, foreign policy, the whole shebang

  • Abel Mngadi says:

    I would recommend to SARS to focus on politicians like Mashatile, Julius, etc. as their lifestyles far exceeds their parliamentary earnings. I bet there is lot to be collected from them if a proper assessment is made. Thereafter move to the tenderpreneurs. They are swimming in a pool of tax-free cash that they share with politicians. It is about time they also focus on them more than on honest taxpayers.

  • John Lewis says:

    SARS is a complete shambles at the moment. Speak to some tax practitioners or SMEs to get a real perspective on the state of the institution rather than believing the PR.

  • Geoff Krige says:

    Mr Kieswetter fails on one major point when he says “Compliance behaviour is directly linked to the general mood within the country and particularly the economy” and then paints a picture of a struggling economy. From people I have met the struggling economy is not the main problem. The main problem is the extreme level of corruption. Most people I talk to are quite happy to pay taxes to build schools, maintain decent roads, keep state hospitals running, and ensure safety via good policing. The problem is not primarily the poor economy. The problem is primarily that our taxes are routed via corruption to clandestine bank accounts in Dubai, Panama, Russia and elsewhere and we do not have schools or decent roads or functioning hospitals or safe policing or anything else that taxes should be providing

  • Beyond Fedup says:

    As far as I am concerned, taxpayer confidentiality as always quoted by SARS is a cop out to give cover to those many crooks mostly in the ruling party, the elite and connected cadres. These scumbags – we all know who they are and how they have rapaciously stolen massive taxpayer money. People such as Zuma & co who were heavily involved in state capture, the tenderpreneurs who in turn contribute to anc coffers for their windfall thanks to the anc etc. – WHY should these people, where there is overwhelming evidence of their thieving and misdeeds, enjoy the same rights to confidentiality as citizens who are complaint and pay their taxes????? SARS hides behind this to turn a blind eye to these connected scoundrels. Why else are they free to enjoy their ill-gotten gains i.e. theft, when they have all the power and resources to make the difference.

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