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Big data analytics can help SARS increase revenue collection

2018/19 South African National Budget Expectations

Could SARS use insights from company tax declarations to increase revenue collection as a move towards closing the growing South African budget deficit?

Many economists and tax experts are predicting that significant tax increases will be announced in February’s National Budget. President Jacob Zuma’s announcement regarding free tertiary education in December will also require additional funding. There are some options SARS can implement in order to increase cash collection:

  • The obvious route is tax increases such as VAT, which will directly affect every South African;
  • SARS can create new taxes, such as the sugar tax introduced in the 2017 Budget Speech; or
  • SARS can capitalise on disruptive technologies to identify opportunities for cash collection

In this digital era, sifting through vast datasets of taxpayer submissions and sourcing valuable insights has been made easier through big data analytics and emerging technologies. These include the introduction of artificial intelligence programmes, which mimic human behaviour, and robotics process automation, which automates repetitive, rule-based tasks that used to be carried out by a human. It is only a matter of time before revenue authorities are able to glean additional intelligence through these technologies to improve the processing and interrogating of the large volumes of data they already collect. This will assist SARS to improve taxpayer assessments and thus to effectively collect more cash. Our revenue authority has an immediate opportunity to use the analytics capability they have been building in recent years to identify non-compliance through IT14SDs received and potentially increase revenue collection.

The IT14SD is a supplementary declaration to the income tax return. It was launched by SARS in 2011 as a means to “enhance tax compliance by companies through the verification and reconciliation of the various declarations made to SARS”.

This was a good initiative by SARS, and could be maximised for revenue collection by adequately penalising non-compliance. Many companies note that these returns are filed year after year but there have been limited queries from the revenue authority. Some companies opt to submit high-level reconciliations based on assumptions, while others prefer to submit detailed reconciliations supported by transactional information from their enterprise resource planning (ERP) systems. It is the latter that are likely to withstand SARS’ scrutiny of the IT14SDs.

There is an increasing demand by tax authorities across the globe, for companies’ financial data. This brings an opportunity to mine the large volumes of data collected, to gain greater insights that will enable better cash collection. With the IT14SD initiative, SARS is ahead of many revenue authorities worldwide. Let’s consider some interesting initiatives from other countries.

In Europe, the standard audit file for tax ( SAF-T) regulation was made effective from 1 July 2016 in some countries. SAF-T is an international standard for electronic exchange of reliable accounting data from organisations to a national tax authority or external auditors. In Rwanda, the revenue authority has introduced the use of electronic billing machines by VAT-registered companies, which enables transactional records to be transmitted directly to the Rwanda Revenue Authority in real time. Studies have shown that this has significantly increased revenue collection in that country.

SARS has also seen the benefit in using technology, such as e-filing to drive tax collection and has made considerable progress in digitalisation. It will certainly be worth it for SARS to consider new ways of analysing the data it already has to improve revenue collection.

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