How Sars is using machine learning and big data to nail tax offenders

The South African Revenue Service has said its efforts to increase and expand the use of data to improve the integrity of outcomes and enhance its capability to detect instances of non-compliance is beginning to bear fruit.

This much was evident in the agency’s recent notable successes in this regard, Sars said.

In a statement, it said: “Using the data from various domestic and international sources, as input into machine learning models, risk profiling and case selection, a number of trends have already been observed with positive outcomes in a number of instances, some of which were previously reported.”

Sars said examples of domestic third-party sources include banks, retirement funds, medical insurance providers, the properties deeds office and the companies register.

Other sources include the national register of motor vehicles, national treasury’s central supplier database and the national population register.

International data sources include the automatic exchange of information on South Africans with offshore financial assets from about 100 foreign jurisdictions, as well as several mutual administrative agreements with sister organisations.

Progress in respect of this strategic work included Sars in the current year having already collected R115-billion from compliance activities. This was an upward trend after the revenue collected over R172-billion from compliance efforts in the previous financial year.

Scrutiny

“Of this amount, about 33% results from the automatic risk profiling of taxpayers using data and machine learning,” said Sars.

Of the previously reported 26 000 individuals with economic activity and/or assets exceeding R1-million, almost a thousand have been identified as being involved in money laundering and other serious crimes.

Of the initial batch of 275 individuals with assets abroad detected using the Automatic Exchange of Information (AEOI) prorgamme, Sars said the the first 50 individuals had been selected for further scrutiny in relation to assets in tax havens, with more to follow.

“We are working with the IRS in the US, utilising the Foreign Account Tax Compliance Act, which has assisted in connecting a number of South Africans with links to the Pandora disclosures, and investments into a number of states,” Sars said in the statement.

On the government procurement of personal protective equipment for Covid-19, the revenue collector said its analysis of national treasury’s central supplier database had highlighted large numbers of vendors who supply services to government who are not tax complaint.

“Specifically, we identified approximately 1 900 entities, each earning more than R1-million (between March 2020 and May 2021), from contracts with government, totalling R6.3-billion, yet are not registered as VAT vendors; a further 2 380 VAT-registered vendors have filed nil returns, despite having earned collectively over R9-billion from government contracts.

“The work of regularising the affairs of these taxpayers is well under way. An initial R220-million additional assessments have been raised; almost R75-million fraudulent refunds prevented; with debt collection efforts in progess. In each instance, Sars also considers whether criminal prosecutions are applicable.”

Using whistle-blower reports as well as third-party data sources, Sars said it had recently deployed over 90 employees to execute one of the largest search and seizure operations following extensive investigative work.

Those who continue to defraud the tax system must know that they do so at their own peril

“This operation has identified 11 entities at four different sites, and 27 taxpayers for potential fraudulent disclosures in respect of a number of years. All assets have been preserved while the investigations proceed,” it said, adding that results from its criminal investigations had yielded over 70 convictions in 2021 alone.

Sars commissioner Edward Kieswetter acknowledged that the revenue collector still had “a long way to go”.

“But [we] are encouraged that our strategic approach is beginning to show early impact,” he said. He added that Sars proceeds from the premise that “most taxpayers are honest and want to fulfil their legal obligations”.

To these taxpayers, he said Sars would work hard to assist them by providing clarity and easing the burden of compliance. “Those, however, who continue to defraud the tax system must know that they do so at their own peril as we make progress on the rebuilding and modernisation of the institution.”