SARS auditors employ methods that most people wouldn’t have even considered
How does the South African Revenue Service (SARS) catch those who do not contribute their fair share to state coffers? Here are some tests that SARS auditors perform to see if you are being somewhat economical with the truth.
Comparing VAT returns to your income tax return
When you submit your IT14 company tax return, you are required to make certain disclosures—including your company’s turnover. But according to Mark Twain, if you tell the truth, you don’t have to remember anything. If you are cooking the books, at least try to remember to make sure that your turnover per your VAT return tallies up with the turnover disclosed in your financial statements. Because many tax dodgers are dumb as well, SARS catches many a tax reprobate by doing this simple cross-check. Whichever way you try to fiddle with the numbers, SARS has got you. If the turnover in the VAT returns is short, you will get nailed for under-declaring your VAT. If it is the income statement figure that is light, then you haven’t declared all your sales for income tax purposes. In both cases, you will land in hot water.
Checking your tax returns against other records
Did you know that the details in the Deeds Office and the National Vehicle Registry are a matter of public record? SARS does—and they catch many a tax evader through a couple of simple checks. For instance, if you have a Porsche and a Sandton penthouse registered in your name, and you have declared income of R40 000 per month, you may have some explaining to do. Working out that the car and the house will be setting you back the best part of R100 000 per month in repayments is not rocket science, particularly if these items have been purchased recently and the titleholder is a bank, or a mortgage is registered against the property. And don’t try to claim that you have inherited something when you haven’t—wills are also public documents, and for a SARS auditor to pay a visit to the offices of the Master of the Supreme Court is no problem.
Observing your lifestyle
Do you play golf, go on holiday at a posh resort, or dine in fancy restaurants? Guess what—SARS employees do as well. Contrary to popular belief, people who work for SARS do have a life outside of work, and they enjoy the finer things in life just as much as the rest of us do. And it’s amazing how much people reveal about themselves after a few beers or one or two bottles of wine—particularly when it comes to some smart scheme they have cooked up to “put one over the taxman” (or so they think). “The walls have ears”, and so do SARS employees. However, even if you don’t shoot off at the mouth, the fact that you are able to afford such niceties must say something about your income levels. A quick glance at your most recent tax return will reveal how honest you have been in declaring what you earn.
Using some common sense
One of the oldest tricks in the book is to fiddle with the cost of your car, or inflate the number of kilometres travelled. But as we revealed in the previous paragraph, SARS employees do sometimes venture out into the big wide world. They also watch TopGear, and they know how much various cars cost. And although even entry-level cars will set you back a pretty penny nowadays, don’t think you are being clever by listing that VW Polo Vivo at R500 000. They also sit in the same traffic that you do each morning. They know what the approximate distance is between Johannesburg and Pretoria. They also have a fairly good idea of which jobs involve extensive travel, and which ones don’t. Such snippets of information are stored in the collective memory banks of SARS audit teams, ready to be recalled when they look at your return. And how about fiddling with that odometer reading? Think again—there are ways of checking this as well. When you renew your licence each year, you are required to declare the odometer reading on the form. While this measure is primarily to stop people from putting their cars through the ‘fountain of youth’ when the time comes to sell, it is also a useful thing for SARS to check and compare to what you have declared on your return. There have also been a number of instances where SARS has called for service records. Alternatively, they simply call you up and request that you make your vehicle available for inspection on a given day. As far as your logbook is concerned, SARS not only requires extensive details of your trips (i.e. they no longer just accept ‘client visit’—they’re now after names and addresses), but their auditors are a whizz on Google Maps. You also may have some explaining to do if you’re Joburg-based and have travelled to Durban on ‘business’ two days after the schools have broken up for the December holidays. If you genuinely do make a business trip of this nature, it’s a good idea to have some supporting documents confirming this.
Following the paper trail
A couple of years ago, SARS changed the requirements for a valid tax invoice, to be issued whenever VAT is charged. For those invoices exceeding R5 000, you are now required to include not only your own address and VAT number on the invoice but that of your customer as well. The reason for this is to create a paper trail for SARS auditors to follow. When they conduct an audit at your business premises, they also note down some VAT numbers from your invoices. Upon their return to the office, these numbers are checked on their systems. Many a fictitious VAT number has been uncovered in this manner, while this method also creates a chain that SARS auditors can follow as they move from vendor to vendor.
Using your broken relationships to the best advantage
This one may sound like an urban legend, but it is in fact true—with frightening consequences. One of the major sources of tip-offs to SARS really is from the ‘exes’—ex-wives, ex-boyfriends, ex-employees—in fact, anyone that you may have rubbed up the wrong way and who now has an axe to grind with you. Even that time you were rude to little Johnny’s mother for parking at a 30-degree angle in the school parking lot could come back to haunt you! While many such tip-offs are of an obviously vindictive nature, a surprising number have substance. For this reason, SARS follows the dictum of “where there’s smoke, there’s usually fire”, following up on such tips to see if the person reported is a tax evader as well as being obnoxious.
Penalties for tax evasion
Legislation empowers SARS to impose penalties of up to 200% of the tax due, as well as interest from the due date to the date of payment. They can also take criminal sanctions against tax evaders, resulting in prison terms. If a tax practitioner who is a member of a professional body assists a client to evade tax, Section 105A empowers the Commissioner to report such practitioner to their professional body. The likely result is for such a person to be struck off the roll of the body concerned, thereby depriving such practitioner of the means to make a living in their chosen profession—one in which many years of study have been expended in order to qualify for membership. If you are still in doubt about the ability of SARS to track down recalcitrant taxpayers, bear in mind that those collection overruns in recent years have not only been driven by a stronger rand and rising commodity prices—they are also the result of massive efforts on the part of SARS’ collection teams.
And remember, for all of the heinous crimes that somehow could not be pinned on him, Al Capone was finally convicted of … tax evasion!
WRITTEN BY STEVEN JONES
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE)