Kubashni Moodley | Tax Partner, PKF Durban

The 2025 tax season for auto-assessments to be issued by SARS was 7 to 20 July 2025. 

SARS issued a media statement on 18 July 2025, wherein it states that “SARS is excited to announce that 5.8 million taxpayers received Auto Assessments this year, which is up from 5 million in 2024. Importantly, 99.6% of Auto Assessments issued to date have remained unchanged by taxpayers. Equally impressive is that R10.6 billion in refunds due to taxpayers have already been paid within 72 hours”.

This media statement goes on to state that “With Auto Assessment, SARS uses data sourced from third-party data providers to assess taxpayers. In keeping with our aspiration to “make tax just happen,” taxpayers do not have to do anything when they are issued an auto assessment. For the few taxpayers that may need to update their tax returns with changes in case of outstanding information which SARS does not have, this can done via eFiling or the SARS Mobi App.

The journey to build A Smart, Modern SARS, characterised by the use of artificial intelligence, machine learning, and data science is bearing fruit…”

“This world class service is done whilst managing the risk of impermissible or fraudulent refunds with sophisticated machine learning and AI models.” 

At the recent South African Institute of Taxation (SAIT) Annual Tax Indaba held in Johannesburg, senior members from SARS made reference to this media statement with particular attention being placed on the R10,2 billion worth of refunds that were paid within 72 hours to those taxpayers that were auto-assessed. 

Whilst this may sound great at face value, the general gripe most taxpayers have with SARS in unnecessarily delaying refunds, some of the learned tax practitioners attending this Indaba did, by way of various intriguing questions and comments raise the following concerns:

-    Whether the potential risk that the fiscus faces in having these refunds paid out at such a fast past has been assessed?
-    Whether these refunds are being properly verified before being paid out within this short timeframe?
-    Has there been a review in retrospect of the sources of deductions claimed that potentially gave rise to the majority of these refunds?
-    What has been identified as the main reason/s for the refunds given that the total refunds paid in relation to the number of taxpayers and the category of taxpayer who ought reasonably to be subject to auto assessment appears excessive?
-    What is the average rand value of the refunds paid based on 5.8 million taxpayers auto-assessed in the 2025 tax season that was paid out? 

With reference to the question on the average rand value of the refunds paid, it is worth noting that in last year’s SARS media statement issued on 16 July 2024, it advised that 5 million taxpayers were auto-assessed with R10 billion refunds being paid out to 1,2 million taxpayers. Based on this information it can be estimated that only 24% of the taxpayers that were auto-assessed in 2024 received a refund. If the total of R10 billion was averaged over the 1,2 million taxpayers that actually received a refund the average rand value would result in R8,333.33 per taxpayer. Is this reasonable for this category of taxpayers? Perhaps the “new” modernised SARS AI system will soon provide some insight in this regard and assist with the various other questions raised. 

It is a pity that the 2025 media statement did not contain this level of detail so that the rand average and number of percentage of auto-assessed taxpayers could not be computed as done above for comparison purposes.

The questions raised by tax practitioners come against the backdrop of the various “inaccuracies” in the data that is being submitted by the relevant third-party reporting entities, other income that SARS is unaware of that has been omitted (e.g., a sale of capital asset such as shares in a private company) as well as the policy rationale for the implementation of the auto-assessment process, as was understood by the tax practitioner community which was to expedite the processing of simple individual taxpayer’s returns:

Inaccurate third-party data reporting to SARS

Tax practitioners noted that in practice many cases have come to their attention where employers utilise the incorrect IRP5 source codes which may result in incorrect retirement fund deductions or similarly the same error may arise where the retirement fund provider has issued a duplicate certificate for the same taxpayer resulting in a double deduction, just to name a few. 

Information that SARS is currently not in possession of at the time of auto-assessment

As noted above, this can easily happen where a person disposes of a capital asset. Whilst SARS does have access to the Deeds office, for Capital Gains Tax (CGT) purposes the time of disposal is at the time the sale agreement is entered into unless it is subject to a suspensive condition being fulfilled. The Deeds office will likely only provide SARS with the relevant sale of property information when the property is transferred. As property transfers can take 3 to 6 months this CGT may not be disclosed in the correct tax year. 

Another simple example is where a person rents out a property that was previously held as a personal holiday home. That rental may be received in cash and accordingly SARS may not have knowledge of such rental income. 

General application intended for simple individual taxpayer returns

In this regard the following 2 potential general scenarios are provided:

Scenario 1:

• The person primarily earned a salary (remuneration) and potentially exempt local dividends and/or local interest income which fell below the interest exemption limit of R23,800 (under 65 years) or R32,500 (over 65 years). 
• This person was not entitled to any deductions. 
• In this case the PAYE withheld on the salary by the employer would suffice and that person would not be liable to pay any further taxes nor would a refund be owing. 

Scenario 2:

• The person similarly earned a salary (remuneration) and potentially exempt local dividends and/or local interest income which fell below the interest exemption limit of R23,800 (under 65 years) or R32,500 (over 65 years). 
  This person was entitled to limited deductions such as retirement fund contribution deductions (subject to certain limitations) and/or medical aid tax credits due to contributions paid to a medical aid scheme. 

In both these scenarios, SARS would obtain this information from the various fund managers/institutions as part of its mandatory third-party reporting requirements and utilise such information to generate the relevant tax assessments. 

The lurking issue raised by multiple tax practitioners at this Indaba is the exorbitant value of the refunds that were paid out within a 72 hour period. If the majority of these auto-assessed taxpayers are either “tax neutral” (i.e. per scenario 1 where no taxes are owing nor is that person entitled to a refund) or in the alternative the person falls under scenario 2 where the deductions/tax credits are in most instances not significant. In addition to this, it is also worth noting that SARS will only pay a refund in excess of R100 within this 72 hour period. 

This really does call into question the validity of SARS contention in this media statement where it claims that “This world class service is done whilst managing the risk of impermissible or fraudulent refunds with sophisticated machine learning and AI models.” 

It must be acknowledged that SARS does provide sufficient information and directly requests that the taxpayer review their auto-assessment and submit a return on or before 20 October 2025 if you do not agree with the assessment. 

However, in reality we live in a country where confidence by taxpayers in the proper utilisation of State funds particularly due to the current realm of State Capture that we still find ourselves in, is fairly low. Additionally the low to middle income households to which this category of taxpayer will likely fall into, are already experiencing financial hardship with the decline in the economy and mass retrenchments felt across most industries. 

Therefore in the event that a person is incorrectly assessed and has already been paid the refund (substantial or not) within 72 hours into their bank account, that person may decide not to make any further disclosures to SARS. 

It is important that we remind ourselves of the type of taxpayer that falls with the auto-assessment category, these taxpayers are in all probability less financially astute, do not have the financial means to engage with a tax profession for general tax compliance and operates on the premise that SARS has all the necessary information and technical knowledge to correctly assess their tax liability. Such taxpayer will not seek to find additional income to include in the prepopulated assessment.

Whether such person knowingly or unknowingly understands the repercussions of not rectifying that assessment, this still remains a risk to the fiscus in having paid out a refund that was not due.

Risks to taxpayers incorrectly receiving a refund that was not properly due

Section 190(5) of the Tax Administration Act reads as follows: 

“If SARS pays to a person by way of a refund any amount which is not properly payable to the person under a tax Act, the amount, including interest thereon under section 187(1), is regarded as an outstanding tax debt from the date on which it is paid to the person.”

Therefore in the event that SARS only identifies this incorrect refund paid to a person a number of years later, that person is liable for the full refund and interest on such refund. In the event that SARS determines that there was actually a shortfall of tax paid by that taxpayer for the relevant tax year when the received was received, due to other sources of income earned in that year that had not been disclosed in the auto assessment, penalties will also be imposed. Penalties may be imposed for late payment of tax as well as the more severe understatement penalty (USP). The USP is imposed based on SARS determination of the taxpayer’s behaviour in relation of the tax matter and range from 25% for “reasonable care not taken” and escalate to 100% where the taxpayer’s behaviour is regarded as “intentional tax evasion”. It is also important to bear in mind that where a taxpayer has acted in a similar manner for multiple tax years (e.g., omitting other income earned by not revising the auto-assessment) the taxpayer’s behaviour may be regarded by SARS as repeat case with the imposition of the USP at a rate of 200%. 

A potential scenario and the far reaching consequences for taxpayers and SARS

The category of taxpayers that are auto-assessed are unlikely to revise their assessment hence in all likelihood the only time an incorrect refund may be identified is though SARS conducting an audit on such taxpayer. 

On the basis that the auto-assessment process commenced in 2019, and SARS placing reliance on “the use of artificial intelligence, machine learning, and data science” if a taxpayer has been auto-assessed incorrectly from the commencement of this process and has received refunds that were not properly due to said taxpayer, it is probable that the error will only be identified several years later, if ever… 

If one were to assume that the error is only identified after the taxpayer has received approximately 5 to 7 years’ worth of refunds, SARS may be able to lift the veil of prescription which is generally 3 years from the date of assessment as the taxpayer did not make full material disclosure and properly assess that taxpayer for the taxes that should have been due in these years (assuming this taxpayer had income which was not disclosed in those years). Taking into account the potential tax payable (capital amount which may or may not be substantial) however upon imposition of penalties and interest which accrues from the date that the taxpayer incorrect received such refund this taxpayer, the total tax debt owing to SARS is likely to be a substantial amount which may not be recoverable. 

As mentioned above this category of taxpayer is generally from the lower to middle income household hence is likely to have spent those refunds over the years and may not have the relevant cash available, or own any significant assets that can be easily liquidated to pay over such debt. This taxpayer may or may not have the resources to engage the necessary tax experts to assist in disputing the amount owing to SARS in the event that SARS has assessed the taxpayer incorrectly during the audit process. These costs can be significant to the taxpayer where tax experts which may include a tax accountant and/or legal counsel are engaged.

In this type of scenario it is likely that the tax debt owing by this taxpayer will have to be compromised or permanently written off by SARS after having expended extensive SARS resources  being by way of its Enforcement Division in carrying out an audit of this taxpayer for multiple years, potentially its Litigation Division should the taxpayer decide to dispute the tax debt and its Debt Management Division in its exhaustive attempts to recover the tax debt. The costs incurred by the various Divisions within SARS during this generally lengthy process can be exorbitant and is likely to result in a waste of State resources. 

Conclusion

The speedy payout of refunds at this significant level require serious attention by SARS so that the questions raised above are properly answered. This will ensure that in “the journey to build A Smart, Modern SARS” we don’t simply place absolute reliance on “the use of artificial intelligence, machine learning, and data science” only to realize later on that the “red flags” where there all along. 

I think we can all agree that “to build A Smart, Modern SARS” we must make “use of artificial intelligence, machine learning, and data science”, but as a tool to better administer our tax system whist ensuring that sufficient human capital is also invested in ensuring that the data SARS receives is interrogated through some level of human analytics. 

This will ensure that the auto-assessment process really is effective and efficient, not merely efficient in improving the statistics on rates of compliance whilst posing a financial risk for taxpayers and potentially significant losses of tax revenue year-on-year coupled with unnecessary resources being expended in future by SARS to try to recover such amounts.