Estimated assessments: Sars's new ‘cash-cow-grabbing' norm?
Sars often prepares these estimates 'by comparing deposits into a bank account to turnover declared on the tax return'. Picture: AdobeStock
The South African Revenue Service (Sars) has the power to raise estimated assessments when the information supplied by a taxpayer is considered incorrect or inadequate.
The apparent subjectivity of the parameters used when issuing estimated assessments make the provision subject to abuse, argues Nico Theron, founder of Unicus Tax Specialists.
The Tax Administration Act authorises Sars to issue an estimated assessment if a taxpayer fails to submit a return; submits a return or relevant material that is incorrect or inadequate; or fails to respond to requests for relevant material, even after multiple reminders.
If any of these requirements is unmet, Sars may issue an estimated assessment, which is then based on its own calculations of the taxpayer's liability, says MaxProf auditor Debora Motana in a published article.
ALSO READ: Are you making money with crypto assets? Sars is looking for you
Troubling …
Theron finds the subjective nature of the parameters for inaccurate returns or information or inadequate returns or information troublesome.
'If, for example, the taxpayer submits detailed information, but the Sars auditor does not understand it, is the information inaccurate? Perhaps not. Is it inadequate? Well, perhaps, for that auditor but perhaps not for the next one.'
He says hypothetically the provision can be relied on when an accurate assessment is objectively speaking possible – but subjectively, the auditor may be snowed under or lack the expertise to get to an accurate assessment and revert to an easy way out, thereby shifting the workload to the taxpayer.
ALSO READ: Economists say they are confident in Sars
Methodology
Theron notes that Sars often prepares these estimates by comparing deposits into a corporate taxpayer's bank account to turnover declared on the tax return.
'If the deposits are higher, they will typically propose to tax the difference. They will propose this even though it is trite that the sum of deposits in a bank account will seldomly yield the same number as turnover.
'This much, frankly, is ridiculously obvious to anybody with a basic understanding of commerce and accounting.'
When Sars estimates a taxpayer's tax bill by comparing bank statements to turnover, the onus is on the taxpayer to prove – on a deposit-by-deposit basis – why the difference is not taxable.
Theron argues that accurate assessments are to be preferred and that estimated assessments should only be raised as a last resort and not simply if the taxpayer failed to file a return, failed to respond to multiple requests, or submits information or a return that is inadequate or incorrect.
Motana warns taxpayers to be vigilant in adhering to the requirements outlined in the provision (Section 95 of the act) that grants the power to Sars to make an estimated assessment.
She also notes that the onus is on the taxpayer to demonstrate whether the assessment is valid or needs adjustment.
ALSO READ: Tax season now open: Sars pays out R10bn in refunds after auto-assessments, you could be owed
Court case
Motana refers to an appeal case before the tax court in Johannesburg where Taxpayer RPC took an estimated assessment on appeal. It was not satisfied with the methodology used by Sars in determining the assessments.
In its judgment in favour of Sars's methodology, the court quoted from the Africa Cash & Carry v Sars case where the tax court stated that an estimated assessment 'by its very nature' is subject to change based on an evaluation of the evidence and any information that becomes available.
The tax court must place itself in the shoes of the functionary to determine whether the methodology followed and the assumptions on which the estimated assessments are based, are reasonable and produce a reasonable result.
In the Taxpayer RPC case the court found that the methodology used by Sars is not expected to be precise, as long it satisfies the objective test.
ALSO READ: Looming tax deadline and glitches cause frustration
'Cash-cow-grabbing norm'
Theron says an organ of state such as Sars must act within the four corners of its empowering provisions.
He questions whether the raising of estimated assessments is used as a last resort to protect the fiscus or whether it is used because it is effective and convenient.
'I can understand, from a business perspective, that estimated assessments might be used as cash-cow-grabbing norm. Indeed, we are seeing an increase in estimated assessments.'
* Sars announced last week that it has issued auto-assessments to 5.8 million taxpayers, up from five million last year. Taxpayers have from 21 July until 20 October to file their tax returns or make changes to their auto-assessments. Provisional taxpayers have until 19 January to file their tax returns.
This article was republished from Moneyweb. Read the original here.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Citizen
3 hours ago
- The Citizen
Vat vendors: Be aware of the different types of tax assessments
And understand the correct procedures should a dispute with Sars arise. Taxpayers are advised to deal with estimated assessments before they become additional assessments. Picture: AdobeStock The South African Revenue Service (Sars) was granted additional powers to implement the estimated assessment functionality where value-added tax (Vat) vendors do not adhere to the provisions of the Tax Administration Act. As a result, there has been a significant increase over the past two years in Vat estimated assessments where taxpayers have failed to submit returns, provided inadequate information, or failed to adequately respond to requests for relevant material. According to Ayanda Masina, indirect tax manager at Deloitte Africa, it is important to respond timeously when confronted with an estimated assessment. 'It is crucial to keep meticulous records of transactions included in the Vat return and to confirm that information and documentation requests from Sars are fully responded to.' It may be prudent to request reasons for an assessment issued or to follow up with Sars on all correspondence submitted, Masina advises in a statement. Her advice follows recent concerns expressed by Nico Theron, founder of Unicus Tax Specialists, about the potential abuse of estimated assessments where they are issued as a 'cash-cow-grabbing norm' instead of being used as a last resort for non-compliant taxpayers. Theron questioned how many estimated assessments are being raised not as a last resort to protect the fiscus, but because it is effective and convenient to do so. ALSO READ: Woolworths vindicated over VAT treatment Types of assessments Masina says most taxpayers may not know that there are four types of assessments for tax, namely: Original assessments Additional assessments Reduced assessments, and Jeopardy assessments. All of these can be based on an estimate. 'Estimated assessments, like additional assessments, are pivotal in the administration of Vat,' she adds. Theron says there is a need for the provision that allows Sars to issue estimated assessments (Section 95 of the Tax Administration Act). 'It is not inconceivable that a taxpayer may obstruct an auditor from timeously raising an assessment by providing incorrect or inadequate information.' Masina says taxpayers need to understand the procedure when dealing with estimated assessments before they become additional assessments. ALSO READ: Sars beats expectations by collecting R1.855 trillion in 2024/25 tax year Equally important is to follow the correct procedure when disputes arise. As with additional assessments, the obligation to provide information requested by Sars remains in the case of a Vat estimated assessment. The taxpayer may request Sars to suspend payment until the issue is resolved. Sars must, upon request from the taxpayer, provide the reasons or grounds for the assessment. 'However, unlike an additional assessment which is subject to objection and appeal once issued, an estimated assessment is only subject to objection and appeal if Sars decides not to make a reduced or additional assessment after the taxpayer submits the return or accurate and relevant material.' ALSO READ: Sars to issue estimated vat assessments for non-compliant taxpayers Reduced or adjusted estimates Taxpayers can request Sars to reduce or adjust the estimated assessment before the assessment becomes final. They must submit the relevant or correct information requested by Sars within 40 business days from the date of the estimated assessment. They can also request a longer period beyond the 40 days. Masina says Sars can issue an additional assessment reducing or adjusting the estimated assessment and, where the taxpayer is satisfied with the outcome, the additional assessment will stand. ALSO READ: Taxpayer trust in Sars stagnates Dispute resolution Sars can also decide not to revise the estimated assessment, and the decision will serve as the date of the additional assessment. This sets the normal dispute resolution process in motion, allowing the taxpayer to object against the assessment. 'Although this process seems straightforward, the reality is that the communication between Sars and taxpayers does not always yield the desired results because the set rules are not followed,' Masina warns. Theron notes that estimated assessments should only be raised as a last resort and not simply if the taxpayer failed to file a return, failed to respond to multiple requests, or submits information or a return that is inadequate or incorrect. The fact that a taxpayer does not respond to multiple requests for relevant material does not mean the assessment is only possible by way of a guess. 'Sars has far-reaching powers to get accurate and adequate information elsewhere which it might need to raise an accurate assessment,' says Theron. This article was republished from Moneyweb. Read the original here.
IOL News
a day ago
- IOL News
SARS to provide sign language interpreters at branches for deaf taxpayers
The South African Revenue Service (SARS) has confirmed that it will provide South African Sign Language (SASL) interpreters The South African Revenue Service (SARS) has confirmed that it will provide South African Sign Language (SASL) interpreters at selected branches across the country on Friday. Earlier this week, the revenue service announced the successful completion of the auto assessments period, which ran from July 7th until July 20th. The tax filing period is now under way, with individual taxpayers encouraged to file via eFiling or the SARS MobiApp. "The successful completion of the Auto Assessment period, which ran from 7 to 20 July 2025, will be followed by the tax filing period via eFiling and the SARS MobiApp for individual taxpayers from Monday, 21 July–20 October 2025," Sars said.
The South African
a day ago
- The South African
Still waiting for your tax refund? Here's what might cause a delay
Tax season 2025 is now in full swing. Auto-assessments were sent out to 5.8 million South Africans and a total of R10.6 billion was refunded. That's an average refund of R1 828. From Monday this week, it's the turn of those who weren't auto assessed to submit their tax returns on the SARS eFiling portal. Auto-assessments: 7–20 July 2025 Individual Taxpayers: 21 July – 20 October 2025 Provisional Taxpayers and Trusts: 21 July 2025 – 19 January 2026 While those auto assessed received their refunds in 72 hours – often quicker than that – those manually uploading tax returns may be experiencing delays. The list below could be the reason why … Banking details under verification If SARS flags your bank details for verification, it can take up to 21 business days from when they receive all the correct supporting documents. from when they receive all the correct supporting documents. Once verified, the refund is typically paid within 72 hours. Return selected for verification If your tax return is selected for a standard verification , the process may take up to 21 business days after submitting all required documents. , the process may take after submitting all required documents. Refunds are usually paid within 72 hours after verification is completed. Multiple tax years submitted for audit/verification When several tax years are submitted and selected for audit or verification , SARS may take up to 90 business days to finalise. , SARS may take to finalise. Only once all years are verified will the refund be issued (within 72 hours thereafter). Return selected for full audit A full audit can take up to 90 business days (from when all complete documents are received), unless SARS communicates otherwise. can take up to (from when all complete documents are received), unless SARS communicates otherwise. Refund follows within 72 hours post-audit. Outstanding tax returns No refund will be paid if you have any unsubmitted tax returns. These must be filed first. Incorrect or outdated banking details Refunds won't be processed if SARS has incorrect banking information. You'll need to update and verify your details. Outstanding SARS debt If you owe SARS money, your refund may be used to offset your debt through a process called debt equalisation. Only the remaining balance (if any) will be paid to you. Let us know by leaving a comment below, or send a WhatsApp to 060 011 021 1 Subscribe to The South African website's newsletters and follow us on WhatsApp, Facebook, X and Bluesky for the latest news.
