The South African Revenue Service’s (SARS) inefficiencies are leaving expats in limbo, contending with double taxation unnecessarily.

South African expats abroad face increasingly turbulent waters regarding taxes.

Many expats depend on Double Tax Agreements (DTAs) to prevent double taxation on the same earnings.

However, there seems to be a blind spot from a tax administration standpoint.

Concerns are growing about applications submitted to SARS, pointing out systemic inefficiencies which are causing delays in crucial decisions.

If an individual is a tax resident in another country but a tax non-resident in South Africa, they may be eligible for relief from South African tax on their South African pensions and annuities.

South Africa has 22 DTAs that provide for this relief, including agreements with the UK and New Zealand, among others.

However, it is important to note that a DTA does not automatically apply, and the taxpayer must claim the relief measures.

The process of claiming DTA relief can be problematic.

If an individual has been a tax non-resident for three or more years, they can cash out their South African retirement interests as a lump sum payment.

This means that they can withdraw all their retirement savings at once.

However, if an individual has previously withdrawn their retirement savings as a lump sum and now receives an annuity, they must withdraw the funds gradually at a maximum rate of 17.5% per year.

For instance, if someone is retired and has already started withdrawing from their retirement savings, they are not allowed to withdraw the entire amount in one lump sum when they relocate overseas.

It is important to note that a lump sum withdrawal from a retirement fund can only be made after SARS has issued a directive on how much tax should be withheld.

However, it is not possible to claim DTA relief at the directive application stage to confirm that no tax will be withheld.

This means that many people who have previously made a lump sum withdrawal were not aware that they qualify for DTA relief.

Even those who are aware will have to wait until they file their next return and then lodge a dispute against the tax withheld.

This may not be a problem for some expats, but for many others, it means that they may potentially have to deal with double taxation, even if only temporarily.

For expats whose retirement interests have already been annuitized, there is a route to obtain a Nil tax directive from SARS.

To apply for an RST01 directive, one needs to complete an application form, get it signed and stamped by the revenue authorities in their country of residence, and send it to SARS.

However, many expats who apply through this route never receive a response.

This backlog not only affects business operations but also undermines trust in the tax system.

Claiming DTA relief from tax on annuities in South Africa is theoretically possible, but in reality, it is difficult to get an actual outcome from SARS on the matter.

This has caused mounting confusion and frustration among taxpayers, especially expats.

The lack of transparency and consistency in the SARS’ application process and the absence of any structured timeline for processing these applications exacerbates the situation.

Taxpayers are left in limbo for extended periods, often indefinitely.

Sharpening its revenue collection tools has seen the South African Revenue Service (Sars) require that several taxpayers explain why the revenue declared in their income tax return does not match the deposits detected in their bank accounts. Unsatisfactory answers have led to estimated or additional assessments and even hefty penalties being imposed. Sars has taken to augmenting taxpayer revenue.

Revenue augmentation is a process of comparing what a taxpayer declared as revenue in [their] tax return to the amounts actually deposited into taxpayer’s bank accounts.

If a taxpayer declared R1 million but the deposits suggest revenue of R10 million, they must explain why Sars should not raise an additional assessment to tax the “undeclared revenue”.

Sars has had access to taxpayers’ information from third-party data providers such as banks and other financial institutions since 2012.

As you can imagine that is a lot of data. They have lately improved their capacity and systems to process this data much more efficiently. That is why we are now seeing an increased utilisation of the data to verify information that is being declared [in relation] to what is being received from third-party service providers.

SARS has increased audit focus on individual taxpayers since January. These variances are huge, so it does make sense for Sars to pursue cases where they are likely to recover undeclared revenue

Taxpayers must realise that Sars is continuously seeking new, better and more efficient ways in which to obtain a “360-degree view” of taxpayers’ affairs.

This includes a review of movements in their bank accounts, their world-wide income and other assets in or outside SA.

If the taxpayer does not respond or does not supply adequate reasons why the deposits have not been declared, or that they relate to loans or inter-account transfers – or potentially from other non-taxable income – then Sars will raise these assessments.

The revised assessments can be challenged through the relevant dispute mechanism procedures. However, as we know these procedures take time, effort and can be costly

The tax law places the burden of proof on taxpayers. Sars may require a taxpayer to reconcile amounts on a line-by-line basis, and explain on a line-by-line basis – with evidence – why a particular deposit does not stand to be included in their gross income.

It may take a taxpayer weeks to fend off additional assessments. If they do not go through this extensive line-by-line exercise a likely outcome is that Sars will collect or try to collect the amount it has assessed, despite these assessments often – but not always – being ultimately incorrect.

Taxpayers who are currently the focus of Sars’s attention are the ones who are unlikely to respond when questions are asked about deposits in their bank accounts, or by the time Sars gets around to them there will be no assets in their name or money in the bank account.

There are instances of downright non-compliance and taxpayers are “ultimately held accountable for the correctness of their tax returns.

Once Sars has alerted the taxpayer to the discrepancy they have to engage with Sars.

Taxpayers should also note that if Sars raises an estimated assessment they will not be able to object to the assessment.

This means they cannot, in law, request reasons for the assessment, nor can they, in law, ask for payment of the often-overstated assessment to be suspended pending a challenge against these assessments

Taxpayers must distinguish between an original, additional and estimated assessment.

Nzimande advises taxpayers to invest time to understand and review the information declared on their tax returns, even if they have a professional that assists with the filing of their returns.

If there are issues with the declarations, the taxpayer is the one who will ultimately be held accountable.