In the previous article we concluded that AI is here to stay. This article examines instances where AI is already being used by SARS and the practical challenges experienced.
Introduction
Information is only relevant to the extent that it is considered in the context in which it is used and environment in which it has been generated.
One of the most significant challenges of AI is that it currently does not have access to private information and can therefore only work on generalisations and information that is available in the public domain; it cannot see behind the scenes (or if you want to get poetic, at the dark side of the moon!).
This shortcoming becomes blatantly apparent in some of the challenges raised by SARS based on “discrepancies” identified via AI but resulting from only having access to one side of the information (the dark side of the moon remains dark).
The impact of unintelligent AI on taxpayers
The onus to prove that information submitted to SARS is correct rests upon taxpayers (guilty until proven innocent!).
Any apparent discrepancies must be explained by the taxpayer, whether or not it has been created by unintelligent AI.
To avoid disruption to its business and a waste of valuable management time and resources, a taxpayer is put in a position that it should pre-emp unintelligent AI outcomes to prepare to dispose of the onus of proof. Data analytics (maybe AI) can be used to generate the necessary reports to dispose of the onus if prove.
Let’s have a look of example of what is practically hidden on the dark side of the moon.
Agent/principal relationships
The VAT and Customs and Excise Acts allow for import and export documentation to be issued in the name of an import or export agent.
From a VAT perspective the VAT consequences must be declared in the VAT return of the principal.
Where the details of the agent are reflected on the import or export documentation, there will be a discrepancy between the Customs and VAT declarations if the two sets of documents are compared.
SARS’ AI only has regard to Customs and VAT declarations visible on the light side of the moon which will reflect two different persons making declarations. The principal/agent link on the dark side of the moon is invisible to SARS.
The consequence: SARS treats all zero-rated exports as standard-rated exports and disallows input tax claimed on importation of goods as the VAT and Customs documentation do not match – because AI says so!
Garbage-in-garbage out!
Accounting convention
VAT is accounted for in the VAT return in the tax period that the time of supply of goods is triggered (for the technically minded, the earlier of the issuing of any invoice for the receipt of any part of the consideration for the supply).
For Customs purposes, declarations are made when the goods are exported, with is not linked to the time of supply for VAT purposes.
See where this is going …
In practice, AI compares the Customs documentation to the VAT documentation and concludes that there must be some mischief on the part of the taxpayer as the information on the documents do not correspond.
Garbage-in-garbage out!
And the onus is on the taxpayer to prepare a detail reconciliation to demonstrate in which tax period the goods were declared for VAT and Customs purposes respectively.
Value of goods disclosed on export documentation
If you are in the unenviable position of being a price taker (that means the price for goods is only determined once the goods are sold in the international markets) you are in for a royal scrap with SARS.
Tax invoices for the supply of good where the price is only determined once the goods are sold in the international market, are issued once the actual price has been determined.
For Customs declaration purposes though, the commercial invoice on which the export declaration is based must contain the value of the goods being exported at the time of the export. This can only be an estimate of the ultimate sales value of the goods at that time. When the true export value is determined, a voucher of correction (VOC) is processed to adjust the amount originally declared in the export declaration to Customs.
Where the VOC is processed subsequent to the export being declared for VAT purposes (which is almost exclusively the case in practice), a discrepancy will be identified by AI which will result in export sales being treated as standard-rated supplies, the exporter clearly “playing around” with values – just ask AI!
Conclusion
While AI is here to stay, the use of AI should be carefully considered to ensure that the intention of using AI as a tool to enhance efficiencies, does not become a stumble block in the way of efficient management of data. How this will play out in future, only time will tell. Access to the dark side of the moon will however be critical to enhance the efficiency of AI in the future.
