Abstract
VAT fraud is a global issue with the potential to significantly undermine national revenue systems, as highlighted by the International Monetary Fund (IMF). The South African Revenue Service (SARS) is not immune to this challenge. In Kusasa Refining (Proprietary) Limited v Commissioner for the South African Revenue Services 2023 (4) SA 459 (GP), SARS reported that it had suffered severe financial prejudice due to a VAT fraud scheme involving the smelting of Krugerrand coins into gold bars. VAT fraud adversely impacts SARS’s capacity to collect revenue effectively and imposes an additional administrative burden on the organisation, which must invest significant resources to detect and prevent fraudulent VAT refund claims. This research found that taxpayers use a range of methods to defraud SARS, including failing to register as VAT vendors, failing to submit VAT201 returns, overstating input costs, and understating output VAT to illegitimately claim refunds.
The study analyses the South African tax legislative framework and examines the powers and functions of key law enforcement agencies, namely the National Prosecuting Authority (NPA), SARS, and the South African Police Service (SAPS), in combating VAT fraud. It also assesses the effectiveness of these institutions in curbing such fraud. Furthermore, a comparative legal analysis of the VAT systems in South Africa and the United Kingdom (UK) is undertaken to identify best practices. The research explores the mechanisms employed by the UK tax authority to combat VAT fraud and enhance revenue collection. Particular attention was given to the use of artificial intelligence (AI), which has significantly improved SARS’s capacity to raise tax revenue, contributing an additional R293.7 billion to the fiscus.
The study concludes that there is a need to amend the Tax Administration Act to grant the SARS Commissioner additional powers to initiate tax prosecutions, in addition to investigating tax contraventions.