By Juanita van der Merwe, Director, AJM
Auto-Assessments: Friend or Foe?
It has been four years since the South African Revenue Service (SARS) first introduced auto-assessments to streamline the tax filing process. Auto-assessments are an attempt by SARS to achieve a more simplified approach to tax compliance by making it easier for taxpayers to comply with their obligations, providing clarity and certainty for taxpayers regarding their obligations, and improving and modernising their systems to offer digital and streamlined services. Just over two weeks into the 2025 personal tax filing season, SARS auto-assessed nearly 6 million taxpayers and released R10.6 billion in refunds, with the majority paid out within 72 hours. This represents a substantial increase from the 2021 year of assessment, during which approximately 3.4 million taxpayers were auto-assessed.
Whilst the issuance of automatic assessments is a great initiative and a move in the right direction, we, unfortunately, can’t ignore the unintended results. These results have dire consequences not only for taxpayers but also for Fiscus. Since the inception of auto-assessments, there have been multiple instances where auto-assessments contain incorrect and incomplete information. Previously, taxpayers could accept or reject the auto-assessment; however, these assessments are finalised without any input from taxpayers, and refunds are issued almost instantly.
What has changed since 2021
Initially, auto-assessments were designed for taxpayers with straightforward financial profiles. They have since added several taxpayers, including provisional taxpayers. Bearing in mind that these are taxpayers who receive income other than remuneration, and where PAYE has not been withheld at source. These additional sources of revenue include interest earned in investments, rental income from investment properties, and profit on the sale of assets.
Provisional taxpayers are required to make estimated tax payments during the year to ensure that any tax shortfall on their various income streams is covered promptly. This year, many provisional taxpayers who were incorrectly auto-assessed received refunds of the payments they made due to mismatched or incomplete data.
Various institutions (like banks, medical schemes, retirement funds, etc.) are legally obligated to submit Third Party Data Submissions, which contain taxpayer-related information to SARS. This information is generally pre-populated on the taxpayers’ income tax returns. Data integrity is a crucial element in the issuance of auto-assessments as SARS relies on the accuracy, completeness, and consistency of the data submitted by third parties. When data is tainted, it can have a profoundly negative impact on taxpayers and SARS, especially in instances where taxpayers are auto-assessed and are unaware of it.
Your Responsibility as a Taxpayer
Taxpayers are obligated to review the correctness of the auto assessments. If they disagree, they have an opportunity to submit a revised return. The cut-off date for submitting a revised return is 20 October 2025, regardless of whether a refund has been paid within 72 hours. The process to follow when you do not agree with the auto-assessment is not the same as an objection against an assessment that you do not agree with. These are two very different processes.
If you disagree with the auto-assessment and you proceed to submit a revised return, SARS will issue a reduced or an additional assessment. If you disagree with the revised assessment, you may proceed to object to the assessment within 80 business days from the date of the issuance of the revised assessment.
In practice, we find that many taxpayers are unaware of how to proceed with submitting a revised return or the consequences of ignoring an incorrect assessment issued in their favour. As a result, they proceed to accept the position and use the refund.
Many taxpayers are only familiar with the basic principles of tax and often assume that since they receive a salary from an employer, tax is already accounted for and withheld, so their tax affairs are in order.
Common Causes of Incorrect Assessments
However, many factors can impact the correctness of an assessment result in undue refunds. Some of the more significant factors include instances where employers used incorrect source codes on the IRP5 certificates, additional sources of income not included in third-party data submissions (such as rental income and asset sales), and instances where retirement funds have been transferred to other approved funds. SARS regards those transfers as an additional contribution to a retirement fund, for which a deduction is allowable. These may all result in undue refunds to taxpayers, which they are not entitled to.
The 3-Year Rule Doesn’t Always Protect You
Section 99 of the Tax Administration Act prescribes that SARS may not issue an additional assessment or reassess a tax return more than 3 years after the original assessment was issued, unless certain exceptions apply. Many taxpayers are unfamiliar with this rule or its exceptions.
These exceptions include fraud, misrepresentation, or non-disclosure of material facts. As a result, where an auto-assessment is accepted and is based on incorrect or incomplete information, the 3-year prescription rule cannot apply. The result of this is that SARS can revise the assessment at any point in time and include penalties and interest. Stated differently, SARS may issue an auto-assessment that a taxpayer simply accepts/agrees with. SARS may then proceed to audit the (essentially its own) auto-assessment, disagree with its own assessment, and issue penalties and interest.
SARS may also impose administrative penalties on taxpayers who fail to comply with their obligations to file accurate returns. These penalties range from 5% to 200% and are in addition to the tax payable for the relevant tax period.
Potential Benefits of Submitting a Revised Return
There are also instances where it can be beneficial for taxpayers to submit revised returns, as the auto-assessments do not always consider specific allowable deductions/allowances, for which SARS currently has no record. Examples may include additional medical expenditures, section 12B and 12BA allowances (deductions in respect of capital allowances on machinery, implements, or equipment used to generate renewable energy).
The Way Forward for Auto-Assessments
It was initially aimed at taxpayers with a basic financial position and to reduce the burden on those taxpayers to meet their tax filing obligations. There are ways to achieve the objective and lessen the unintended outcomes it currently experiences.
More focus should be on the integrity of the data and prior engagement with the taxpayers who have been identified for auto-assessments.
Key Takeaway
As you can see, there are many factors to consider, and the incorrect result can lead to dire consequences for both taxpayers and the Fiscus.
Whilst the initiative to simplify taxpayers’ tax affairs is welcomed in certain instances, it can create more difficulties and complications for the taxpayers and SARS. It may lead to further financial constraints in an already struggling economy.
We therefore advise all our clients to review their auto-assessments carefully and not to accept them on face value, ensuring a thorough review of the income tax return is undertaken.