When it comes to tracking down tax-dodgers, SARS has the tools, the people, and the will.
Tax evasion and illicit financial flows are two areas that have long undermined economic growth in South Africa and public trust in governance. To counter these challenges, SARS has increasingly leaned on a controversial but effective tool—the lifestyle audit.
These audits, designed to reconcile an individual’s or entity's declared income with their actual standard of living, have become a prominent feature of SARS' efforts to improve tax compliance and clamp down on corruption.
What are lifestyle audits?
A lifestyle audit is an investigative process used by SARS to determine whether a taxpayer’s declared income matches their visible lifestyle.
If an individual appears to be living beyond their declared means—e.g. owning luxury vehicles, high-end properties, or funding extravagant travel—SARS may initiate a lifestyle audit to examine possible discrepancies.
The purpose is not solely to detect underreporting of income, but also to identify undeclared revenue streams. These include money from illegal activities, tax fraud, or undisclosed offshore income.
Legal framework and SARS’ mandate
SARS derives its authority to conduct lifestyle audits from various legislative instruments, most notably:
- The Tax Administration Act (TAA) 2011, which allows SARS to gather information for verification or audit purposes;
- The Income Tax Act 1962, and the Value-Added Tax Act 1991, both of which empower SARS to assess compliance with tax obligations; and
- The Financial Intelligence Centre Act (FICA) 2001, providing tools to trace illicit financial activity.
Section 46 of the TAA gives SARS broad powers to request relevant documents, third-party records, and even bank statements from taxpayers or institutions. The key limitation is that SARS must act within legal bounds, and cannot infringe on constitutional rights (such as privacy) without due cause or process.
The process of a lifestyle audit
SARS typically initiates a lifestyle audit when there is a ‘risk indicator’. This may stem from discrepancies in tax filings, tip-offs, social media flaunting of wealth, or intelligence gathered through the Financial Intelligence Centre and other law enforcement bodies.
The general steps in a lifestyle audit include the following:
- Risk assessment. SARS uses data analytics and artificial intelligence to flag high-risk profiles.
- Preliminary review. An informal comparison of declared income versus lifestyle indicators (e.g. car ownership, real estate, and bank activity).
- Notification. If a potential mismatch is found, SARS notifies the taxpayer of a pending audit.
- Data collection. SARS gathers detailed financial information, which may include personal and business bank statements, vehicle and property registrations, loan agreements, insurance policies, credit card statements, and travel history.
- Interviews and explanations. The taxpayer may be asked to explain the sources of funds, or any discrepancies that have been identified.
- Final assessment. SARS issues an assessment, which would indicate an additional tax liability if undeclared income is proven. Penalties of up to 200% of the tax shortfall arising from any undisclosed income are also likely to be levied.
- Legal action. In severe cases, the matter may be referred for criminal prosecution.
The rise in lifestyle audits
South Africa's era of state capture, prominently investigated by the Zondo Commission, left SARS severely weakened during the mid-2010s.
Under the leadership of SARS Commissioner Edward Kieswetter (appointed in 2019), SARS has embarked on a process aimed at being rebuilt as a capable and assertive tax authority. Lifestyle audits have become one of the tools reflecting this turnaround.
Kieswetter has repeatedly emphasised that no one is above the law, and SARS has taken aim at both high-net-worth individuals and politically exposed persons (PEPs). Notably, the audits have targeted individuals in sectors such as government, business, entertainment, and the legal profession.
In a press conference that took place shortly after the second version of the 2025/26 Budget was presented to Parliament, Kieswetter noted that “SARS revenue collection accounts for 90% of Government expenditure, [which] requires SARS to do all that is possible within its mandate to ensure that all revenue due to the fiscus is collected …”
He added: “Whilst we have seen encouraging progress at SARS, we remain painfully aware that much more has to be done to address the tax gap and in particular, modernise SARS to respond to illicit economic activities and tax crime, aggressive tax planning, and many other instances of non-compliance.
“All these mean that there are vast amounts of tax revenues that remain uncollected. Our efforts in this regard have to be stepped up with determination and unyielding focus.”
In 2021, SARS revealed that over 1,500 lifestyle audits had been conducted over a three-year period, recouping over R400 million in taxes. More audits followed in subsequent years, aided by modern data analytics tools and collaboration with the Financial Intelligence Centre (FIC).
Notable cases and sectors
Lifestyle audits have been particularly impactful in exposing irregularities among:
- Politically connected individuals: Some officials linked to procurement scandals or corruption allegations have found themselves audited when their lifestyle did not match their official income.
- Celebrities and influencers: Public displays of wealth on social media have triggered investigations. SARS has reminded public figures that flaunting luxury goods can invite scrutiny.
- High-net-worth individuals: Audits have helped SARS detect complex tax avoidance schemes, undeclared offshore assets, and hidden income.
While SARS does not publish individual names, some high-profile audits have leaked to the media, sparking public debate about accountability and fairness.
Public reaction and controversy
The use of lifestyle audits is not without criticism. Critics argue that the process can be intrusive and subject to abuse, especially if politically motivated. There are also concerns that the audits may be applied selectively or weaponised against critics of the state.
Furthermore, the accuracy of assumptions about lifestyle can be problematic. For example, a person may be enjoying luxury benefits through inherited wealth, family support, or non-taxable income (like gifts), which might not necessarily be subject to tax.
In such cases, proving the legitimacy of one’s income can become burdensome, especially for individuals unfamiliar with formal financial documentation.
Civil society organisations and tax experts have urged SARS to maintain transparency and adhere strictly to the rule of law, to preserve public trust.
Technology, data, and artificial intelligence (AI)
A cornerstone of modern lifestyle audits is the integration of artificial intelligence and data analytics.
SARS has developed advanced systems to consolidate data from banks, the Companies and Intellectual Property Commission (CIPC), the National Transport Department, and even social media platforms. This allows for a 360-degree view of a taxpayer’s financial footprint.
SARS has also begun using geospatial data, customs declarations, and cryptocurrency wallet tracking to bolster audit accuracy.
The use of AI has enhanced efficiency and reduced human bias, but it also raises ethical concerns. Data privacy, algorithmic fairness, and oversight are crucial to ensuring that audits remain fair and defensible.
The broader impact
SARS’s lifestyle audit program serves multiple purposes:
- Revenue collection: Recovering lost tax revenue boosts national coffers, especially critical amid South Africa’s budget deficits.
- Deterrence: The prospect of an audit deters tax evasion and encourages voluntary compliance.
- Public morality: Exposing the disconnect between wealth and earnings sends a strong message against corruption.
- Institutional credibility: The return of SARS as a feared and respected entity marks a key milestone in restoring governance post-state capture.
However, for lifestyle audits to have a lasting effect, SARS must ensure consistent application, legal fairness, and sufficient taxpayer education.
Holding individuals accountable
SARS’s use of lifestyle audits in South Africa represents a proactive approach to enforcing tax laws and fighting economic crime.
However, while the strategy has yielded substantial returns and improved compliance, it walks a tightrope between investigation and intrusion. For lifestyle audits to maintain legitimacy and effectiveness, they must be underpinned by transparency, legal safeguards, and technological integrity.
As South Africa continues to battle inequality and corruption, lifestyle audits stand out as both a practical and symbolic tool to hold individuals accountable and strengthen the country’s fiscal foundation. However, SARS’ challenge lies not only in catching offenders, but also in building a compliant tax culture.
WRITTEN BY STEVEN JONES
Steven Jones is a retired tax practitioner and member of the South African Institute of Professional Accountants.
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
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