Fresh tax legislation may force banks to assist the South African Revenue Service (SARS) in identifying and briefly freezing funds and payments owed to taxpayers across South Africa.
Key Takeaways
- Banks gain new fraud-screening powers: Under the proposed amendment to Section 190, banks would be permitted to flag suspicious tax refunds and hold them for up to two business days while SARS investigates, effectively extending SARS’s fraud-detection reach into the banking sector.
- AI-driven scams are escalating: Fraudsters are increasingly using artificial intelligence to craft convincing fake SARS emails and SMS messages, making it harder for taxpayers to distinguish genuine correspondence from phishing attempts designed to steal banking details.
- Public comment closes 28 August 2026: The draft legislation, tied to measures from the 2026 Budget Review, remains open for public input until that date, though key details on the exact criteria banks will use to flag risky refunds have not yet been clarified.
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Overview of the Proposed Changes
The suggested amendments are part of the 2026 Draft Tax Administration Laws Amendment Bill (TALAB), which was released for public comment together with the Draft Taxation Laws Amendment Bill.
As reported by Tax Consulting South Africa, the changes would grant banks an official role in SARS’s ongoing campaign against tax fraud by permitting them to vet tax refund payments either before or after those funds land in taxpayers’ accounts.
SARS was established in 1997 through the South African Revenue Service Act, bringing together what were previously separate departments handling inland revenue and customs and excise into a single unified body.
Amending Section 190
The proposal seeks to change Section 190 of the Tax Administration Act so that banks are explicitly permitted to flag refunds they reasonably believe are connected to a tax offence.
Should a bank flag a particular payment, it would then be obliged to notify SARS of the matter and place a temporary hold on the refund for a period of up to two business days while the revenue service looks into whether the payment is legitimate.
Tax Consulting SA indicated that this proposal, in effect, broadens SARS’s fraud-detection capabilities beyond the tax authority itself, describing it as a decisive compliance step that mirrors SARS’s proven track record in halting fraudulent VAT refunds, and one that could be seen as SARS handing over a measure of its fraud-detection discretion, along with its refund-freezing authority, to banks and other financial institutions.
Existing Cooperation Between SARS and Banks
The firm went on to explain that SARS is already in discussions with banks to look into the possibility of screening refunds before they even reach taxpayers’ accounts, with the goal of blocking fraudulent payments while still making sure that genuine refunds are processed and paid out more speedily.
This latest proposal builds upon powers SARS already holds to reclaim refunds it believes were disbursed in error.
SARS is already entitled to do the following:
- Issue additional tax assessments where discrepancies are found
- Conduct audits or verification processes on taxpayer submissions
- Make use of various recovery mechanisms already provided for under existing law
Banks as an Additional Checkpoint
Under the terms of the draft amendment, banks would function as a further checkpoint in the system, tasked with spotting potentially suspicious refund activity before the money becomes freely accessible to the account holder. That said, Tax Consulting SA pointed out that one significant question has yet to be answered.
The firm noted that while this represents a proactive step towards recovering fraudulent refunds that have already been paid out, and adds a further layer of protection for public funds, there is currently no additional clarity on what criteria or matrix banks would actually use to assess the risk that a given deposit is linked to a tax offence.
A similar model of banks acting as a fraud-screening layer for government payments has already been trialled in countries such as the United Kingdom and Australia, where financial institutions work alongside tax authorities to intercept suspicious refunds before they reach fraudsters.
The proposed changes arrive in the middle of the current tax filing season, as SARS continues to caution taxpayers about refund scams that are growing ever more sophisticated.
How Scammers Operate
Fraudsters have been dispatching fake emails and SMS messages that claim the recipient is owed a tax refund, directing victims towards fraudulent websites purpose-built to harvest personal details and banking information.
Tax Consulting SA reported that criminals are making increasing use of artificial intelligence to produce convincing communications that are becoming harder and harder to tell apart from authentic SARS correspondence.
A genuine SARS communication will never ask a taxpayer to click a link and immediately enter banking credentials; rather than clicking through, taxpayers should log into eFiling directly via the official SARS website to verify any refund claims.
SARS has repeatedly emphasised that it will never request passwords, one-time PINs, banking PINs, or eFiling login credentials from taxpayers via email, SMS, social media platforms, or telephone calls.
Findings From the Tax Ombud
The proposed amendments also follow on from recommendations put forward by the Office of the Tax Ombud in its draft report examining alleged eFiling profile hijacking.
That report found that criminals frequently alter banking details on compromised taxpayer profiles before going on to submit fraudulent tax returns in order to generate illegal refunds, with some cases reportedly worth as much as R100 000, while deliberately keeping individual amounts low enough to slip under the radar and avoid detection.
The Ombud ultimately concluded that preventing this particular type of fraud will require close cooperation between SARS, the banking sector, registered tax practitioners, law enforcement agencies, and other relevant stakeholders.
Summary of Fraud Risk Factors
| Risk factor | Description |
|---|---|
| Compromised eFiling profiles | Criminals gain unauthorised access and alter banking details on file |
| Low-value fraudulent claims | Amounts kept deliberately low to avoid triggering fraud alerts |
| AI-generated phishing | Increasingly convincing fake SARS correspondence sent via email and SMS |
| High-value cases | Some fraudulent refunds have reportedly reached as much as R100 000 |
This table has been added for clarity and does not appear in the original reporting; it summarises the fraud patterns identified by the Tax Ombud’s draft report.
National Treasury’s Position
National Treasury stated that the draft tax bills contain the legislative amendments required to give effect to the tax measures that were announced as part of the 2026 Budget Review.
The draft legislation also incorporates a range of other tax administration changes together with various technical corrections.
Members of the public wishing to comment on the draft legislation must submit their input to National Treasury and SARS no later than 28 August 2026.
Public comment periods on draft tax legislation in South Africa are typically published on the National Treasury and SARS websites, and submissions are usually accepted via email to a dedicated address listed in the draft bill’s accompanying notice.
Conclusion
The proposed amendments mark a significant shift in how South Africa tackles tax refund fraud, drawing banks directly into a process that has traditionally been SARS’s alone. While the added checkpoint could help intercept fraudulent payments before they reach criminals, particularly as AI-generated phishing scams grow more convincing, the plan’s success will hinge on clear, consistent guidance for banks on how to assess risk, since ambiguity here could either let genuine fraud slip through or unfairly delay legitimate refunds for ordinary taxpayers. With public comments due by 28 August 2026, the coming weeks will likely determine how these gaps get addressed before the bill moves forward.
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