The 2026 Draft Tax Administration Laws Amendment Bill is out, and amongst other proposals, appears to be further involving financial institutions in tax regulation!

One of the proposed amendments is that banks must report suspicious tax refunds to SARS, and are then obligated to temporarily hold such funds while SARS investigates the legitimacy of the refund. This bold compliance move, aligning with SARS’ success on stopping fraudulent VAT refunds specifically, can be construed as SARS extending its fraud-detection ‘discretion’, and refund freezing powers, to financial institutions.

From a tax law standpoint, the proposed amendment will be made to section 190 of the Tax Administration Act, No. 28 of 2011, to explicitly permit the pre- or post-deposit screening of tax refunds by banks.

Functionally, the amendment proposes that where banks reasonably suspect that a refund payment is linked to a tax offence, the bank would be required to report this to SARS and hold the refund for up to two business days while SARS conducts an investigation.

SARS is working with banks to explore screening potential refunds before they are deposited into taxpayers’ accounts, with the aim of preventing fraudulent payments while expediting legitimate refunds.

In a digitised economy where knowledge and data are power, this represents a further step by SARS in leveraging information obtained through automatic exchanges with financial institutions, which are legally required to share certain financial information with the SARS.

SARS' Existing Powers

Although a proactive move to aid in recouping fraudulent refunds paid out, and adding an additional layer of security for fiscal funds, there is no further guidance on what matrix will be used by banks to determine the risk of the deposit amount being linked to a tax offence.

It raises the further question whether this will mirror the discretion already available to SARS under the TAA, affording the tax authority significant powers when it suspects fraud, material misrepresentation or an incorrect refund payment. 

Where SARS has reasonable grounds to believe that a taxpayer has received a refund incorrectly, it may take steps to recover the amount, including issuing additional assessments, conducting verification or audits, and applying relevant recovery mechanisms provided for in legislation, including third party appointments.

The proposed amendment to section 190 can effectively introduce banks as an additional layer in this process as an early detection point by identifying and reporting suspicious refund activity.

Growing Threat of Tax Refund Fraud

The proposed amendment comes as the current Tax Filing Season sees a renewed wave of increasingly sophisticated tax refund scams. SARS recently warned taxpayers on several occasions about fraudulent SMS messages and emails claiming that recipients are entitled to refunds, directing them to fake websites designed to obtain personal information. 

Criminals now even use artificial intelligence to create professional-looking communications that are increasingly difficult to distinguish from legitimate SARS correspondence. 

The revenue service has reiterated that it will never request passwords, OTPs, banking PINs or eFiling login credentials via email, SMS, social media or telephone.

Lessons from the Tax Ombud's Draft Report into Alleged eFiling Hijacking

The proposed legislative changes also follow recommendations contained in the Office of the Tax Ombud's Draft Report into alleged eFiling profile hijacking, published last year.

Amongst others, the report found that the hijacking often involves the changing of banking details on an eFiling profile, directing payments to newly set-up banking accounts, usually at digital banks.

The OTO noted that criminals go as far as to submit fraudulent tax returns on hijacked profiles to generate illegal refunds – activity that often goes unnoticed until victims are locked out of their own profiles. In many instances the amounts are kept below a certain threshold to avoid detection, but can reach up to R100 000.

The Ombud highlighted that effective prevention requires a coordinated response between SARS, banks, tax practitioners, law enforcement agencies and other stakeholders.

Closing thought

In a statement, Treasury said the 2026 Draft TLAB and Draft TALAB respectively provides the necessary legislative amendments required to implement the tax announcements, and legislative amendments dealing with tax administration as announced in the 2026 Budget Review, as well as technical corrections.

Public comments must be submitted to the National Treasury and SARS by close of business on 28 August 2026.

While the proposed amendment regarding the role of banks represents another step towards a more data-driven and collaborative approach to tackling tax fraud, the success of the proposed intervention will ultimately depend on the clarity of the framework guiding banks' decision-making on flagging refunds as suspicious.

With SARS having to become aggressive in an effort to combat the criminal elements in our society, and leveraging the joint resources of its law-enforcement partners and financial institutions across the world, taxpayers need to be aware that even non-compliance on a smaller scale and due to negligence, carries with it the potential of criminal conviction - crime literally does not pay! 

Written by Jashwin Baijoo, Partner and Head of Strategic Engagement & Compliance at Tax Consulting SA