South African Banks Could Get Power to Freeze Suspicious SARS Tax Refunds for Two Days

South African taxpayers could soon see banks playing a much bigger role in the fight against fraudulent tax refunds, with proposed legislation giving financial institutions the ability to temporarily hold suspicious payments linked to SARS.

The 2026 Draft Tax Administration Laws Amendment Bill proposes changes that would allow banks to screen certain SARS refunds, report potentially fraudulent transactions to the South African Revenue Service and temporarily prevent the money from being withdrawn while the matter is investigated.

Under the proposal, a suspicious refund could be held for up to two business days.

The move would significantly deepen the relationship between SARS and South Africa’s banking sector and could represent a major shift in how fraudulent tax refunds are detected.

How the proposed SARS refund freeze would work

The proposed changes centre on an amendment to section 190 of the Tax Administration Act.

If adopted, the amendment would allow banks to identify potentially suspicious SARS refunds either before the money reaches a taxpayer’s account or after the payment has been credited.

Where a bank has reasonable grounds to believe that a refund could be connected to a tax offence, it would be required to notify SARS and temporarily hold the payment.

The proposed holding period would be limited to two business days while SARS investigates the transaction.

The intention is not to give banks unlimited authority to block taxpayers from accessing legitimate refunds. Rather, the proposal is designed to create a short window in which potentially fraudulent payments can be identified before criminals have an opportunity to move the money.

Tax Consulting SA partner and head of strategic engagement and compliance, Jashwin Baijoo, said the proposed system would effectively position banks as an early-warning mechanism for SARS.

Why SARS wants banks involved

SARS has increasingly relied on data and information from financial institutions to identify unusual activity and potential tax fraud.

The proposed refund-screening system would take that cooperation a step further.

Baijoo said SARS is already engaging with banks about screening refunds before they are paid into taxpayers’ accounts. The objective is to intercept fraudulent transactions while allowing genuine refunds to move through the system with greater certainty.

That distinction could become increasingly important as tax fraud becomes more sophisticated.

Instead of relying exclusively on SARS’ internal systems to identify irregular refunds, the proposed framework would introduce another layer of scrutiny at the point where the money enters the banking system.

In practical terms, the bank could become the final checkpoint between a fraudulent SARS assessment and the person attempting to access the resulting refund.

The biggest unanswered question: What makes a refund suspicious?

While the proposed powers could strengthen SARS’ ability to combat fraud, there is an important gap in the draft legislation.

It does not clearly set out the risk criteria banks would have to apply when determining whether a refund should be flagged.

Baijoo raised concerns about the absence of detailed guidance on the proposed risk assessment process, including what indicators would be used to determine whether a particular refund may be connected to a tax offence.

This could become one of the most important issues during the public consultation process.

Banks will need sufficiently clear rules to identify genuinely suspicious transactions without unnecessarily delaying legitimate refunds.

For taxpayers, consistency will also matter. A system that flags legitimate refunds too frequently could create frustration and cash-flow problems, particularly for individuals and businesses that depend on SARS refunds.

SARS already has extensive powers over questionable refunds

The proposed legislation would not give SARS its first ability to investigate or recover questionable tax refunds.

The revenue service already has extensive powers to examine tax returns, conduct audits, issue additional assessments and recover money where refunds are found to have been paid incorrectly.

The proposed bank intervention would add another layer to that process.

Instead of waiting for a potentially fraudulent refund to reach a taxpayer and then attempting to recover it, SARS could have an opportunity to investigate the transaction while the funds are temporarily held.

That could be particularly valuable where fraudsters move money rapidly between accounts after receiving an illicit refund.

eFiling hijacking has become a major concern

The proposal comes amid continuing concerns about criminals compromising taxpayers’ SARS eFiling profiles.

A taxpayer’s account can potentially be manipulated by changing banking information and submitting fraudulent returns designed to generate refunds.

The Office of the Tax Ombud has highlighted this type of fraud in its draft report dealing with alleged eFiling profile hijacking.

According to the report, criminals can alter taxpayers’ banking details before submitting fraudulent returns. The resulting refunds may then be directed into newly established digital banking accounts controlled by the fraudsters.

By the time the legitimate taxpayer discovers what has happened, the money may already have been withdrawn or transferred elsewhere.

Some fraudulent refunds are deliberately structured below certain detection thresholds, while the Ombud’s report noted that cases involving amounts of up to R100,000 have also been identified.

This makes the proposed two-day banking intervention potentially significant.

Artificial intelligence is making tax scams harder to spot

The fraud threat is also evolving beyond traditional phishing emails and crude SMS scams.

Tax Consulting SA has warned that criminals are increasingly using artificial intelligence to produce convincing communications that can closely resemble legitimate correspondence from SARS.

That could make it harder for taxpayers to distinguish between genuine tax notifications and sophisticated attempts to steal personal information.

Fake refund messages remain a common tactic, with criminals directing victims towards fraudulent websites designed to capture banking credentials, personal information or login details.

SARS has repeatedly warned taxpayers that it will not request sensitive information such as passwords, banking PINs, one-time PINs or eFiling login credentials through unsolicited emails, SMSes, social media messages or telephone calls.

What the proposed changes could mean for ordinary taxpayers

For most taxpayers, a legitimate SARS refund should not automatically be affected by the proposed changes.

The purpose of the proposed intervention is to identify transactions that raise reasonable fraud concerns and provide SARS with a short period to investigate them.

However, the effectiveness of the system will depend heavily on how the screening framework is designed.

Clear criteria could help banks identify genuine warning signs while reducing unnecessary delays.

Poorly defined criteria could have the opposite effect, potentially resulting in legitimate taxpayers having refunds temporarily held without fully understanding why.

This is why the consultation process will be important.

The legislation may ultimately require additional guidance, technical standards or safeguards explaining how banks should identify suspicious refunds and what happens when SARS determines that a flagged payment is legitimate.

A broader shift towards data-driven tax enforcement

The proposed amendment reflects a wider transformation in the way SARS approaches compliance.

Tax enforcement is increasingly becoming data-driven, with information from banks, employers, businesses and other financial institutions helping the revenue service identify inconsistencies and potential fraud.

For SARS, greater access to financial information can make it easier to connect transactions, taxpayer profiles and unusual activity.

For taxpayers, however, the changing environment also means that compliance mistakes and deliberate attempts to manipulate the tax system are likely to receive greater scrutiny.

The message from SARS and tax specialists is increasingly straightforward: taxpayers should ensure that their returns, banking details and supporting documentation are accurate.

Public has until 28 August to comment

The proposed amendments are not yet law.

The 2026 Draft Tax Administration Laws Amendment Bill is currently undergoing the public consultation process, with submissions to National Treasury and SARS due by 28 August 2026.

The final legislation could therefore change following public input and consideration of concerns raised by taxpayers, financial institutions, professional bodies and other stakeholders.

For now, the proposal signals a clear direction: SARS wants to detect fraudulent refunds earlier, and banks could become an important part of that strategy.

As Baijoo put it, the increasing cooperation between SARS, financial institutions and law enforcement means taxpayers should not underestimate the consequences of tax non-compliance.

In an environment where financial data is increasingly connected, attempting to exploit the tax system may be considerably harder than it once was.