Reservations about application process for special tax disclosure relief
The South African Revenue Service (SARS) has received more than 40 applications from taxpayers for relief under the special voluntary disclosure to regularise their undisclosed offshore assets.
The value of the assets pertaining to the 40 applications amounts to R400m, but it is considered the tip of the iceberg. Davis tax committee chairman Dennis Davis has previously said the potential tax revenue emanating from a successful programme could be about R15bn.
The special voluntary disclosure programme (SVDP) was announced in the February budget and commenced on October 1, and is scheduled to run until June 30 2017. The SVDP is meant for individuals and companies who have not in the past disclosed tax and exchange control defaults in relation to offshore assets.
Some tax practitioners have expressed their reservations about the application process, based on experiences with the ongoing voluntary disclosure programme (VDP). The VDP is an ongoing "amnesty" for all taxpayers, but with less favourable terms than the SVDP.
The South African Institute of Tax Professionals (SAIT) says the "extremely narrow" interpretation by the VDP unit deciding who may get relief through the programme is "erroneous" in many instances.
Carmen Moss-Holdstock, chairwoman of the institute’s Tax Administration Act work group, says in a submission to National Treasury the existing voluntary disclosure programme aims to bring more taxpayers, assets and income into the tax net.
"The recent special VDP expands that aim further. Decisions by the VDP unit to incorrectly narrow the qualification criteria run contrary to this policy."
SARS says the SVDP legislation is still in the parliamentary process, and no applications have been rejected.
The requirements for a valid application include that it must be voluntary, it must involve a tax default which has not previously been disclosed by the applicant, it must be full and complete in "all material respects" and it must not result in a refund due by SARS.
The tax authority’s view is that where a taxpayer is non-compliant and SARS has already engaged the taxpayer asking relief for the noncompliance, the disclosure is not considered "voluntary".
"If taxpayers have outstanding returns and SARS has issued demands for the returns, the late submission of the returns does not qualify for the VDP," says SARS spokesman Sandile Memela.
Clearly this would not apply where a person comes forward to register for the first time, without prompting by SARS.
Memela says that where the outstanding returns contain other, long-standing noncompliance they may be considered for the VDP.
This would arise, for example, where income was not fully disclosed for the past decade and the last three years’ income returns are outstanding.
"SARS would not consider VDP (relief) for the late submission of the returns but would consider VDP (relief) for the undisclosed income in all ten years."
SAIT says in some instances "technical extreme" interpretations of the qualifying criteria have led to the denial of VDP relief, leaving taxpayers exposed and stranded.
Johan van der Walt, head of dispute resolutions and tax controversy at KPMG, says one would have expected a more reasonable approach from SARS.
"It is almost like wanting to buy an expensive dress, yet the shopkeeper is full of excuses why he cannot make any alterations and why the dress is not really meant for you."
Van der Walt also refers to instances where taxpayers apply for the VDP only to be told they are being investigated and their applications are not successful.
He says the concern is that taxpayers are not always aware of "investigations".
"Once you have made a full disclosure and your application has been rejected then the taxpayer is in an extremely precarious position. He is facing penalties, interest and potential criminal prosecution."
Many people will have no other option to take the rejection on judicial review in an open court leaving them exposed to public scrutiny, compared to a tax court where the privacy of his affairs is protected.
Moss-Holdstock proposes in SAIT’s submission that decisions concerning qualification for tax disclosure relief should be subject to objection and appeal.
"This amendment (to allow for objection and appeal) should apply retrospectively to 1 January this year so that applications incorrectly rejected in recent times can be reviewed," she says.
Van der Walt says the potential special VDP tax revenue is "money or jam". One would have thought the unit would welcome applications from taxpayers to come clean. "It is not always a cooperative, amicable and constructive approach," Van der Walt adds.
Memela says the VDP unit has been as accommodating as it can be while remaining within the ambit of the law and available resources.
Once an application has been successful and an agreement has been concluded between SARS and the taxpayer, it seems as if the amount of tax that is payable is merely an "indicative amount" and not an assessment of final liability.
The final assessment raised by SARS it is not subject to objection and appeal. Moss-Holdstock says it is understandable that SARS does not want taxpayers to institute "probably frivolous" objection procedures.
However, the wording implies that SARS may issue an assessment with a different amount agreed upon and the taxpayer may not object or appeal the amount. He is therefore left without any remedy.
"Surely that cannot be the case because then SARS will not, in spirit, be issuing the assessment to give effect of the agreement."
In its submission SAIT contends that a taxpayer must at the very least be able to object or appeal an assessment that differs from the agreement signed with SARS.
The risks of unsuccessfully coming forward are simply too great, the institute says.