Worried about being in trouble with Sars? Read this
The voluntary disclosure programme offers a way to come clean and avoid huge penalties, but it needs to be done properly
If you haven’t been paying, or have been underpaying, your tax, it appears you have every right to be worried. There is a new guard at the tax authority and by all accounts there will be a strict return to compliance with the law.
When President Cyril Ramaphosa accepted the recommendation and appointed Edward Kieswetter as Sars commissioner in March, he said: “We have every confidence that Mr Kieswetter has the experience, integrity and skills required to turn Sars around by restoring revenue collection, redirecting operations toward innovation, developing future leaders for the organisation, and restoring Sars’s credibility and integrity.”
Kieswetter is no stranger to Sars, having served under former commissioner Pravin Gordhan. Early indications are that compliance will move to the top of the agenda.
According to Jean du Toit, senior tax attorney at Tax Consulting SA, we might, in fact, be in a tax renaissance, and Kieswetter may be looking to set a few examples around non-compliance. “If this is indeed the case, taxpayers must toe the line of compliance, or risk becoming an example.”
At the start of the tax filing season, Sars has given a stern warning on who may be in the firing line. Those include taxpayers who:
- File late or have outstanding returns.
- Do not declare rental income.
- Are commission earners — Sars says it will renew its focus on monitoring declared income and expenses.
- Do distributions to and from trusts to the beneficial recipients — Sars is concerned about the accuracy of these declarations.
- Use fictitious IRP5s for the sole purpose of claiming refunds.
- File multiple returns and syndicates re-using IRP5s for multiple individuals.
Sars will also have a renewed focus on the super-rich and what they declare, while clamping down on taxpayers who use tax practitioners who promise refunds and then “look for opportunities to understate income or overstate expenses”. The revenue service warns that this could lead to criminal prosecution.
Sars says: “We are working hard to improve the integrity of our profiling capability using sophisticated risk modeling and expanding our data set … We are currently working with both the SA Police Service and the National Prosecuting Authority to criminally prosecute fraudsters, and have already successfully convicted a number of taxpayers for non-compliance. We have also successfully convicted some of our own staff for colluding with taxpayers.”
So, what can you do if you think you may be in trouble with Sars?
Du Toit says it is better to come clean before Sars discovers your skeletons in the closet. “Taxpayers would do well to understand that if Sars learns of an understatement of income before you disclose it, it is obliged to impose the highest applicable penalty for understatement,” he told Money.
This penalty is often levied at 100%, which, in essence, translates to double the tax bill.
He says that in addition to providing amnesty from criminal prosecution, the benefit of the voluntary disclosure programme (VDP) includes a substantial or complete waiver of understatement penalties.
What is the VDP?
The Sars VDP is administered under the Tax Administration Act of 2011. According to the Sars website, the “purpose of the VDP is to enhance voluntary compliance in the interest of good management of the tax system and the best use of Sars resources”.
As the name implies, the process seeks to encourage taxpayers to voluntarily set the record straight with Sars and avoid understatement or administrative penalties.
Three tips if you are considering using the VDP
1. Make sure you are up to date with returns
You cannot access the VDP if you have outstanding returns, says Du Toit. “You must get your compliance up to date first before you can submit your application. This requirement is not contained in legislation, but is a policy stance by Sars and if you have outstanding returns Sars will reject your application.”
2. Enlist the help of a professional
Du Toit says the VDP process is not one that should be undertaken without professional assistance. “It can easily culminate in a mini-audit and if you file an application without consulting a specialist, you may be in for a torrid time.
“In terms of who you should consult, ideally, one should engage a tax attorney or professional that offers legal professional privilege, to ensure that Sars does not compel you to share the advice given to you.”
3. File your application as soon as possible
“Where you have not yet been found out, you would be best advised to file your application as soon as possible. If you do not have the VDP number that gets issued on submission of your application, your intentions to use the VDP will be of little assistance and you may lose out on the benefits of VDP,” Du Toit says.
Should you file a return?
Taxpayers must find out if they are required to file returns, says Du Toit. “It was announced that the threshold for submission of returns has been increased from R350,000 to R500,000, but taxpayers must understand the underlying requirements to file a return fully before deciding not to do so. Not filing a return when required to do so is an offence under the Tax Administration Act.”