The South African Revenue Service (SARS) has undertaken to make the filing of annual tax returns for the 2020 filing season as seamless as possible for individuals who diligently fulfil their tax obligations.
By André Daniels, tax attorney at Tax Consulting SA
At the same time, SARS wants to make it as difficult and as costly as possible for non-compliant taxpayers and criminals who abuse the system.
At Tax Consulting, we welcome the media statement of 30 July 2020 by Commissioner Edward Kieswetter. If the statement is in fact a commitment to name and shame those convicted of criminal offences, and is implemented, it will certainly act as a deterrent, supporting SARS’ efforts to curb the decline in tax morality.
However, we encourage taxpayers who have made errors or who have omitted certain income in prior year’s tax returns, for whatever reason, to take up the opportunity to regularise their affairs through the Voluntary Disclosure Programme (VDP).
The income areas typically undeclared includes foreign interest income, foreign/local rental income and employment income where an employer does not provide their employee with an IRP5.
The VDP was designed to encourage taxpayers to approach SARS before their non-compliance is detected. Voluntariness is one of the requirements as contained in the Tax Administration Act, which regulates the VDP.
Process for non-disclosure
Taxpayers who have already attracted the attention of SARS due to non-compliance, by being selected for an audit, or who have already received a final letter of demand, will unfortunately not be able to participate in the VDP.
They will have to go through the normal processes by correcting their errors which will attract penalties and interest in addition to the outstanding tax liabilities. They may even expose themselves to criminal prosecution.
A major benefit of relief sought through the VDP, is that it covers all tax types (income tax, employees’ taxes such as Pay-as-You-Earn, Unemployment Insurance Fund contributions and the Skills Development Levy, as well as Value-Added-Tax). The only taxes that are not covered are customs and excise duties.
When a taxpayer is granted relief under the VDP, penalties are waived, and the applicant receives amnesty from criminal prosecution. The taxpayer will only be liable for the outstanding tax liability as well as the interest levied thereon.
Be aware of your world-wide income
Many a time, the reason for the non-disclosure of foreign income is due to the fact that taxpayers are unaware of their true tax liability, and which jurisdiction has a taxing right. The South African tax system changed from a source-based system to residency-based system in 2001 – meaning that South African tax residents are taxed on their world-wide income.
However, many South Africans with property abroad have been oblivious of this change and have not included foreign interest income or foreign rental income in their tax returns for many years.
We advise taxpayers who have become aware of any non-disclosure of income to come forward and apply for relief through the VDP.
It is important that documentation evidencing the income to be disclosed is used to support the VDP application to quantify amounts, especially during the last five years, in order to satisfy the record-keeping requirement.
It is understandable that many will lack the necessary documentation in order to quantify the undisclosed income and therefore calculate the outstanding tax liability, due to the fact that undeclared income may span all the way back to 2001, when the tax law was amended.
SARS will allow the submission of reasonable estimates, based on more recent documentation, if it proves impossible to obtain older documentation.
Once the taxpayer has satisfied SARS that they have made a full and complete disclosure, and complying with all other legislative requirements, the VDP process will be finalised.
A look to the future of VDP applications
We have, in recent times, seen a marked improvement in the finalisation of VDP applications.
In the past, it was not uncommon to wait up to two years after having submitted a VDP application for the appointment of an evaluator.
Recent applications submitted by Tax Consulting have been finalised within two to three months.
It should be noted that if a taxpayer has been granted relief under the VDP, they will only be able to apply for VDP relief in respect of a similar offence in five years’ time. This is to prevent taxpayers abusing the system to have their penalties waived.