Potential window of opportunity for non-compliant taxpayers

The recent call by the South African Revenue Service (Sars) urging taxpayers to make use of the program that allows them to voluntarily disclose any tax non-compliance could be a “warning shot in the bow”.

This observation follows the announcement that Sars has started automatically registering taxpayers who are not on their tax register but should be.

This could give them a “window period” to get their affairs in order before the prosecutor comes knocking, says Elle-Sarah Rossato, head of tax controversy and dispute resolution at PwC.

A successful voluntary disclosure request means that non-compliance penalties are waived and taxpayers can settle outstanding tax liabilities without fear of possible criminal prosecution.

Sars has started broadening the tax base by automatically registering taxpayers who fly under the tax radar while engaged in economic activities. It increasingly uses third-party data to detect non-compliant taxpayers.

This may be a good time for these taxpayers to get their tax affairs in order before they get “caught,” Rossato says.

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“Volunteer” is key

The Voluntary Disclosure Program (VDP) is available to taxpayers who voluntarily disclose their tax defaults.

One of the main problems with the VDP is the concept of what “voluntary” means.

If Sars believes that the disclosure is not voluntary, meaning that it is already aware of the non-payment, it is reluctant to grant relief.

Moneyweb has previously reported on the obstacles in the way of taxpayers who want to make use of the program. One of them has been the restricted interpretation of the qualifying provisions. It was said to hamper the VDP’s goal.

Practical problems with the process also “strongly discourage” taxpayers from making any disclosures. However, Sars has been much more proactive in processing and accepting VDP applications over the past year, Rossato says.

The VDP is a major source of revenue with over R3 billion collected by 2021. It also means more taxpayers are now on the register and contributing to the fiscus.

It appears that Sars will apply the VDP more “generously” by offering taxpayers who are already in its sights, because of their access to third-party data, a window of opportunity to get their affairs in order, Rossato says.

Automatic registration process

Sars automatically registered more than 180,000 individual taxpayers between October and November based on information it obtained from third-party data providers such as financial institutions, estate agents and Medicaid schemes.

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It is in the process of data cleansing with regard to the automatic registration of companies, sole proprietors and trusts.

Rossato points out that it is more complex for the revenue service to identify the corporate entities that should be on their register.

“Sars wants to make sure it registers legitimate businesses for tax purposes,” he says, adding that it is easier for Sars to detect “economic activity” because of its growing data-gathering capacity.

In the assessment of the tax liability of these entities there are certain bonuses and legitimate expenses that can reduce the tax bill.

“This is where non-compliant companies or trusts have the opportunity to step up, register for tax purposes and declare everything necessary to do an assessment,” Rossato says.

Sars has invited non-eligible taxpayers to come forward and apply for relief under the VDP. “By voluntarily applying, these taxpayers will receive help and advice to speed up the resolution of their application. [for VDP relief]Sars said in an earlier statement.

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However, if Sars discovers a breach through third-party data or its own investigations, this assistance and potential relief will not be available.

Warning shot

“While voluntary compliance is our first preference, Sars is honing its ability to detect and make it difficult and costly for taxpayers who do not comply,” he warned.

Rossato says the current term of Sars commissioner Edward Kieswetter ends in just over a year. It has laid a solid foundation for an operationally sound organization.

Under his leadership, Sars has been increasingly using data in its compliance drive and will continue to improve using data provided by third-party service providers to broaden the tax base, Rossato notes.

NOW READ: SARS imposes tougher penalties on non-compliant SA taxpayers

This article originally appeared on Moneyweb and has been republished with permission.
Read the original article here.

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