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Potential window of opportunity for non-compliant taxpayers

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The recent call by the South African Revenue Service (Sars) to taxpayers urging them to make use of its Voluntary Disclosure Program could be a “warning shot across the bow”.

This observation follows the announcement that Sars has started to auto-register taxpayers who are not on its tax register but should be. This could offer them a “window period” to get their affairs in order before the taxman comes knocking, says Elle-Sarah Rossato, head of tax controversy and dispute resolution at PwC.

A successful VDP application means penalties because of non-compliance are waived and taxpayers are allowed to settle outstanding tax liabilities without having to fear potential criminal prosecution.

Sars has started to expand the tax base by auto-registering taxpayers who are flying under the tax radar while engaged in economic activities. Sars is increasingly using third-party data to detect non-compliant taxpayers. It may be a good time for these taxpayers to regularise their tax affairs before they are “caught out”, says Rossato.

Own volition

The Voluntary Disclosure Program (VDP) is available to taxpayers who disclose their tax defaults on their own volition. One of the major issues with the VDP is the concept of what “voluntary” means. If Sars believes that the disclosure is not voluntary, in other words it is already aware of the default, it is loath to grant relief.

Moneyweb has previously reported on obstacles in the way of taxpayers wanting to make use of the program. One of them has been the narrow interpretation of the qualifying provisions. It was said to hamper the objective of the VDP.

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

The VDP is an important source of revenue with more than R3 billion having been collected in 2021. It also means that more taxpayers are now on the register and contributing to the fiscus.

It does appear as if Sars will be applying the VDP more “generously” by offering taxpayers, who are already in their sight due to its access to third party data, a window of opportunity to get their affairs in order, says Rossato.

Auto-registration process

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

It is in the process of cleaning up data with regards to the auto-registration of companies, sole proprietors, and trusts. “It is more complex to identify corporate entities who ought to be on its register. Sars wants to ensure that it registers legitimate businesses for tax purposes,” says Rossato.

She also adds that it is easier for Sars to spot “economic activities” because of its increasing data gathering capabilities. In assessing the tax liability of these entities there are certain allowances and legitimate expenses that can reduce the tax bill.

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

Sars has invited non-compliant taxpayers to come forward and to apply for the relief under the VDP. “By coming forward willingly, such taxpayers will receive help and advice to expedite the resolution of their request (for VDP relief),” Sars said in an earlier statement.

However, if Sars discovers non-compliance through third-party data or its own investigations, this assistance and possible relief will not be available.

Warning shot

“While voluntary compliance is our first preference, Sars is refining its capability to detect and make it hard and costly for non-compliant taxpayers,” it warned.

Rossato says the current term of Commissioner Edward Kieswetter comes to an end in a little more than a year. He has laid a solid foundation for an operationally strong organisation.

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

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