When Sars calls, hop to it
REVENUE SERVICE ENFORCES ZERO-TOLERANCE POLICY
The understatement penalties, cap at a whopping 200% of the capital taxes due.
In a world slowly being taken over by artificial intelligence (AI), the South African Revenue Service (Sars) has capitalised, enhancing its audit capabilities to more than just a “quick count” and to proportions beyond anything previously thought possible.
Imagine having historically filed all your tax returns on time, making good on your dues to Sars, and your compliance status reflecting as fully compliant.
Now imagine waking up to a notification of audit and request for relevant material, “based on risk(s) detected”.
This has become a shocking reality for many historically compliant taxpayers, and Sars’ audit team appears to be strongly enforcing the zero-tolerance policy on any non-compliance.
Aiding their cause and easing the pressure of the job are the data-driven insights derived from AI use, including the processing of taxpayer bank statements without any prior warning or consent.
Audit adjustments
In the last two months, we have seen a significant spike in Sars audits, which in most cases result in upward adjustments due to taxpayers missing the request for relevant material.
The adjustments often stem from an analysis of taxpayer bank accounts, and where a credit transaction is unexplainable, it is deemed to form part of income.
Additional taxes are then levied on this larger amount, which the taxpayer is wholly liable for.
To give effect to these adjustments, Sars must issue additional assessments; the issuance period is usually limited to within three years from the date of the original assessment.
Li ing limitations to eradicate non-compliance
The three-year period of limitation, per Section 99(1) of the Tax Administration Act, does not, however, apply, to the extent that the full amount of tax chargeable was not assessed, due to fraud, misrepresentation or material non-disclosure, per Section 99(2).
When it comes to the lifting of limitations, local and international news has recently been flooded with tax dodgers facing the wrath of their respective revenue authorities.
One of the most relatable cases in South Africa, and also the most recent, is the incarceration of celebrity chef Lusizo Mvula, who stares down the barrel of a 10-year prison term for defrauding Sars.
Mvula found himself being rightfully convicted on multiple charges of fraud and money laundering by the Johannesburg Specialised Commercial Crime Court and can only hope for kitchen duty once behind bars.
Avoiding penalties and prosecution
Where you find yourself, or, in the case of finance professionals, your clients facing a historic audit from Sars, it is imperative to ensure a timely response with all correct supporting documentation.
A number of ill-advised taxpayers have sought the correct counsel only after the fact and paid the price, such as when those additional assessments are issued post-audit finalisation.
The nail in the coffin is always the understatement penalties, capping at 200% of the capital taxes due.
As a rule of thumb, any and all correspondence received from Sars should be holistically addressed by a strong, multi-faceted tax, legal and financial team. In instances of non-compliance with tax laws, legal professional privilege is a must, especially where Sars has a suspicion of, or has already detected, “risk(s)”.
This will not only safeguard you or your clients against potential jail time but also allow for the correct legal stopper to be put in place, preventing Sars from implementing aggressive collection measures.