SARS widens tax net to catch reg­u­lar of­fend­ers

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Beric Croome

Wealthy in­di­vid­u­als who are not reg­is­tered for tax pur­poses will be iden­ti­fied and tar­geted

ON APRIL 1 2012 Fi­nance Min­is­ter Pravin Gord­han is­sued a me­dia state­ment set­ting out the pre­lim­i­nary out­come of rev­enue col­lected for the 2011-12 fis­cal year. The 2012 Fe­bru­ary bud­get set the South African Rev­enue Ser­vice (SARS) a rev­enue tar­get of R738,7bn. The min­is­ter re­ported that SARS col­lected R742,7bn, which is R4bn more than the re­vised rev­enue es­ti­mate in the 2012 bud­get.

Gord­han in­di­cated that the lev­els of com­pli­ance with fis­cal leg­is­la­tion had con­tin­ued to im­prove and that SARS will en­hance its ef­forts to cre­ate a cli­mate that is con­ducive to full com­pli­ance by all tax­pay­ers. He launched the SARS Com­pli­ance Pro­gramme, a high-level over­view of SARS’S plans for the next five years to en­hance the lev­els of com­pli­ance with tax and cus­toms leg­is­la­tion. This is the first time that SARS has pub­licly re­leased a doc­u­ment set­ting out ar­eas that will at­tract at­ten­tion over the next five years to en­sure that those iden­ti­fied sec­tors of the econ­omy are com­ply­ing with their fis­cal obli­ga­tions.

In the doc­u­ment re­leased by the min­is­ter it was pointed out that the in­di­vid­ual tax reg­is­ter has in­creased from 1,7-mil­lion in­di­vid­u­als in 1994 to 6-mil­lion in 2010. The num­ber of in­di­vid­u­als on the reg­is­ter is likely to in­crease fur­ther still as a re­sult of the re­quire­ment that all per­sons in for­mal em­ploy­ment must reg­is­ter for tax pur­poses. Pre­vi­ously in­di­vid­u­als earn­ing less than R60 000 a year were not re­quired to reg­is­ter and sub­mit tax re­turns to SARS. The Quar­terly Labour Force Sur­vey for the third quar­ter of 2011 in­di­cated that there were about 13 318 000 per­sons em­ployed in SA. If it is as­sumed that per­sons in in­for­mal em­ploy­ment were not pre­vi­ously reg­is­tered for tax pur­poses, con­sist­ing of about 6-mil­lion peo­ple, this would still mean that there are about 1 318 000 per­sons in em­ploy­ment, de­riv­ing in­come, who are not reg­is­tered for tax pur­poses. SARS, there­fore, in­tends to en­hance com­pli­ance by fo­cus­ing on par­tic­u­lar sec­tors of the econ­omy to en­sure that per­sons who are not reg­is­tered for tax pur­poses are iden­ti­fied and be­come reg­is­tered.

SARS has in­di­cated that it will fo­cus on seven broad ar­eas over the next five years. SARS has ad­vised that it will con­cen­trate on wealthy South Africans and their as­so­ci­ated trusts. It has noted that some wealthy in­di­vid­u­als are not reg­is­tered for tax and it will use third-party data con­sist­ing of in­for­ma­tion sourced from fi­nan­cial in­sti­tu­tions and credit bu­reaus, as well as de­tails of res­i­den­tial and hol­i­day homes, air­craft, ve­hi­cle and boat sales, to iden­tify such in­di­vid­u­als for reg­is­tra­tion. SARS will also seek to utilise the pro­vi­sions of tax in­for­ma­tion ex­change agree­ments that have re­cently come into force with a num­ber of coun­tries to iden­tify for­eign as­sets and in­come.

Fur­ther­more, SARS will con­cen­trate on large busi­ness and trans­fer pric­ing, and in­tends to re­cruit more spe­cialised staff to con­cen­trate on the trans­fer pric­ing arena, which will also co-op­er­ate with other tax ad­min­is­tra­tions. In ad­di­tion, SARS will fo­cus on in­ter­na­tional tax com­pli­ance and re­view in­come de­clared for the pay­ment of pro­vi­sional tax.

SARS has iden­ti­fied that com­pli­ance within the con­struc­tion sec­tor is ap­par­ently low. As a re­sult, SARS in­tends con­duct­ing ex­ten­sive au­dits in that in­dus­try, with par­tic­u­lar fo­cus on per­sons awarded gov­ern­ment ten­ders. SARS will con­cen­trate on fil­ing, dec­la­ra­tion and pay­ment be­hav­iour for cor­po­rate in­come tax, value-added tax (VAT) and em­ployee’s tax (PAYE). It has been spec­i­fied by SARS that it will fo­cus on con­trac­tors and var­i­ous lev­els of sub­con­trac­tors in paving, dec­o­rat­ing, plumb­ing, heat­ing and ven­ti­la­tion, and ceil­ings and floors.

SARS is con­cerned about the trade in il­licit cig­a­rettes, which re­duces tax col­lected on the sale of le­git­i­mate cig­a­rettes. SARS will un­der­take a larger num­ber of au­dits to iden­tify such il­licit cig­a­rette sellers.

In ad­di­tion, SARS has iden­ti­fied the un­der­val­u­a­tion of im­ports in the cloth­ing and tex­tile in­dus­try as an area of con­cern. SARS will seek to co-op­er­ate with other gov­ern­ment agen­cies and in­dus­try stake­hold­ers to en­hance the lev­els of com­pli­ance in this in­dus­try with a view to in­creas­ing in­spec­tions on tex­tiles and cloth­ing im­ported into the coun­try.

In its Com­pli­ance Pro­gramme SARS has in­di­cated that it will pur­sue the reg­u­la­tion of tax prac­ti­tion­ers and trade in­ter­me­di­aries. It is SARS’S in­ten­tion that all tax prac­ti­tion­ers and trade in­ter­me­di­aries are per­sons of good stand­ing, who them­selves com­ply with the fis­cal laws of the coun­try and pro­vide a high-qual­ity ser­vice and ad­vice to their clients. SARS has ad­vised that it will de­velop a rig­or­ous risk pro­fil­ing sys­tem to iden­tify high­risk prac­ti­tion­ers and trade in­ter­me­di­aries. Gord­han’s state­ment pointed out that most tax prac­ti­tion­ers are in­deed com­pli­ant and play a pos­i­tive role in en­hanc­ing com­pli­ance in SA.

SARS has in­di­cated that tax prac­ti­tion­ers in South Africa have about 18 400 per­sonal tax re­turns out­stand­ing and are in­debted to SARS to the or­der of R260m. It has there­fore been pro­posed that SARS will re­lease leg­isla­tive pro­pos­als to reg­u­late tax prac­ti­tion­ers in 2013. It is ap­pro­pri­ate to point out that on July 15 2008 the re­vised draft Reg­u­la­tion of Tax Prac­ti­tion­ers Bill was re­leased by SARS for com­ment. The Reg­u­la­tion of Tax Prac­ti­tion­ers Bill was, there­fore, un­der dis­cus­sion, yet noth­ing has hap­pened in this area for the past four years, although it would now ap­pear to be a pri­or­ity for SARS. SARS has also in­di­cated that many tax prac­ti­tion­ers do not be­long to a pro­fes­sional body and this re­sults in those prac­ti­tion­ers not be­ing bound by a code of pro­fes­sional con­duct. It is in­tended that this should change. Cur­rently, SARS may file a com­plaint with a tax prac­ti­tioner’s pro­fes­sional body where that prac­ti­tioner has not ad­hered to the pro­vi­sions of the In­come Tax Act, in ac­cor­dance with sec­tion 105A thereof. It does not ap­pear that SARS has utilised those pro­vi­sions in tak­ing ac­tion against de­fault­ing tax prac­ti­tion­ers.

Fi­nally, SARS has in­di­cated it will con­cen­trate on small busi­ness, as a re­sult of the fact that reg­is­tra­tion in that sec­tor is low. SARS is also con­cerned about small busi­ness abus­ing the VAT sys­tem, where busi­nesses charge VAT to cus­tomers but fail to pay it over.

Where tax­pay­ers have not com­plied with their obli­ga­tions it is im­por­tant that they ap­proach SARS and reg­u­larise their af­fairs be­fore SARS iden­ti­fies such per­sons. SARS will usu­ally deal with per­sons ap­proach­ing it more le­niently.

A fur­ther con­cern is the man­ner in which the tax col­lected by SARS is used by the gov­ern­ment. Gord­han, in his me­dia state­ment, is­sued an as­sur­ance that ev­ery ef­fort will be made by the gov­ern­ment to mon­i­tor the use of tax con­tri­bu­tions paid by tax­pay­ers and to en­sure that such funds are used wisely.

Gord­han has un­der­taken to use ev­ery ef­fort to fight cor­rup­tion and the abuse of public funds. The ques­tion that arises is whether the tax col­lec­tions re­quired by the gov­ern­ment would be as high as they are were cor­rup­tion and abuse of public funds re­duced.

Dr Beric Croome is a tax ex­ec­u­tive in the tax di­vi­sion at ENS.

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