A new chance to get on the right side of SARS
New disclosure programme again allows taxpayers to regularise any transgressions, but no relief is provided for interest owing
AVOLUNTARY disclosure programme for taxpayers has been introduced as a permanent feature of the fiscal laws of SA, but more limited in scope than the previous programme. This was done via the Tax Administration Act, No 28 of 2011, promulgated on July 4 2012 which took effect on October 1, and which contains the relevant sections, 225 to 233.
The new disclosure programme presents an opportunity for taxpayers to regularise prior violations of the fiscal laws of the country, but, unfortunately, does not grant relief on interest that would otherwise have been payable on the late payment of the tax concerned. Furthermore, the relief does not extend to penalties which may be imposed in terms of a tax act for the late submission of a return or the late payment of tax. The taxpayer would need to consider seeking relief from those penalties under the particular provisions of the respective statute whereby such penalties are levied.
During the period 1 November 2010 to 31 October 2011, taxpayers could apply for relief under the Voluntary Disclosure Programme and Taxation Laws Second Amendment Act, No 8 of 2010, and, at the same time, could regularise violations of the exchange control regulations by applying for relief from the Financial Surveillance Department of the South African Reserve Bank.
For a taxpayer to successfully apply for relief under the new voluntary disclosure programme, it is necessary that the taxpayer has committed a default. A default is defined in section 225 of the act as meaning the submission of inaccurate or incomplete information to SARS or the failure to submit information or the adoption of a tax position which resulted in the taxpayer not being assessed for the correct amount of tax, or the correct amount of tax not being paid by the taxpayer, or an incorrect refund being made by SARS. The voluntary disclosure programme contained in the act applies to all taxes administered by the Commissioner: SARS other than customs and excise.
A prerequisite for applying for relief under the act is that the taxpayer is not aware of a pending audit or investigation into their affairs, or an audit or investigation that has commenced but has not yet been concluded. The law allows for a senior SARS official to direct that a person may still apply for voluntary disclosure relief even though an audit may be underway, having regard to the circumstances and ambit of the audit or investigation and the default which the person wishes to seek relief for would not otherwise have been detected during the audit or investigation conducted by SARS, and that the application for relief is in the interest of good management of the tax system, and the best use of SARS’s resources.
Section 227 of the act prescribes the requirements for the voluntary disclosure to be valid. The act requires that the disclosure must be voluntary, and involve a default which the taxpayer has not previously disclosed. The disclosure must be full and complete in all material respects, and must involve the potential imposition of an understatement penalty in respect of the default, and not result in a refund due by SARS. Finally, the act requires that the disclosure must be made in the prescribed manner.
As was the case under the previous legislation, taxpayers may apply for a non-binding private opinion as to whether that person is eligible for relief under the voluntary disclosure programme.
Where the taxpayer applies for relief under the programme, SARS will not pursue criminal prosecution for any statutory offence under a tax act, pursuant to the default committed by the taxpayer, and grant the relief in respect of any understatement penalty referred to in section 223. Ordinarily, where a taxpayer approaches SARS outside of the programme, SARS may impose an understatement penalty ranging from 5% to 75% where the voluntary disclosure is made after notification of an audit, where the voluntary disclosure is made before an audit, SARS can levy an understatement penalty of 5% to 10%. By seeking voluntary disclosure programme relief, the taxpayer will be relieved from being liable to any understatement penalty, except in the cases where the taxpayer is grossly negligent or has intentionally evaded tax. Furthermore, the act allows for 100% relief in respect of an administrative non-compliance penalty that was or may be imposed under chapter 15 of the act, or a penalty imposed under a tax act, excluding those penalties levied for the late submission of a return or the late payment of tax.
The voluntary disclosure programme available under the new act is not as attractive as that available under the previous legislation in that the taxpayer remains liable to interest which is payable on the late payment of the tax in question.
The approval of the voluntary disclosure application and the relief available under the act must be evidenced by a written agreement concluded between SARS and the qualifying person. Section 230 of the act requires that the agreement must be prepared in the prescribed format, and must contain details of the facts pertaining to the default on which the voluntary disclosure relief is based, as well as the amount payable by the taxpayer, and must contain details of arrangements and dates for payment and relevant undertakings by the taxpayer and SARS.
SARS is entitled to withdraw the voluntary disclosure relief granted where it is established that the taxpayer failed to disclose a matter that was material for purposes of making a valid voluntary disclosure as envisaged in section 227 of the act. The consequences of withdrawal are significant, in that any amount paid in terms of the voluntary disclosure programme constitutes part-payment of any further tax in respect of the relevant default, and SARS may pursue criminal prosecution for statutory offences under a tax act or related common law offence.
Once the voluntary disclosure agreement has been concluded between SARS and the taxpayer, an assessment or determination must be made giving effect to the agreement. Clearly the assessment issued pursuant to the voluntary disclosure agreement is not subject to objection and appeal.
Under the previous programme, applicants could apply for relief for tax defaults from SARS and relief from the Financial Surveillance Department of the South African Reserve Bank for violations of exchange control regulations. In its Guide to the Tax Administration Act, SARS indicates that the voluntary disclosure programme will not provide relief on interest payable to SARS, or exchange control, and that the programme contained in the act will only deal with tax matters. Thus, at this stage, it would appear that there are no plans for a permanent exchange control voluntary disclosure programme.
Those persons who have contravened the exchange control regulations, and did not utilise the previous voluntary disclosure programme, would be required to approach their authorised dealer to assist them with an application to regularise their exchange control affairs. The levy payable in regularising breaches of the exchange control regulations could range from 20% to 40% of the amount of the contravention in question. The quantum of the levy finally payable to the South African Reserve Bank will, among other things, depend on whether the applicant chooses to retain the funds abroad or return the funds to SA,
Dr Beric Croome is a tax executive at ENS.