Durban - Sars must shift focus to small businesses and clamp down on rampant tax dodgers in Durban, tax experts said in reaction to the taxman’s announcement of a blitz on cash stores countrywide yesterday.
The South African Revenue Service (Sars) Commissioner, Tom Moyane, announced the launch of random, on-site inspections of cash businesses and called on taxpayers to voluntarily disclose any unpaid taxes or face penalties or criminal prosecution.
Sars said the blitz was part of a new focus to combat non-compliance in several high-risk sectors, and inspectors would perform compliance checks to identify registration, filing non-compliance and flag suspicious businesses.
Depending on the intention and severity of the non-compliance, Sars said it could impose stringent penalties on all taxes owed, because it would be a disservice to honest taxpayers if non-compliant taxpayers were allowed to thrive.
However, Sars said it would offer relief to business owners who volunteered information about tax owed under the Voluntary Disclosure Programme (VDP) to avoid criminal prosecution, and more stringent penalties associated with forced compliance.
PricewaterhouseCoopers (PWC) tax technical partner, Kyle Mandy, said anecdotal evidence suggested that tax evasion in the cash economy was significant.
Mandy said Sars’ action against the sector was “long overdue”.
“For too long Sars has focused primarily on large taxpayers while paying insufficient attention to SMMEs and the informal economy in general, and the cash economy in particular, where enforcement is more difficult,” Mandy said.
“The risk of tax evasion is significantly higher as the cash economy operates outside of the formal financial system, making detection more difficult,” he said.
“There is both a moral and legal duty on all taxpayers to pay taxes for which they are liable. Ultimately, the effect of tax evasion is that law-abiding taxpayers have to pay higher taxes than would be the case if all taxpayers complied with their obligations,” Mandy said.
However, Mandy said a distinction should be drawn between tax avoidance and illegal tax evasion, and tax evaders should face the full extent of the law.
“It is only when there is a real chance of being caught and real consequences that a deterrent is created,” Mandy said.
Teresa Seaton, a tax expert with Worldwide Tax, said tax evasion by unregistered businesses was prevalent in Durban and surrounding areas because of the unstable economy, a lack of knowledge and poor governance.
Seaton said the risk was higher in the cash sector because there were fewer audit trails of cash sales.
“It has a huge impact because millions of illegal businesses evade taxes, which has a negative effect on the economy as a whole. If each taxpayer was faithful to their tax obligations and disclosed their taxable income and assets correctly, this would result in a fair and just tax system, which can mean lower tax rates. This would create a sustainable environment for economic growth,” Seaton said.
She called for “extreme penalties” to be imposed on taxpayers caught using illicit bank accounts, shifting assets, under-declaring and not disclosing income, and not taking tax liabilities seriously.
Durban Chamber of Commerce and Industry president, Zeph Ndlovu, said it was “a bit drastic and unfortunate” that Sars had to resort to random inspections of businesses.
Ndlovu said the chamber believed in “above board” compliance and worked closely with customs and other organs of state to retain a reputation that was above reproach.
“Durban chamber members are always encouraged to observe the laws of the land in order to conduct their businesses without concern,” Ndlovu said.
Ndlovu said tax dodgers should correct omissions without delay and the chamber would like to engage with Sars regarding its VDP so it could assist businesses with compliance issues.
“Unregistered businesses deprive our national treasury of the opportunity to fulfil the government’s mandate to maintain and develop infrastructure, provide essential services to the nation and to enable economic growth of the country,” Ndlovu said.