With Sars (South African Revenue Services) intensifying its compliance scrutiny, whether intentional or unintentional, failing to adhere to tax laws carries severe consequences.
While many taxpayers have previously expected minor repercussions such as fines and interest charged, a revised prosecution strategy, with the assistance of the Hawks and SAPS (South African Police Services), has clearly shown that Sars has altered the landscape. All indications suggest that the tax authority, facing mounting pressure on tax collections and persistent non-compliance, actively pursues the arrest and prosecution of taxpayers who fail to disclose their taxable income accurately.
The fruits of Sars' efforts are evident in the record tax collection figures. For the fiscal year to the end of March, Sars collected a gross tax revenue of R2.155 trillion – R10 billion more than the Treasury's last estimate in February. The 2023/24 tax take was R52 billion more than the previous year, thanks to more than 8% growth in VAT (R448 billion) and personal income tax (R651 billion).
These figures indicate a significant increase in tax compliance and a clampdown on outstanding personal income tax, with Sars making a concerted effort to uncover individual citizens who are avoiding their tax obligations or not submitting correctly under the wilful non-compliance category.
According to Danielle Luwes, tax director at a specialist tax firm, Hobbs Sinclair Advisory, the revenue office relies on personal information, artificial intelligence, and machine learning algorithms to track activity and red flag non-compliant taxpayers. Luwes warns that Sars will pick up flight activity (such as frequent international travel) and luxury purchases (such as high-end vehicles or luxury vacations) and conduct a luxury audit to ascertain if an individual exhibits a lifestyle that does not match the tax return.
“The South African Revenue Service, under the leadership of commissioner Edward Kieswetter, is a world-class organisation. Through its specialist High Wealth Individual Unit and the Specialised Audit Unit, Sars has managed to achieve record tax revenue,” says van Luwes. “We have seen in recent reports of individuals being arrested and imprisoned which is a serious warning that being non-compliant is a very dangerous place to be,” she warned.
South Africa's Voluntary Disclosure Programme
Sars provides a Voluntary Disclosure Programme (VDP), offering eligible individuals, companies, or trusts the opportunity to voluntarily disclose and resolve their tax matters. To be eligible for the VDP, taxpayers must meet certain criteria, such as not being aware of a pending audit or investigation, not having received a request for information from Sars, and not having been informed of an audit or investigation by Sars.
Luwes strongly advises taxpayers facing tax defaults to consider using the VDP to address their situations. Through voluntary disclosure, taxpayers can receive guidance, expedite resolution, and potentially reduce penalties and legal consequences. “Proactively rectifying tax defaults not only brings compliance relief but also significantly lowers the risk of penalties and legal repercussions.”
Tax defaults encompass various scenarios, such as inaccurate information submission, underdeclared income or understatement of any tax liabilities, and failure to provide requested information. Zulfah Mullins, who manages tax compliance at Hobbs Sinclair, commented, “Sars' Voluntary disclosure, although not complicated, is best done with a tax specialist who can ensure documents are submitted correctly and negotiate agreements with Sars.
Above all, obtaining a VDP correctly involves preparing a comprehensive disclosure, submitting it to Sars, and having it accepted by Sars, which guarantees immunity from criminal prosecution,” she concluded.
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