ANALYSIS: Voluntary disclosure is a form of tax absolution
The VDP is an application that a taxpayer can submit via eFiling to Sars which allows for a taxpayer to admit to Sars that they understated their tax liability by committing a tax offence, such as understating their income or over-stating their expenses. The application allows for the taxpayer to come forward before they are audited and/or investigated by Sars.
If Sars were to discover that you understated your income or overstated your expenses, then in terms of Section 223 of the Tax Administration Act, Sars is entitled to issue an amount of penalties for intentional or negligent tax avoidance/evasion and criminally prosecute if your tax debt exceeds a certain amount.
The amount of understatement penalties can be between 25 percent and 200 percent of the tax liability, and that is separate from the 10 percent late-payment penalty and interest that will be levied on a tax liability.
The VDP is your safe haven when you have decided that you are tired of lying awake at night worrying about Sars potentially catching you out for understating your income, or for not declaring your expenses correctly.
Upon the successful application to Sars through the VDP, you can potentially get out of the massive understatement penalties if Sars were to have audited you and, most importantly, avoid being criminally prosecuted for the tax offence that you committed.
Before considering whether you wish to proceed with a voluntary disclosure application to Sars, you need to ensure that you fall within the described default. A default is described as the submission of inaccurate and incomplete information to Sars, or the failure to submit information or the adoption of a “tax position”, where such submission, non-submission or adoption resulted in:
* The taxpayer not being assessed for the correct amount of tax.
* The correct amount of tax not being paid by the taxpayer.
* An incorrect refund being made by Sars.
A taxpayer cannot apply for the VDP if he or she is aware of a pending audit or investigation into their affairs. A taxpayer may also not apply for the VDP if it will result in a refund.
It is important to note that even if the voluntary disclosure application to Sars is successful and the understatement penalties are waived on the matter, there will always be interest and a 10 percent late-payment penalty charged on a tax liability.
The voluntary disclosure application is submitted via eFiling through a VDP01 form, and upon submission, Sars will request from you supporting documentation for the application.
So, speak to your tax adviser or tax practitioner regarding the VDP if you have had sleepless nights over your tax offences. As for the saying, “or forever hold your peace”, that no longer carries any water.
Willem Oberholzer CA(SA), MCom Tax is executive director and Jade Els CA(SA), MCom Tax is a tax adviser at Probity Advisory.