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SARS’ Voluntary Disclosure Programme: The problems

30 May 2011   (0 Comments)
Posted by: Author: Leon Rood
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SARS’ Voluntary Disclosure Programme: The problems

The legislation only provides for relief if the default occurred prior to 17 February 2010, but in certain cases this may discourage taxpayers from coming clean.

A more flexible and practical approach needs to be applied by SARS to the Voluntary Disclosure Programme (VDP), which seeks to give taxpayers an opportunity to come clean by disclosing tax defaults occurring prior to 17 February 2010.

The legislation only provides for relief if the default occurred prior to 17 February 2010, but in certain cases this may discourage taxpayers from coming clean.The 17 February 2010 cut-off was included in the VDP to prevent taxpayer s from deliberately defaulting by failing to submit returns or making timeous payments after this date—with the intention of subsequently applying for relief under the programme.

Of course, a flexible approach cannot apply to situations where a taxpayer, by design, caused or continued in default after the cut-off date, but in cases where there was fraud, for example, the taxpayer may only become aware that incorrect information was given to SARS months after the fact. At the very least, the Tax VDP Unit should consider what to do with applications such as these.

A ‘tax default’ includes the submission of inaccurate or incomplete information, the failure to submit information, or the adopting of a tax position.These actions may have resulted in the taxpayer not being assessed for the correct amount of tax, not paying the correct amount of tax, or an incorrect refund being made by SARS.

For example, a vendor who claims the VAT input paid on the acquisition of trading stock. Many months later, however, the vendor discovers that an employee has been fraudulently generating tax invoices and depositing the cash payments into their personal bank account, and that the trading stock was never actually acquired.If the vendor decides to make use of the VDP, they will only receive relief in respect of the VAT defaults prior to 17 February 2010,even if most of them took place after that date. Penalties and interest will still be levied on the amounts claimed after that date, and interest will run up to the date he settles the VAT owing.

If the tax default is part of one composite transaction or a series of transactions, it hardly makes sense to limit the relief to the date of 17 February 2010 and then to exclude a portion of what is essentially one tax default.

Taking such a strict approach might be counter-productive, as taxpayers may feel that they would rather take their chances and not disclose, because the VDP benefitis not attractive enough.The wording of the legislation can also be interpreted such that a default occurring prior to 17 February 2010 can nevertheless result in underpayments thereafter,and thus these underpayments could well be covered by the VDP. A distinction would be whether or not it was within the taxpayer's control to cease the default as at 17 February 2010.

The draft Tax Administration Bill (TAB), in its current iteration,does provide for the continuation of the VDP. However, the benefits will be on a less generous basis,with relief only from administrative penalties and additional tax.With the due date for the second round of comments on the draft TAB having passed in December 2010, and the current VDP set to run to the end of October 2011, it is not clear how any VDP under the TAB would dovetail with the current VDP, if at all.

If the VDP aims to enhance the culture of compliance in the tax environment, grow the taxpayer base, and increase revenue collection for the fiscus, it will need to be flexible enough to consider cases where taxpayers find themselves unintentionally in default, and properly incentivise them to come forward.

Source: By Leon Rood (Tax breaks)


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