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You can run but you cannot hide!

23 March 2015   (0 Comments)
Posted by: Author: Erich Bell
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Author: Erich Bell (SAIT Technical)

SARS’ latest advertisement entitled "Paranoia” portrays a person who has under declared his tax liability and who now suffers from extreme anxiety and paranoia because, he can run but he cannot hide. This advertisement, ending with "we’re closing in on undeclared income and overstated expenses”, stands completely in contrast with SARS’ previous campaigns that employed a carrot-stick approach by showing how your tax changes lifes of millions of South Africans. This change may be attributable to the new Commissioner, Thomas Moyane, who made it clear to the whole of South Africa that he would be clamping down on the non-compliant taxpayers in South Africa.

The fact is that irrespective of who the Commissioner of SARS is and the advertising campaigns employed by him, the most scariest of all is the rights afforded to SARS in terms of the Tax Administration Act (No. 28 of 2011) ("TAA”). This article will shed some light onto the provisions of the TAA that you, as a taxpayer should be made aware of.

When can you as a taxpayer have a good night’s rest without any fear and paranoia?

The TAA contains two parts that you should be aware of. The first one governs when SARS may issue an assessment. Here a distinction must be drawn between an assessment by SARS and a self-assessment by the taxpayer.

For an assessment by SARS, which applies to Income Tax at the moment (note that the Income Tax system will soon change to a self-assessment system as announced in the Budget Speech 2015), SARS may not issue an assessment after three years of the date of assessment, unless the full amount of tax actually due by you was not assessed by SARS due to fraud, misrepresentation or non-disclosure of a material fact. In the case of Income Tax, the "date of assessment” is the date on which SARS issues the notice of assessment. Therefore, SARS would not be able to issue an Income Tax assessment after three years have expired, provided that you have disclosed all your receipts, accruals and deductions in a full and honest manner.

For self-assessments, which applies to your PAYE and VAT returns, SARS may not issue an assessment within five years from the date of assessment, unless SARS hasn’t collected all taxes due by you due to fraud, intentional or negligent misrepresentation, intentional or negligent non-disclosure of material facts or the failure to submit a return. In the case of self-assessments, the date of assessment is the date on which the return is actually submitted by you. It should furthermore be noted that for self-assessments, the TAA requires the misrepresentation or non-disclosure by you to be "intentional or negligent”.  In order to determine if you were negligent, your conduct would be measured against the conduct of a "reasonable man” faced with similar circumstances. Due to the increased compliance culture in South Africa, it is submitted the bench mark of a "reasonable man” is set quite high, even though the determination is case specific. Taxpayers may therefore struggle to argue that their lack of tax knowledge have led to them not disclosing all facts or misrepresenting receipts, accruals or expenses to prevent SARS from issuing further assessments after the five years.

Whether you are dealing with an original assessment by SARS or a self-assessment, as soon as you committed the fraud, misrepresentation or did not disclose material facts through your return, SARS will issue an additional assessment to ensure that it collects all taxes lawfully due to it. It is important to note that, in terms of section 171 of the TAA, SARS has fifteen years from the date of assessment to institute proceedings to recover a tax debt due to it.

The second part that may be of interest to you comes into operation as soon as you have a tax liability that you are not settling with SARS. SARS then has various tools at its disposal to collect the tax debt, including appointing your employer or bank through an agency appointment which would require them to deduct amounts from your salary or bank account and to pay it directly over to SARS. Furthermore, SARS may also apply for a civil judgement to obtain a liquid debt from you in order to settle your outstanding tax liability.

From the above it is apparent that the best way to prevent fear and paranoia is to be honest the first time round with SARS when declaring your income and expenses on your return. In doing so you can have a good night’s rest from the day of submission of your return.

What to do if you are tired of running?

From past experience, taxpayers generally make use of two tactics. They either submit an incorrect return and pray for 15 years on end for SARS not to select them for audit or they come clean via the Voluntary Disclosure Programme ("VDP”). The latter is, however, the preferred method (that is to say if you are not a believer in miracles).

If you’ve already come clean with your tax affairs and you are unable to pay, then it is advised to apply for an instalment payment agreement in terms of section 167 of the TAA or to apply for a compromise in terms of section 200 of the TAA.

Conclusion

From the above, it is clear that the TAA affords extensive powers to SARS when it comes to assessing and collecting tax. For me, personally, the best way to ensure a good night’s rest, every night, is to do things right from the start. That means ensuring that you make use of the services of a registered SAIT tax professional. If, however, you are non-compliant and you are tired of running, it is advised that you ask your SAIT tax professional to assist you in coming clean through the VDP. SAIT tax professionals are also experts in arranging payment terms with SARS and it is highly recommended that you make use of one when you’re struggling to pay SARS.



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