Does the failure to register for VAT timeously qualify as a ‘default’ for VDP purposes?
09 June 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: Does the failure to register for VAT timeously
qualify as a ‘default’ in terms of VDP?
I have received
conflicting opinions on this, and having spoken to the VDP unit, I have been
unable to obtain a satisfactory answer, which would provide certainty for the
The member of
the CC is under audit in his personal capacity. The CC in question is
not under audit.
The taxpayer had
attempted to register for VAT in a CC, and had exceeded the compulsory
registration threshold. After many unsuccessful visits to SARS to register, the
taxpayer gave up - it appears they were not advised that this was not an
acceptable outcome, nor to pursue the registration, even tough SARS
appears to have refused to register them (which was clearly incorrect).
The taxpayer now
wishes to commence trading again, and this has arisen when they are trying once
again to register for VAT.
Please advise the
route the taxpayer should follow to regularize their affairs, bearing in mind
that the default is failure to register for a tax, and the member of the
corporation is under audit in their personal capacity.
My interpretation is
that failure to register is not a qualifying default in terms of the
definition, and further that the default does not involve the potential
imposition of an understatement penalty.
If, however, the
taxpayer did register and had been dishonest and submitted nil returns, or
understated their taxes, then they would qualify for VDP. (Which seems
unreasonable, as in this case the taxpayer DID try to register and gave up due
to delays and repeat visits.)
A: One of the requirements for the Voluntary Disclosure
Programme is that it must involve a ‘default’ which has not previously been
disclosed by the applicant (or a person referred to in section 226(3)).
A default is then
defined as the submission of inaccurate or 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—
a) the taxpayer not
being assessed for the correct amount of tax;
b) the correct amount
of tax not being paid by the taxpayer; or
c) an incorrect
refund being made by SARS.
The problem here is
that the person failed to register as a vendor and that does not in itself
constitute a default – it is an offence (in terms of section 234(a) of the Tax
One of the biggest
advantages of the Voluntary Disclosure Programme is that, in terms of section
229, SARS will not pursue criminal prosecution for a tax offence arising from
the ‘default. For the criminal offences refer to sections 234 and 235.
We agree that the
failure to register may be the failure to submit information, but that it is
not a default for purposes of the Voluntary Disclosure Programme. Note
that the Voluntary Disclosure Programme provides no relief for the "late
payment of tax” – refer to section 229(c). At the moment no penalty is
imposed for the late submission of a return, but the relief will also not be
granted for the late submission of the penalty. This may also be
confirmation that it is not the intention of the voluntary disclosure program
to provide relief for persons who didn’t register.
As the service
offered by SAIT is limited to guidance we can’t "advise the route the taxpayer
should follow to regularize their affairs”. You mention that it "has
arisen when they are trying once again to register for vat”, but we are not
sure what the facts are, i.e. was a new application made and denied. It
may well be advisable to approach SARS, particularly because they have put in
an application to register previously.
The fact that the
member is under audit is not relevant as it must be the person seeking the
relief who must be under audit.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.