SARS increases VAT scrutiny
25 June 2012
Posted by: SAIT Technical
BDO Tax Flash June 2012
As part of SARS's continuous modernisation drive, SARS introduced the IT14SD (Supplementary declaration for companies or close corporations) late in 2011, which requires taxpayers to reconcile information disclosed for income tax purposes with that disclosed for other taxes such as Value-Added Tax ("VAT"), Employees' Tax ("PAYE") and Customs.
As part of its enhanced compliance program, SARS integrated and linked the various sources of information, which has empowered SARS to query discrepancies at the push of a button. In this sense SARS is one step ahead of most taxpayers when it comes to leading edge technology.
From a VAT perspective, SARS requires two reconciliations; on the one hand it requires vendors to reconcile the value of their turnover disclosed in their annual financial statements with the value of supplies disclosed in their VAT returns. On the other hand it requires a vendor to reconcile its cost of sales disclosed in the IT14 (Income Tax return) to input tax claimed on its VAT returns submitted to SARS. If it is found that the data doesn't match to within R100 of the reported figures, SARS may investigate any unexplained variances and the company may face an additional assessment for VAT, penalties and interest.
Objectively viewed, the reconciliations required by SARS are not unreasonable and should be part of any well managed VAT system where corporate governance is a priority.
As SARS increases the scrutiny on VAT vendors they are frequently issuing random requests to taxpayers as part of their verification process to ensure tax compliance. Taxpayers may be required to supply proof of valid documentation substantiating output VAT declared and input VAT claimed for any period extending back five years. To facilitate the submission of supporting data/documentation on request, SARS introduced two channels by which a taxpayer can submit VAT201 supporting data when required by SARS. The first channel is a Direct Data Flow channel facilitating the secure flow of data between a vendor's accounting package and SARS' systems, this being the preferred channel for submission of large volumes of data. The second channel is the e@syFile™ VAT channel, which enables vendors to create an export file from their accounting system and upload this file into e@syFile™ VAT for submission to SARS, better suited for small to medium enterprises.
These two channels will enable vendors to submit supporting data to SARS designed to result in faster query resolution and enabling SARS to conduct data analysis effectively for extensive periods.
We have seen an increasing request by taxpayers to implement data analysis solutions to enable them to conduct similar analysis than that of SARS. There are a number of solutions available in the market and BDO has introduced a leading edge solution in collaboration with CQS Technology Holdings, enabling our clients to pro-actively analyse all financial information (ensuring 100% accuracy from source data) and to submit data through SARS' prescribed two channels.