Global Courant 2023-05-29 13:28:42
The South African Revenue Service (SARS) has published a new interpretation note, warning taxpayers about how non-compliant taxpayers will be addressed and penalized.
The note, called Interpretation Note 129 (INR129), aims to clarify the interpretation of the term “maximum tax rate applicable to the taxpayer” as stated in the Tax Administration Act.
According to Andre Daniels, head of tax controversies and litigation at Tax Consulting SA, the note is specific to cases where taxpayers have understated their tax liability.
SARS’ understatement penalty regime is designed to ensure consistent and equal treatment of taxpayers in similar circumstances and to deter behavior that leads to non-compliant reporting.
INR129 specifically relates to situations where the tax rate for a taxpayer’s tax shortfall, due to an underestimation of their tax liabilities, is determined under subsections (3) and (4) of the Act.
It also provides clarity on how to impose sanctions, with in-depth calculations and examples, as a true indication of SARS’ intent to make non-compliance difficult and costly.
If taxpayers have not declared any income, SARS can impose fines of up to 200% of the wealth tax owed.
“To avoid this, before SARS approaches them, erring taxpayers must declare previously unreported income through the ongoing Voluntary Disclosure Program (VDP), which is regulated by the Tax Administration Act,” Daniels said.
How the rules work
According to Tax Consulting SA, under Section 222(1), the TAA imposes an understatement in the event of an understatement by a taxpayer, payable in addition to the tax due for the tax period, unless the understatement is as the result of a bona fide unintentional error.
An “understatement” means any disadvantage to SARS or the tax authorities as a result of –
Failure to file a return required by any tax law or by the commissioner; An omission of a return; An incorrect statement in a declaration; If no return is required, failure to pay the correct amount of “tax”; or an “unauthorized circumvention scheme”.
The understatement penalty is determined by applying the highest applicable understatement penalty per shortfall.
Each “deficit” is determined, depending on the taxpayer’s specific facts, for the respective tax period, Daniels said.
The law adds that the “maximum tax rate applicable to the taxpayer” must be applied to determine the tax shortfall, and this is determined by not taking into account an estimated loss or any other benefit carried forward from a previous tax period to the tax period in which the understatement occurred.
“Certain taxpayers are taxed at either a flat rate or a progressive rate. The tax rate that applies to taxpayers subject to a fixed tax rate represents the “maximum rate that applies to that taxpayer,” Daniels said.
For taxpayers taxed at a progressive tax rate, the maximum tax rate applicable to the deficit is the marginal tax rate applicable to the taxable income or taxable turnover determined by, without regard to estimated losses or any other benefit arising from any tax period preceding the relevant tax period.
Daniels noted that the circumstances of each taxpayer are taken into account when determining the maximum tax rate.
What this means
Under SARS Commissioner Edward Kieswetter, the Tax and Customs Administration has not minced words when it comes to non-compliance and equal treatment in the eyes of the Tax and Customs Administration.
Daniels said the latest interpretation note shows that SARS is not making empty promises when it says it will go after non-compliant taxpayers — and it has shown that no one is above the law when it takes its steps.
In March, SARS was an example of this crackdown when the authority clarified President Cyril Ramaphosa’s tax status and stated that Ramaphosa was fully compliant in the eyes of SARS through staff and advice.
At the time, Kieswetter confirmed that he had not been approached by President Ramaphosa, or anyone on his behalf, with any request regarding his personal and/or business entities in question.
“By taking this exceptional step to disclose the president’s tax status, with his written consent, SARS would also encourage other high-profile political office holders and community leaders to consider taking this proactive step as part of their commitment to transparency. .
“This would go a long way in building trust in our country’s institutions,” said Kieswetter.
Daniels said this move clearly shows that SARS made no exceptions and would investigate anyone and everyone to ensure compliance, even the president.
“We are now seeing this come to fruition, and regardless of one’s position in society, SARS will monitor you, and fines will be imposed at the appropriate rate where appropriate, the maximum being 200% in certain circumstances,” he said. .
“Earlier statements from Kieswetter, and beyond, clearly show that even the state president undergoes audits and bears the burden of proof to prove properly declared income.
“It goes without saying that now, more than ever, SARS pursues non-compliant taxpayers, regardless of status, without fear, favor or prejudice.”
Read: Wealthy South Africans pack their bags – and take billions in taxes with them
