Long gone are the days when tax fraudsters could run circles around the South African Revenue Service (“SARS”). Recently, SARS has intensified its efforts to crack-down on tax evasion, by pursuing criminal action against non-compliant taxpayers. During this week, SARS came knocking on the door of a private hospital and its director, charging them both with tax fraud.
The chickens coming home to roost
A private healthcare facility was recently charged with alleged PAYE, VAT, and income tax fraud in excess of R500-million, while the director was similarly charged with alleged tax fraud to the tune of R750-million. Upon conviction, the parties involved could potentially face a prison sentence of up to 40 years.
This is clear that SARS is no longer allowing tax fraud to run rampant without any remedial action on their part. The Commissioner of SARS has often stated that voluntary compliance should be made easy, while non-compliance should a difficult and costly experience.
The Voluntary Disclosure Programme (“VDP”) – an opportunity to come clean
Fortunately, the Tax Administration Act, No. 28 of 2011 provides a saving grace to taxpayers who come clean to SARS. This mechanism is called the Voluntary Disclosure Programme (“VDP”). A VDP application to SARS is the only way to avoid prison time.
SARS agrees to grant amnesty from criminal prosecution, and to waive all understatement penalties where the taxpayer approaches SARS with a VDP application before notification of audit or criminal investigation, except in instances of gross negligence and intentional tax evasion, where the penalties are charged at 5% and 10% respectively.
A taxpayer’s VDP application must comply with certain requirements:
- The disclosure must be submitted before the taxpayer is notified of an audit or criminal investigation by SARS;
- The disclosure must be made voluntarily;
- A disclosure must not have been made for a similar ‘default’ in the preceding five years;
- The disclosure must be fully described and complete in all materials aspects;
- The disclosure must not trigger a refund due by SARS; and
- The disclosure must be made in the prescribed form and manner.
Thereafter, should the VDP application be accepted by SARS, then a VDP agreement is concluded between the taxpayer and the Commissioner of SARS. Therein, the material facts of the matter are outlined, and a payment plan for any amounts due to SARS is agreed on. In turn, SARS agrees to waive any criminal prosecution, and remit any understatement penalties, however, interest is always payable.
Come forward now!
Hopefully South Africans take heed of this warning and a change in tax morality could be sparked. Taxpayer’s whose tax affairs are in a state of disarray should promptly take action to disclose their default to SARS in the correct manner, and appoint astute tax attorneys to assist with this process. Timing is of the essence, as should SARS come knocking before your disclosure, the avenue of VDP is unavailable, and prison time beckons.
Written by Andre Daniels, Legal Manager: Tax Controversy and Dispute Resolution at Tax Consulting SA; and Richan Schwellnus, Tax Associate at Tax Consulting SA