Non-compliant taxpayers can stop looking over their shoulders and worrying about when the long arm of the taxman is going to find them. Instead, they can now voluntarily come clean to the revenue authority and rectify their non-compliant situation. The South African Revenue Service (SARS) announced recently that its Voluntary Disclosure Programme (VDP) will now be permanently available to qualifying individuals, companies or trusts.
The SARS Voluntary Disclosure Programme: what is it?
The SARS VDP is a useful opportunity for taxpayers to straighten out their tax affairs by disclosing any defaults in tax payments or any other tax non-compliance that would be penalised if otherwise discovered by SARS.
Previously, the VDP programme could only be used during specific periods in certain tax seasons. SARS is now encouraging taxpayers who may be in default on their tax affairs to take this opportunity to clear the air with the revenue service, and get back on the right side of the taxman. A successful voluntary disclosure application means non-compliance penalties are waived and taxpayers can pay any outstanding tax liabilities without the worry of being prosecuted for tax crimes.
As such, if you are a South African tax resident who is currently non-compliant, now is a good time to fix the problem before you get caught.
- The VDP is available to taxpayers who disclose tax defaults readily and willingly.
- However, one of the biggest stumbling blocks for the VDP is the interpretation and application of what “voluntary” means.
- To qualify, taxpayers must disclose their outstanding tax liability voluntarily, fully and honestly, and cooperate with SARS throughout the process. The disclosure must also be made before SARS starts any audit or investigation, and it must relate to a tax period that has not yet been assessed.
The SARS Voluntary Disclosure Programme: what reasons are there for voluntary disclosure?
SARS encourages taxpayers to utilise the VDP where they have defaulted on their tax obligation. In coming forward without hesitation, taxpayers will receive advice and assistance from SARS to fast-track the process of resolving their request.
However, if SARS discovers through its own means that an individual is non-compliant, they will not be given the opportunity to use the VDP. Instead, SARS will take the opportunity to exercise their powers in dealing with non-compliance, possibly to the full extent of the law – criminal prosecution.
Taxpayers who have defaulted and would like to seek relief from penalties and avoid prosecution can voluntarily disclose the details of their non-compliance.
Which tax defaults fall under the SARS Voluntary Disclosure Programme?
- Outstanding returns
- Submitting inaccurate or incomplete information
- Failing to submit information requested by SARS in relation to any tax type
What are the qualifying conditions for the SARS VDP?
A defaulting taxpayer will only be granted relief under the programme if their application meets the following requirements, as laid out in Section 227 of the Tax Administration Act:
- The disclosure must be voluntary
- The disclosure must be thorough and contain accurate facts
- The individual must not have previously made a similar disclosure within the past five years
- The disclosure must refer to a behaviour contained in the understatement penalty table in section 223 of the Tax Administration Act
- The disclosure must not result in a refund due by SARS
- The disclosure must be made in the prescribed form and manner (i.e: using eFiling)
What is the outcome of the SARS VDP process?
Successful VDP applications will result in an agreement that must be entered into between the individual and SARS. This agreement will cover (among other things):
- The material facts of the disclosed defaults
- The amount payable by the defaulting taxpayer, as well as the understatement penalty
- The relief deemed appropriate by SARS under the VDP
- Payment arrangements and deadlines to be made
- A warning that relief will be withdrawn if SARS decides later that disclosure did not in fact meet the requirements of a valid and complete disclosure under the VDP.
What’s the point of the SARS Voluntary Disclosure Programme?
The South African Supreme Court of Appeal (SCA) has interpreted Section 227 of the Tax Administration Act to mean that the validity of voluntary disclosures depends on them being both voluntary and complete in all material respects. The SCA has determined that the intention behind the legislation was to prevent taxpayers from using the informal advice given by SARS to disclose information and then later using the same disclosures to avoid financial liability. Instead, the purpose of Section 227 is to encourage wayward taxpayers to voluntarily confess their default to SARS in full and in all material respects, without SARS having prior knowledge of the default, in order to promote tax compliance and provide tax amnesty to taxpayers using this VDP.
How does the SARS Voluntary Disclosure Programme apply to expats?
If you left South Africa without completing tax emigration and receiving a confirmation letter of non-resident tax status from SARS, there is a chance you might still qualify as a tax resident in South Africa. You could still meet the requirements of residency based on the ordinarily resident test or the physical presence test.
Either way, it is your obligation to inform SARS that you have ceased your tax residency in order to end your obligation to pay tax on your worldwide income. Until you have ceased residency, SARS is within their rights to expect to tax you on all your income. SARS is becoming increasingly efficient at sniffing out tax residents earning a foreign income abroad, so it’s advisable to make use of the Voluntary Disclosure Programme before SARS catches wind of you.
FinGlobal: tax specialists for South African expats
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