Charles Mackenzie, a tax partner at Ernst & Young, said that the introduction of wealth tax would appear to be quite a bad idea.

“I think at the end of it all foreign investors don’t like to see too many taxes, they also don’t like to see something which appears to be driven as a knee-jerk reaction to certain political statements that may have been made.”

Mackenzie pointed out that there was a focus on the wrong things, and attention should be turned to a lacking education system and a shortage of skills.

“Are we ending up with an education system that is globally competitive? At the end of it all, the world is going where you can find skills.

“The emphasis should be on trying to grow the number of jobs rather than just trying to take from the ‘haves’ and supply the have-nots, because once you’ve done that, you’ve done that and that’s it, the money will be spent. I’d say it’s a simplistic, knee-jerk reaction. In the long-term, that’s not going to create jobs, it’s going to create more uncertainty. At the end of the day, South Africa needs the jobs.

“We really need to make South Africa an easier place to enter and an easier place to do business. and the creation of additional taxes doesn’t really help. If we take a look at what is happening globally, the global trend is to push down the corporate rate of tax (or has been in the last couple of years) and trying to expand the indirect tax base and trying to expand the tax base insofar as employees are concerned.

“This is much more predictable, it’s much easier to administer and to really ramp up the collections. I think in SA, SARS has done a pretty good job so far. If it wasn’t for the efficiency that we’ve had at SARS and the expanding of the tax base, the government would never have been able to do all the things it’s been able to do.”

Mackenzie said that the emphasis should be on improving efficiency with regards to government spending.

He discouraged taking any ideas on the issue from Europe. “I’m not sure we want to go down the European route where these countries have borrowed and spent so heavily that their economies are really in significant trouble. I think we should realise that SA has done some things very well. We’ve had an extremely well managed financial services sector. our banks have really held up incredibly well in the current stressed environment, and our revenue base has held up well.

“We actually have the money to do the things the country needs to do, we just need more efficiency. It’s more about getting value for money out of spending, rather than misdirecting everything to expanding a tax base when we’re not even spending the money we’ve got efficiently. In fact in many cases it’s not even about spending efficiently, we’ve got numerous provinces that are not spending it at all.”

He said: “We have a very sophisticated and relatively efficient tax system in place already. If you look at the SARS compared to virtually the rest of Africa, it is best in class. We have a best in class VAT system, we have relatively to many other African countries a relatively low rate of VAT.”

Stephan Kuhn, EMEIA Tax Area Managing Partner at Ernst & Young, said that there was a real question as to whether wealth tax was fair.

“The wealthiest people can always choose where they want to live. Wealth tax can be social, but if it becomes too high, the wealthiest people will not pay the taxes and go somewhere where there is no wealth tax.”

“I would not recommend it, because it adds complexity, it creates tax evasion, and it encourages people to leave the country to areas in which there is no wealth tax.”

“I do understand that government wants to reduce their tax rates and they are under pressure to have lower tax rates. I think what they can do with lower tax rates is ensure the tax base through income tax is large.”

*Reginald Tachie-Menson was hosted on his trip to Ghana by Ernst & Young

We are in the last month for taxpayers to avail themselves of the VDP provided for in terms of the Voluntary Disclosure Programme and Taxation Laws Second Amendment Act (the VDP Act).  The current VDP regime is due to end on October 31 2011. 

As a reminder, in terms of the current VDP regime, provided the requirements in terms of the VDP Act are met, the relief can be summarised as follows:

• Where there is no awareness of an audit/investigation (section 3(1) of the VDP Act), there is 100% relief for interest and penalties and no criminal prosecution will be instituted.
• Where there is an awareness of an audit/investigation and subject to two further requirements (section 3(2) of the VDP Act), there is 100% relief for penalties and 50% relief for interest and no criminal prosecution will be instituted.

An anonymous approach can also be made in terms of the current VDP regime (section 5 of the VDP Act) which results in a non-binding private opinion being issued by a Sars official from the VDP Unit.  even though the Sars official’s opinion is non-binding, receiving a positive opinion should provide a good indication of how a taxpayer’s VDP application will be treated and the relief which will be applicable thereto. our practical experience in dealing with anonymous applications is that a quick response is forthcoming and that Sars officials who are dealing with such applications are helpful in respect of queries and generally easily accessible.  A case number is allocated to the anonymous application when the opinion is given and it is our understanding that when an application is resubmitted on a named basis, the same official will be allocated that case as one has to make reference to the particular case number in the named application.

At this late stage with the deadline looming, should a taxpayer still wish to make an anonymous VDP application, this should be submitted as soon as possible so that there is sufficient time to make a decision as to whether to submit a named VDP application before 31 October 2011.  in this regard we understand that there is currently a backlog in respect of the VDP Units’ review of VDP applications and accordingly, there will be quite a wait for taxpayers submitting VDP applications in the last month of the programme.  As stated above, there appears to be a different channel which appears to fast track the anonymous applications.

Noting that the VDP provided for in the VDP Act is about to come to an end, it is worth noting that in terms of clauses 225 to 233 of the Tax Administration Bill (“TAB”), a permanent legislative framework for voluntary disclosure applicable across all tax types, excluding customs and excise, is proposed.  in terms of the “Memorandum on the objects of the TAB” that was issued together with the TAB, ‘The main purpose of such a framework will be to enhance voluntary compliance and is in the interest of the good management of the tax system and the best use of Sars’ resources.’  The permanent VDP framework in the TAB will not provide interest or exchange control relief, but proposes to provide for relief from penalties (100% relief from an administrative non-compliance penalty and partial relief from an understatement penalty which is currently known as additional tax) and criminal prosecution.

Regarding the time line of the promulgation of the TAB, it can be noted that the third draft was released in June 2011 and an opportunity was granted to make submissions before 12 August 2011.  Public hearings were held on 16, 17 and 19 August 2011.  according to our most recent information in this regard, National Treasury is supposed to respond to the submissions on 21 September 2011.  The TAB is expected to become operative in early 2012, so watch this space for details.

Accordingly, between 31 October 2011 and the date upon which the TAB takes effect, there is currently no provision made for a VDP.  Taxpayers who have missed the opportunity to come forward in order to regularise their tax affairs by 31 October 2011 will be open to attack by Sars under the normal (and often harsh) provisions of the various tax Acts.  As is clear from the above, even though there will, from the time when the TAB is enacted, be a permanent VDP legislative framework in place, any relief received in terms of the new proposed VDP will be less favourable than is currently on offer.

*Taryn Solomon is an associate at ENS

Sars has attempted to curb Value-Added Tax (VAT) fraud by implementing strict verification procedures for VAT registrations.

Whether those procedures are in line with the VAT legislation is debatable. The latest procedure put in place is the mandatory requirement of the provision of three months bank statements. Sars previously accepted an original letter from the bank confirming the bank details.   

Third party accounts raise uncertainties

This has serious implications in cases where a third party’s bank account is used. particularly in an instance where a non-resident company makes use of a representative vendor’s bank account or where an offshore holding company makes use of its local subsidiary’s bank account.

Requesting bank statements of the applicant would provide proof that the applicant does carry on a business in the Republic. however, requesting bank statements in this case will be futile since the third party’s bank account would generally not be used for commercial transactions, but only for payments to and from Sars.

Therefore, requesting bank statements of the representative vendor or third party would have no bearing on the VAT application in such cases.

Beware of prying eyes

Third parties allowing the use of their bank account as representative vendor or as nominated bank account as per section 44(3)(d) of the VAT Act should be prepared to disclose financial information contained in its bank account to Sars.

In many circumstances, attorneys act as representative vendors for non-resident vendors, meaning that confidential client information relating to litigation, property transfers and other legal matters may be open to Sars’ scrutiny.

There are also circumstances where a newly established business applies for VAT registration based on signed agreements but who has not yet commenced trading.

Such a business would not be able to provide Sars with three months banks statements based on its newly opened bank account and a current bank statement will not yet contain any transactional detail.

Don’t get hindered by the process

VAT registration has become a significant obstacle for direct foreign investment in South Africa. Given South Africa’s need for such investments, one would have expected Sars to have uncomplicated the registration process for vendors that clearly carry on enterprises in the Republic and are faced with compulsory VAT registration.

Prospective VAT vendors should approach their tax advisors and seek assistance with the registration process to alleviate any delays and mitigate risks.

*Clifford Watson, is executive tax manager at Grant Thornton Johannesburg

SME companies should brace themselves for the Interim PAYE Reconciliation that is due from September 1 2011 to October 31 2011. Employers are required to fully reconcile and submit their employee tax certificates and EMP501 Reconciliation for the period March 1 to August 31 2011, by the end of October 2011.

Employers need to make use of the new Sars e@syFile software release, e@syFile V5.0, to successfully do their Interim PAYE Reconciliations. If they don’t, they will not be able to submit their data electronically as the new software release will not recognise the old format.

Companies have no choice. the import file layout has been changed so the bottom line is that companies have to use the new V5.0 software.

Companies that are using software or automated payroll solutions need to amend their export file formats to meet the requirements of e@syFile V5.0 and the tax certificate format has also been changed by Sars. While these are minor changes, they are very important.

The major change in e@syFile V5.0 revolves around new features for the registration of employees and their tax numbers. Legislation now dictates that each and every employee in a company will be registered on the Sars database with their own tax number. Previously only employees earning more than R60 000 a year were required to be registered.

An important aspect of e@syFile V5.0 is that it offers employers some options for the registration of employees.

The first option is “bulk registration”, known as Bulk ITREG, of employee tax certificates with automatic registration of those employees who do not have income tax numbers. it will be performed automatically twice a year during the annual and interim PAYE reconciliation periods. Sars will notify employers of these registrations via e@syFile while the newly registered employees will receive a notification from Sars informing them that they are registered.

Bundled registration or Bundled ITREG is the second option Sars offers employers. the company can use this feature in e@syFile at any time of the year to register multiple employees and obtain tax numbers.

This option allows employers to keep up to date during the year by registering new employees as they come onto the payroll and this is likely to result in a smoother, quicker final submission and reconciliation because registrations have been regularly done, alleviating the need for a large single transfer of all data, as is the case with Bulk ITREG.

Some automated payroll software solutions cater for this feature using an ITREGFILE exported from the payroll software to register multiple employees at any time. Again, Sars will allocate the registered tax numbers to each employee and send this data back to the employer.

Sars can also send employers an export file which they can import directly into their payroll software, thereby avoiding tedious manual capturing of data.

ITREG and Bundled ITREG requests are limited to a maximum of 1 000 employees a month. In registrations where more than 1 000 employees are to be registered, requests to register the excess will have to be made the following month.

*Grant Lloyd IS managing director of payroll and HR software developer Softline Pastel Payroll

<a href="http://www.legalbrief.co.za/article.php?story=20110919085018768tag:news.google.com,2005:cluster=http://www.legalbrief.co.za/article.php?story=20110919085018768Mon, 19 Sep 2011 07:00:02 GMT 00:00″>Legalbrief – SARS to offer tax break for energy savings

PIETERMARITZBURG – Valentines’ Day is a time when many couples like to go out for a romantic meal in a fine restaurant, and so it’s rather fitting that Sars chose to issue a Binding Class Ruling (BCR 027) dealing with tips received by waiters on that particular date.  yet it seems that a number of tax practitioners must have eaten something that disagreed with them, judging by the diverse opinions of late on this matter.

One gets the impression that a simple tax issue has been escalated to something resembling TopGear’s Jeremy Clarkson handing a brace of the latest supercars over to their “tame racing driver”.  some say that thanks to BCR 027, tips are no longer taxable in any way or form, while others maintain that it is simply an employees’ tax matter that the BCR is dealing with.  all we know is … given all the conflicting views out there, perhaps the Stig is now giving tax advice instead of driving fast cars around a track …?

One does not need to be a rocket scientist to interpret what has been written in BCR 027.  in fact, as far as such rulings go, it is written in fairly straightforward and clear English.  The key is to understand (and keep in mind) two simple principles covered by this ruling, namely (1) when an amount accrues to (or is received by) a taxpayer for the purposes of the “gross income” definition; and (2) if the amount thus accrued or received is taxable, when the tax should be paid over to Sars.

Allow me to illustrate by means of a simple example.  Suppose that you have money invested in a call account, which attracts interest at 6% per annum.  The interest is calculated on the daily balance, and capitalised on the last day of each month.  however, if the account were to be closed at any point, the bank would calculate any interest earned between the last day of the previous month and the date of closure, and add that to the amount paid out to the bank’s client.

At no point does the bank withhold any amount as tax and pay such amount over to Sars.  As far as the bank is concerned, the legal requirement is for the bank to issue a letter at the end of the tax year (called an IT3(b) certificate) indicating how much interest has been earned during the year, and forward copies thereof to the client and to Sars.  it is incumbent on the client to disclose such interest to Sars when completing their tax return for the year.

Five key questions now need to be asked concerning the interest that is paid by the bank to its client:

1.    When does the interest accrue to the client?  in this example, since interest is calculated on the daily account balance, interest accrues daily.

2.    When is the interest paid to the client?  The agreement between the bank and the client in this case stipulates that interest is paid into the account monthly.

3.    Is this interest taxable?  Section 1 of the Income Tax Act defines “gross income” as, inter alia, “the total amount, in cash or otherwise, received by or accrued to or in favour of such resident” (“resident” being a South African resident for tax purposes), and would certainly include interest.  Ignoring for the moment the basic interest exemption available to individual taxpayers, interest income is indeed taxable.

4.    Is the bank liable to withhold any tax on interest paid?  interest income does not fall within the definition of “remuneration” as contained in the Fourth Schedule to the Income Tax Act, and therefore there is no obligation on the part of the bank to withhold any PAYE.  in the case of South African tax residents, the bank is also not obliged to withhold any other form of withholding tax.

5.    If the answer to question 4 is “no”, when must the taxpayer account to Sars for the tax on the interest?  The taxpayer is obliged to take taxable interest earnings into account when completing their provisional tax returns.  however, the actual amount earned as interest is to be declared when the annual income tax return is completed, and any shortfall in tax will be payable to Sars upon assessment.

Let us now apply these principles to the specific income that is the subject of BCR 027, being that of tips paid to waiters.  most people, when visiting a restaurant, will add a gratuity to the amount of the bill when settling (based, of course, on how satisfied the patron is with the service).  And if the average restaurant patron is anything like me, the thought of how such tips are administered by the restaurant concerned probably never even enters their thoughts.

Restaurants, on the other hand, face their own particular risks concerning the handling of cash, especially since (with few exceptions) patrons settle their restaurant account directly with the waiter serving them.  because of such risks, the applicants (a group of restaurants) implemented a policy whereby waiters were not permitted to carry any cash on their persons whatsoever whilst on duty.

With regard to tips earned by the waiters, the policy of the applicants is that such tips will be held by the restaurant as a creditor balance, which will then be paid directly into the waiters’ bank account at month-end, together with their normal salaries.

However, if the restaurants were to process such tips through the payroll system, the only way it could do this would be to either do multiple payroll runs, or hold over the tips earned in Month 1 and pay them to the waiter in Month 2.  While BCR 027 is silent on this aspect, one can imagine that such an arrangement would be unsatisfactory for both the employers and their staff.

The subject of the application, therefore, was whether the restaurants (as employers) would be required to withhold any employees’ tax from the monthly accumulated tips paid over to the waiters.  Sars ruled that employees’ tax need not be withheld on such tips paid.

This led some commentators to conclude that, because of BCR 027, tips were no longer regard as taxable income.  however, it was never Sars’ intention to declare tips to be tax-free – the ruling dealt only with the withholding of employees’ tax.  The situation is thus similar to that in my bank interest example above.

Because of the hullabaloo around this issue, however, Sars re-issued an amended BCR 027 on 12 August 2011, stating clearly that “this ruling does not mean that tips received by employees under the circumstances as described in this ruling, nor for that matter tips received in general, are not taxable.  Amounts received by way of tips constitute “gross income” as defined in section 1 of the Act and will, therefore, be subject to income tax in the hands of the recipient.  The fact of the matter is that tips as described above will not constitute “remuneration” as defined in the Fourth Schedule which merely releases an employer from the obligation to withhold employees’ tax from these amounts, but does not release the recipient from the obligation to declare such tips for income tax purposes” (BCR 027, Paragraph 9, my emphasis).

The ruling applies specifically to the specific (unnamed) employers who made the application to Sars, as well as their employees, and is valid for five years starting from August 2010.  however, while other employers in the hospitality industry having similar arrangements concerning the payment of tips would need to make specific application to Sars for a ruling (failing which, the requirement to withhold employees’ tax remains in force), it is likely that Sars will make a similar ruling to BCR 027 should the circumstances be similar to those of the applicant.

The ruling is however silent on whether the employer is still obliged to disclose the aggregate amount of tips paid during the tax year on their waiters’ IRP5 certificates at the end of the year.  I would submit, though, that such disclosure should be made; failing which, the obligation rests with the waiter concerned to declare such income to Sars.

Given the high likelihood that many will be tempted not to declare their tips, Sars probably erred in not making such disclosure by the employers a condition of the ruling contained in BCR 027.

Write to Steven Jones: steven@moneywebtax.co.za

Tax nightmares among owner-managed businesses and SMEs are costly and time consuming, particularly relating to tax queries and disputes with the South African Revenue Services (Sars). 

Inaccurate accounting information Mistake

The accuracy of the underlying accounting information and supporting documentation  is directly responsible for the integrity of a taxpayer’s income tax return.  In the case of SMEs, this integrity is often queried as a result of a lean accounting function and  confusion in distinguishing  between the financial affairs of the business owner and the business.

Sars tax auditors are first and foremost focused on testing the reliability of accounting books and records, by, for example, reviewing cash accounting records for unusually large or ad hoc payments, on the basis that these often represent private expenses which have been processed as business expenses and  claimed for tax purposes.

The importance of accurate accounting information and supporting documentation is further compounded by tax regulations requiring taxpayers to maintain proof of all income and expenditure as well as maintaining  business documentation in a particular format, for example,   VAT invoices.

Recommended preventative steps

Steps which a business owner should take to avoid the above:

• Employ a competent bookkeeper to maintain accurate accounting records and supporting documentation;
• Ensure you have a consistent list of accounts to which expenses and income can be posted for accounting purposes;
• Make use of control accounts, which are reconciled on a monthly basis to the external customer / supplier statements – for example, a VAT control account which is reconciled to  Sars accounting statements (which are available on request);
• Establish clear guidelines for the accounting treatment of business owner private expenses, to ensure that these are posted to a shareholder loan account and not to a business account;
• Establish clear guidelines for the recognition of accounting revenue or expenses for income tax and VAT purposes, which Sars will approve.  A good example here is the accounting for subscription income / profit arising on long-term building projects or agency businesses;
• Where necessary ensure there is a good understanding important tax rulings for complex domestic businesses or businesses with considerable cross border transactions;
• If the business holds inventory, ensure that there are clear procedures in place for counting and pricing regular stock-takes

This list of steps is not exhaustive, and will vary depending on the type of business.  While a services business may not require a stock-take, it may require the establishment of an agreed method for recognising fee income.

not taking ownership for tax Mistake

Owners of small to medium business often “leave tax to the bookkeeper / accountant”, without taking ownership of their fiscal responsibilities.  it is important for business owners to be aware of tax submission deadlines and to ensure that  tax is paid within these prescribed deadlines. The cost of these mistakes can be high especially for elements such as the late submission and payment of second provisional income tax payments or the submission and payment of monthly PAYE.

When business cash flows are under pressure, tax payments are often the first to be “put on hold” with direct business operating expenses taking precedence. if this persists, expensive non deductible late payment penalties and interest accumulate quickly until the outstanding tax capital amount is paid, particularly as payments are generally allocated by Sars to interest and penalties first before settling the tax capital amount due.

Recommended preventative steps

In order to prevent the above from occurring, business owners should implement the following:

• Include direct (income tax) and indirect (VAT, PAYE) into all monthly cash flow plans
• Establish a separate bank account into which indirect ‘withholding’ taxes are transferred upon withholding, especially for PAYE and VAT;
• Include income tax in monthly / annual business planning forecasts, to ensure that any income tax cash can be provided for and set aside in a separate bank account if necessary;
• Engage an external tax adviser to carry out an annual tax ‘health-check’ on the business, to ensure that the necessary tax compliance is up to date and that any tax changes have been implemented, such as PAYE on travel allowances.

Missing the SME tax detail Mistake

There are a number of less obvious tax regulations that SMEs operating in a close corporation or private company structure typically fail to apply.  most of these relate to fringe benefits arising from business expenses and transactions paid by the employer company, such as:

• Quantification and reporting of taxable fringe benefits provided to employees or directors.  An example here includes the use of company owned cars, the use of assets, low / no interest loans and the payment of employee debts. These cash-free benefits provided to employees / directors require monthly PAYE withholding tax as well as monthly / annual tax reporting to Sars. The failure to attend to these brings substantial penalties and interest to a business;
• Low interest loans or even “no interest” lending advanced by a company to shareholders or related parties may attract secondary tax on companies of 10% or dividend withholding tax of 10% with effect from 1 April 2012.

Recommended preventative steps

Steps which a business owner could take to avoid the above:

• Ensure all employment related expenditure is identified in the cash payments records and reported for payroll tax purposes;
• Taking professional advice in advance of entering into possibly complicated or unusual transactions
• Engage an external tax adviser to carry out a bi-annual PAYE / remuneration tax ‘health-check’, to ensure that all employment benefits are identified, quantified and reported for tax purposes.

*Steve Curr is a tax director at Grant Thornton Cape

In the past there has been some confusion about whether gratuities in the form of tips earned by waitrons, which have been handed to their employer for “safekeeping” and paid later into the waitron’s bank account, were regarded as remuneration or not.

In terms of the Income Tax Act, PAYE must be withheld when an “employer” pays “remuneration” to an “employee”.  these terms are defined in the Fourth Schedule to the Income Tax Act and apply only for the purpose of that part of the Income Tax Act.

An employee is defined as, amongst other things, any person who receives remuneration whilst remuneration is defined and includes, amongst other things, any bonus, or gratuity.  an employer is defined as, amongst other things, any person who pays or is liable to pay remuneration.  in other words, there must be a flow of remuneration from an employer to an employee before PAYE must be withheld.

The Sars Ruling, which was published on February 14 2011, confirmed that where an employer (restaurant owner) holds tips received from customers in safekeeping on behalf of the waiters and then transfers that money to the waiters banking account, no PAYE need to be withheld by the employer.

The Sars Ruling, which is valid until August 2015 comes as no surprise as there is no flow of remuneration from an employer to an employee, as is required in terms of the Fourth Schedule to the Act.  here, there is a flow of money (tips) from a customer to the waitron, whereas the employer merely holds the monies on behalf the beneficial recipients (the waitrons).

It is however surprising that this Sars Ruling was interpreted by some as meaning that these ‘tips’ are not taxable at all.  in consequence Sars issued a clarifying note to the Ruling confirming that the Ruling applies to the non-withholding of PAYE and does not mean that ‘tips’ are not taxable. 

Quite independent from the PAYE withholding obligations, discussed above, is the gross income definition and in particular paragraph (c), which includes in gross income any amount, including any voluntary award, received or accrued in respect of services rendered. 

This paragraph brings within its ambit all amounts received as a quid pro quo for services rendered.  the only question to be answered is whether the tips are received in respect of services rendered. if the answer is yes, the tips fall within the ambit of gross income.  quite clearly, the tips are received in respect of services rendered by the waitron and therefore they are taxable.  Of course, in the absence of a paper trail, it will be difficult for Sars to police the taxation of tips and it will be up to the honesty of waitrons.

*Anton Lockem is a partner at Shepstone & Wylie Attorneys’ corporate and commercial law department

With an end-October deadline, the clock is ticking for taxpayers to submit voluntary disclosure programme (VDP) applications to Sars and the SA Reserve Bank with a view to putting their financial affairs in order if they owe tax o­n local assets or income, and by disclosing income and assets held offshore.

the VDP programme is an opportunity for substantial savings o­n interest and penalties that would otherwise be levied against tax transgressions.

Non-compliant taxpayers had been given a 12-month period, until the end of October this year, in which to regularise their tax affairs. “Under the VDP in the Taxation Laws Second Amendment Act, taxpayers who make full disclosure will still have to pay the outstanding tax they owe o­n assets or income, but they will benefit from interest, penalty and additional tax relief. the programme gives individuals and corporates that took funds offshore illegally and those who defaulted o­n their tax affairs an opportunity to straighten their affairs with Sars. It also gives them a chance to regularise their affairs with the Reserve Bank in instances where there have been exchange control contraventions. Non-compliant taxpayers with money offshore should apply under the programme and regularise their international investments. Besides obtaining relief from penalties, additional tax, and interest, this will open the way to implement a proper investment strategy and financial plan that assesses and accommodates the individual’s capacity for risk. Additional value from a formal analysis process would be the latest portfolio construction techniques to maximise available investment opportunities.   Among the requirements for a valid disclosure: * There must be a voluntary, full and complete disclosure in all material respects. * There must be a default.  either inaccurate or incomplete information was submitted to Sars or the taxpayer failed to submit information which resulted in their being incorrectly assessed or an incorrect tax refund being paid. * A penalty or additional tax would have been imposed had Sars discovered the default. * the disclosure must be made in respect of a default which occurred at least 12 months before the commencement of VDP. A taxpayer may apply for the VDP unless they are aware of a pending audit or investigation into their tax affairs by Sars, or an audit or investigation which has commenced but has not yet been concluded. Provisions are, however, made for exceptions to this rule. looking beyond the closing of the current VDP o­n October 31 2011, the Tax Administration Bill 2011, expected to be enacted later this year, contains a permanent VDP providing relief to non-compliant taxpayers, albeit o­n less favourable terms than the current VDP. the o­ngoing disclosure option does not apply to exchange control offences.

*Wayne Sorour is head of sales at old Mutual International

<a href="http://www.moneywebtax.co.za/moneywebtax/view/moneywebtax/en/page259?oid=61409&sn=Detail&pid=1tag:news.google.com,2005:cluster=http://www.moneywebtax.co.za/moneywebtax/view/moneywebtax/en/page259?oid=61409″>Last minute tips for getting Sars’s tax amnesty

Time for the voluntary disclosure programmes (VDP) announced last year by Sars and the South African Reserve Bank is quickly running out for taxpayers and forex transgressors. the deadline for applications for both the tax and exchange control VDPs is October 31 2011

South Africa is not alone in offering VDPs.  several countries have similar programmes, the most significant of which is possibly the VDP in the UK for undisclosed funds in Liechtenstein. a number of tax practitioners are adding their voice to calls to make the VDP a permanent part of local tax legislation, as is often the case internationally.

It’s not necessary to apply for relief under both the exchange control and the tax VDPs. However, both Sars and the Reserve Bank have confirmed they will exchange information, so those who might be exposed to both tax and exchange control issues should apply under both programmes.

Mazars has confirmed with the VDP unit at Sars that failing to submit a tax return does, in fact, constitute a ‘default’ as defined by the VDP programme.

While the exchange control VDP requires full disclosure and the payment of a penalty for non-compliance in certain circumstances, the tax VDP requires that the capital amount of the taxes due to Sars be paid, which could potentially make the cost of disclosure quite high.

The upside for taxpayers, however, is that they will escape the interest charge on previously unpaid taxes as well as the possibility of criminal charges.

Previous disclosure programmes took the form of amnesties, such as the Small Business Tax Amnesty that was offered to small taxpayers during 2006 and 2007. Under this amnesty, taxpayers merely had to correctly submit their 2006 tax returns and pay a nominal amnesty levy for complete peace of mind on previous indiscretions, both known and unknown.

With regards to the VDP, Sars was quick to point out that this is not a blanket amnesty as taxpayers would have to specifically declare instances of non-compliance in order for the taxes due to be correctly calculated.

This means that taxpayers who want to make use of the VDP must know what non-compliance exists in their affairs. they will not be able to obtain relief where non-compliance resulted from unknown errors or the incorrect treatment of interpretive matters.

Taxpayers who aren’t aware of any non-compliance could fail to make use of the VDP. However, all indications are that Sars will step up enforcement action in the future and deal harshly with matters that could have been disclosed under the VDP. It’s important, therefore, to consider taking up the VDP, particularly for taxpayers who know of past non-compliance. it is also important for taxpayers to consider a review of their various tax systems in order to determine whether unknown instances of compliance exist for which the VDP can be considered.

As time for the VDP is running out, taxpayers and exchange control transgressors should seriously consider the benefits of the VDP and apply now.

*Dirk Kotze is tax partner at global audit, tax and advisory firm Mazars

<a href="http://www.moneywebtax.co.za/moneywebtax/view/moneywebtax/en/page259?oid=61114&sn=Detail&pid=1tag:news.google.com,2005:cluster=http://www.moneywebtax.co.za/moneywebtax/view/moneywebtax/en/page259?oid=61114″>The benefits of Sars’s amnesty programme