Tax non-compliance in South Africa and what it might mean for you

CH Consulting |
4 June 2024
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Tax non-compliance poses significant challenges to government revenue collection, economic stability, and the overall integrity of the tax system in South Africa. It encompasses behaviors where taxpayers, intentionally or unintentionally, do not adhere to their tax obligations, leading to substantial revenue losses and potential distortions in the economy. This article examines key manifestations of tax non-compliance, what the consequences are; and how to rectify your non-compliance.

WHAT IS NON-COMPLIANCE?

Failure to submit required tax returns within specified deadlines:

It’s vital to note all the deadlines that are relevant to you and your tax situation. Check out the SARS eFiling page for the deadlines of your income tax return, as well as the provisional tax deadlines, if necessary.

Failure to make payments on time:

It is important to understand when payments are due to SARS. Not making payments on time can lead to unnecessary interest and penalties.

Claiming false or exaggerated deductions to reduce taxable income:

Claiming for incorrect expenses / deductions can be tempting, but could result in a long drawn out verification process, and penalties from SARS when these expenses / deductions are not allowed. It’s best to consult with a registered tax practitioner to identify where you can maximise your deductions, within the boundary of the law.

Offering or accepting bribes to avoid tax obligations or audits:

Whether you are involved purposefully or not, being involved in tax corruption can have detrimental legal effects. SARS expects every taxpayer to meet their obligations and pay their fair share of tax. If you are approached by an entity that can clear your tax payments in exchange for a fee, it’s best not to get involved.

WHAT ARE THE CONSEQUENCES OF NON-COMPLIANCE?

Admin Penalties:

The administrative non-compliance penalty for the failure to submit a return comprises fixed amount penalties based on a taxpayer’s taxable income and can range from R250 up to R16 000 a month for each month that the non-compliance continues.
Administrative penalties recur each month that the taxpayer is non-compliant, up to a maximum of 35 months.

Interest Charges:

SARS charges interest on various types of tax non-compliance, including late payment of taxes and underestimation of provisional tax. Interest on tax non-compliance is calculated from the due date of the relevant tax obligation until the date of payment. The interest is compounded daily.

Penalty Charges:

Penalties are charged on both understatement of provisional tax returns and late payment of provisional tax. Penalties are calculated on a percentage of the tax amount payable and levied as a once-off charge.

Criminal Prosecution:

Criminal prosecution for tax non-compliance in South Africa is a serious matter and generally occurs in cases involving deliberate and significant evasion of tax obligations. The South African Revenue Service (SARS) may initiate criminal proceedings under certain circumstances, typically when there is evidence of intentional and serious misconduct

WHAT TO DO IF YOU ARE NON-COMPLIANT:

  • Assess the Non-Compliance: Review the specific areas where you are non-compliant. This could include late filing of tax returns, underpayment of taxes, or other discrepancies.
  • Contact SARS: Reach out to the South African Revenue Service (SARS) as soon as possible. You can contact SARS directly through their website, helpline, or by visiting a SARS branch. Explain your situation and ask for guidance on how to become compliant.
  • File Outstanding Returns: If you have not filed tax returns for previous years or periods, prepare and submit these returns immediately. SARS can assist you in determining which returns are outstanding.
  • Pay Outstanding Taxes: If you owe taxes, arrange to make payments for the outstanding amounts. SARS can provide you with the exact amounts owed, including any interest and penalties.
  • Set Up Payment Arrangements: If you are unable to pay the full amount owed immediately, you can discuss payment arrangements with SARS. They may allow you to pay off the debt over time through an installment plan.
  • Seek Professional Advice: Consider consulting with a tax professional or accountant who can assist you in understanding your tax obligations and navigating the process of becoming compliant.
  • Address Penalties and Interest: Be prepared to address any penalties and interest charges that have accrued due to non-compliance. SARS will provide you with details of these charges, and you can discuss options for resolving them.
  • Stay Organized: Keep records of all communications with SARS, including confirmation of payments made and any agreements reached. This will help you stay on track and demonstrate your efforts to rectify the non-compliance.
  • Prevent Future Non-Compliance: Put systems in place to ensure that you remain compliant with your tax obligations going forward. Set reminders for filing deadlines, keep accurate financial records, and seek professional advice when needed.
  • Monitor Communication from SARS: Regularly check for correspondence from SARS regarding your compliance status and any further actions required. It is important to make sure your contact details are updated with SARS in order to receive all necessary communication.

The South African Revenue Service (SARS) actively pursues tax evaders and non-compliant individuals through audits, investigations, and enforcement actions. Therefore it is best to stay tax compliant.

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