From 7 December, the South African Revenue Service (SARS) will be implementing their new approach to use information supplied by the Companies and Intellectual Property Commission (CIPC) to determine which companies are not tax-compliant.
This is according to Christopher Renwick, senior tax attorney at Tax Consulting SA, who said that the new approach was confirmed in an official notice sent to registered accountants and tax practitioners in October.
The notice, which is signed by acting SARS commissioner Mark Kingon, states that administrative penalties for late Corporate Income Tax (CIT) returns will be imposed on over 300,000 companies, he said.
Such penalties can range from R250 to R16,000 per month of lateness.
“It is a well-known public fact that SARS is short on collection, and as the Tax Administration Act determines a penalty per month of lateness, this will boost their collection,” said Renwick.
“The law also looks at when a company should have been registered for tax. For instance, if you opened a company five years ago and never registered it, the minimum penalty is R250 x 12 months x 5 years = R15,000.”
“However, this minimum penalty is only applicable in instances where a company was dormant, as the law still demands CIPC and SARS compliance. Where a company is active, depending on various factors, the Tax Administration Act will determine the level of penalties applicable,” he said.
Renwick said that the directors of companies that are found to not be tax compliant should rightly feel uneasy, as SARS will undoubtedly come after them personally – especially where the company does not have means to pay penalties or plainly ignores it.
More serious problems
While this new approach could hit some companies hard, much more serious penalties loom for corporates, as well as individuals and trusts.
This is according to Patricia Williams, a partner in Bowmans tax practice, who has outlined the problems in a column for the City Press.
The provisions are contained in the Tax Administration Laws Amendment Act 2018, which should be promulgated in December 2018 or January 2019, she said.
“The draft bill, as published in July this year, introduces amendments to the understatement penalties for failure to submit a return, so that penalties of between 25% and 100% of the entire tax bill for the whole tax year may be imposed by SARS (depending on whether the lateness of the return is considered negligent or grossly negligent).”
Williams added that these issues were identified in written submissions made to Treasury and SARS in the draft bill, but that the authorities were unsympathetic to the concerns.
“Under the circumstances, the forewarned and gentler introduction of small administrative penalties for non-submission of corporate tax returns is by no means the current problem,” she said.
“The real problem is the harsh penalty regime, skewed against ordinary taxpayers.
“If a tax return is not submitted on time, (for the company, individual or trust) it could result in up to double taxes.”