The South African Revenue Service (SARS) is intensifying collaboration with international tax authorities to identify non-compliant South African taxpayers, says André Daniels, legal manager of tax controversy and dispute resolution at Tax Consulting SA.
Daniels pointed to a recent collaboration with the Irish Tax Authority (ITA) to identify South Africans operating Airbnb businesses in Ireland.
“In March 2022, SARS issued the ITA with an exchange of information request related to South African resident Airbnb hosts in Ireland that were suspected of either not declaring, or not fully declaring their income.
“Acting on this request and demonstrating the strength of cooperation between SARS and their international tax contemporaries, the ITA immediately called on Airbnb Ireland to disclose information pertaining to income generated from the online accommodation booking platform by South Africans who have properties let out on the Airbnb platform in Ireland.
A warning for taxpayers
It is clear from this recent development that earlier cautions by the commissioner of SARS, Edward Kieswetter, that the revenue service would increasingly target non-compliant taxpayers – both domestically and abroad – were far from idle threats, said Daniels.
“South African taxpayers that have failed to fully declare their income to SARS may be liable for penalties of up to 200% of their capital tax liability. The tax authority may also pursue administrative or criminal actions against such individuals.”
“To avoid such severe sanctions, errant taxpayers are encouraged to declare previously undeclared Airbnb income, or any previously undeclared income, through SARS’ ongoing Voluntary Disclosure Programme (VDP), regulated by the Tax Administration Act.”
The VDP offers taxpayers the opportunity to avoid paying penalties where that would have been imposed in regular circumstances.
The programme was designed to encourage taxpayers to approach SARS before their non-compliance is detected. Voluntariness is one of the requirements, as contained in the Tax Administration Act.
Process for non-disclosure
Taxpayers who have already attracted the attention of SARS due to non-compliance by being selected for an audit, or who have already received a final letter of demand will not be able to participate in the VDP, said Daniels.
“They will have to go through the normal processes by correcting their errors, which will attract penalties and interest in addition to the outstanding tax liabilities. They may even expose themselves to criminal prosecution.
“When a taxpayer is granted relief under the VDP, penalties are waived, and the applicant receives amnesty from criminal prosecution. The taxpayer will only be liable for the outstanding tax liability as well as the interest levied thereon.”
Be aware of your worldwide income
The non-disclosure of foreign income by South African taxpayers is frequently due to the fact that taxpayers are unaware of their true tax liability, and which jurisdiction has a taxing right, said Daniels.
“The South African tax system changed from a source-based system to a residence-based system in 2001 – meaning that South African tax residents are taxed on their worldwide income.
“However, many South Africans with property abroad, such as those who have received the Airbnb disclosure request, may have been oblivious to this change and may not have included foreign rental income in their tax returns for several years.
“We advise taxpayers who have become aware of any non-disclosure of income to come forward and apply for relief through the VDP, in order to avoid severe sanctions by SARS, and to become fully compliant before SARS comes knocking.”