The ‘rule of thumb’ to avoid SARS penalties when submitting your tax return

The South African Revenue Service’s (SARS) recent change in its approach towards taxpayers who are non-compliant has made it more important that South Africans have their ‘ducks in a row’ this tax filing season.

Andre Daniels, a legal expert at Tax Consulting SA, said that there is an increasing need for voluntary compliance among the taxpayer population, especially those who have income-generating assets.

However, he warned that taxpayers may be in for some nasty surprises if they have been less than honest about their tax affairs in the past.

For example, if a taxpayer failed to declare any income in previous years, and then suddenly declared this income in their 2022 tax returns, this will raise red flags with SARS, and the revenue service could impose penalties up to 200% of the capital tax liability.

When filing annual tax returns, Daniels said that taxpayers may be caught off-guard and find that SARS may have already initiated a verification process or an even more burdensome audit over previous tax periods.

“This is especially true in instances where a taxpayer has not fully disclosed their earnings in prior years, especially where the taxpayer now discloses income from an asset that was obtained many years ago with the intention to generate an income – whether through the fault of their own or through the negligence of a tax advisor.”

According to the tax advisory firm, any non-compliance must immediately be remedied with the revenue authority.

This must be done by way of an application under the Voluntary Disclosure Programme (VDP) that provides taxpayers with the opportunity to avoid paying penalties that they would have usually faced in normal circumstances, said Daniels.

Taxpayers who have an undisclosed income are encouraged by SARS to take full advantage of the VDP process or face possible criminal action.

When a taxpayer is granted relief under the VDP, penalties are waived, and the applicant receives amnesty from criminal prosecution, said Daniels.

“The taxpayer will only be liable for the outstanding tax liability as well as the interest levied thereon.”

Daniels said that once SARS is satisfied that a taxpayer has complied with all requirements, the VDP process is finalised. When taxpayers undergo the VDP process, they are protected from being audited and/or undergoing verification.

The VDP covers the following tax types:

  • Income tax;
  • Employee’s tax (Pay-as-You-Earn);
  • Unemployment Insurance Fund contributions;
  • Skills Development Levy; and,
  • Value-Added-Tax.

The only taxes that are not covered are customs and excise duties.

SARS has made it clear that it is a competent revenue authority with the recent implementation of AI system improvements and a ‘zero-tolerance’ approach to non-compliance, Daniels said.

“To protect yourself from SARS; it remains the best strategy that you always ensure utmost compliance,” he said.

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The ‘rule of thumb’ to avoid SARS penalties when submitting your tax return