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Recently all eyes were on Finance Minister Tito Mboweni, as he delivered the Medium Term Budget Statement affirming what South Africans could expect for the remainder of 2020—as well as the coming year in terms of the country’s financial standing and economy?
In what can only be described as a surprising admission, it has been recognised that the recent tax increases have failed to generate the revenue numbers initially projected. In fact, it seems evidence illustrates that the country’s higher than average tax rates have obstructed economic growth.
Darren Britz, head of legal at Tax Consulting SA, explains this admission stands in stark contrast to media reports, which quotes government advisors’ ongoing calls for the imposition of wealth taxes, as well as a temporary solidarity tax to meet the increasing revenue shortfall which the Government desperately needs to fill.
Britz says, “The Minister of Finance alluded to the fact that we need our economy to grow before we can increase taxes and with only a marginal year-on-year increase in tax on the cards, National Treasury has instead passed the buck to the Commissioner, who faces an unprecedented challenge in achieving its ambitious tax collection targets.”
Now facing immense pressure, primarily as the Commissioner has previously acknowledged it is not yet at 100% operational effectiveness, Britz stresses taxpayers should be wary in becoming indifferent about their tax obligations.
He elaborates, “Businesses should especially note SARS’ increased focus on VAT and Pay-As-You-Earn collections. In this regard, many of SARS’ most effective debt enforcement officials have been reallocated to these tax types, a necessary measure to address the more recent rise in tax non-compliance by corporates.”
Moreover, taxpayers who deliberately understate or fail to declare their income tax, it is essential to highlight that SARS continues to make use of third-party data to identify and raise tax assessments to recover these tax amounts.
When it comes to tax evasion cases, Britz emphasises that SARS will punish such defiant taxpayers by imposing penalties to the tune of 200% of the tax not declared. This will include interest which runs until the tax debt is paid in full.
Additionally, Britz mentions it is important to remember the potential jail sentence of up to five years.
With taxpayers to face harsher penalties if they fail to comply, Britz claims it is paramount not to forget that the collection process by SARS is well-oiled and moves at a blistering pace. Going on to state, “Taxpayers may receive only a single clue, this being the formal letter of demand, usually delivered to the taxpayer by eFiling or email, which notifies the taxpayer of their obligation to satisfy the tax debt within 10 days or face collection steps.”
Following the issuance of the letter of demand, and provided it was done in a legally and procedurally correct manner, SARS is authorised to operate behind the scenes and without notice to taxpayers. During this process, they typically proceed straight to the Registrar of the nearest High Court.
The Registrar can then process a judgment against the taxpayer for failure to pay the tax debt. Britz explains further, “A more effective alternative is to make a third-party appointment where SARS will instruct your bank to sweep your bank account in satisfaction of the tax debt.”
Several unsuspecting business owners have gone through the trauma of having accumulated just enough money to pay staff salaries, only to receive a notice from the Bank that SARS has fully withdrawn the funds, Britz warns.
In addition to third party appointments, taxpayers may find their assets being attached and sold under a warrant of execution to cover the amount of tax owed. In the current situation of the country, no one wants to lose any of their assets.
As the debates regarding the constitutionality of these powers continue, one must remember, regardless of opinion—they exist and have been confirmed by our courts.
Looking at the upcoming year, Britz says the next move by SARS is to increase tax collection, a move backed by both National Treasury and the National Prosecution Authority is a renewed focus on the criminal prosecution of non-compliant taxpayers.
Ultimately, with National Treasury’s hands being tied, the collection of revenue is at the forefront of the Government’s priority list, and the Commissioner can find comfort in the support offered here.
Britz motivates, “Taxpayers already aware of their tax defaults are encouraged to have the full extent of their tax non-compliance assessed and to thereafter approach SARS voluntarily to correct this, with a seasoned tax attorney by their side. The alternative is playing a risky game of chance with odds favouring the Commissioner.”
With SARS looking at coming down harshly on taxpayers, what are your thoughts? Do you feel the Government is justified in taking these steps? Share your views with us in the comment section below.