Additional Tax Disclosure Will Increase Enforcement Risk
Company taxpayers, including Close Corporations, can now be asked to complete and submit supplementary information in order for SARS to verify their income tax return. This could alert the Receiver to potential areas of investigation, areas that would otherwise have been difficult to identify. “Detection risk has increased at a compound rate,” says Dirk Kotze, tax partner at global audit, tax and advisory firm Mazars.
The South African tax system largely operates on a self-declaration basis, where it’s up to taxpayers to disclose correctly income and expenditure in order to be assessed for tax.
SARS then exercises its power to question taxpayer submissions based on information it may have from other sources such as employers, banks or customers, and taxpayer comparisons that fall outside certain norms, or by reconciling various parts of the same information submitted by a taxpayer.
Business taxpayers especially submit various declarations throughout their tax year that contains information and amounts that are also submitted on other returns. Company VAT returns, for example, reflect sales data that is also disclosed on the company tax return. Similarly, employers’ payroll declarations contain information on gross salaries, which is also separately disclosed on company tax returns.
“SARS has now pushed the burden of reconciling all this information onto taxpayers, starting with company taxpayers for the time being,” says Kotze.
The new supplementary declaration calls on taxpayers to reconcile the following:
– VAT sales to tax return sales;
– VAT claims to claimable expenditure;
– Payroll submission salaries to tax return salaries;
– Accounting profits and losses to tax profits and losses;
– Exported sales value per Custom submissions to export sales per tax return;
– Importation values per Customs submissions to imported costs per tax return.
“Taxpayers will then have to substantiate any differences between the various items. This declaration will be a powerful tool in SARS’ hands,” says Kotze. “If SARS rejects a taxpayer’s explanations, this could lead to further queries and enforcement action.”
The cost burden on taxpayers will also increase as completing the supplementary declaration won’t be easy, and may require the assistance of professionals.
“Taxpayers, and especially company taxpayers for now, must therefore tread carefully in all submissions made to SARS by ensuring that the correct submissions are made at the correct time and from the correct source,” Kotze concludes.
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