In Remembrance Dr Beric Croome 23/5/1960 to 22/4/2019

Late Submission of Tax Returns

Filing season for non-provisional individual taxpayers ended on 31 October 2018. 

Those taxpayers who failed to meet the deadline face the risk of being subjected to administrive penalties for the late submission of returns. The penalties are based on the taxpayer’s level of taxable income and the number of months that the tax return is overdue.

The administrative penalty is determined according to the table set out below:

Assessed loss or taxable income for ‘preceding year’ ‘Penalty’

Assessed loss                                                                           R 250

R0-R 250 000                                                                            R 250

R250 001-R500 000                                                                 R 500

R500 001- R 1 000 000                                                           R 1 000

R 1 000 001-R 5 000 000                                                       R 2 000

R 5 000 001- R 10 000 000                                                    R 4 000

R 10 000 001- R 50 000 001                                                  R 8 000

Above R 50 000 000                                                               R 16 000

Where the South African Revenue Service is in possession of the taxpayer’s current address and is able to deliver the assessment, the penalty can be imposed for 35 months from the date of the assessment. Where SARS is not in possession of the taxpayer’s address the penalty can be imposed for up to 48 months.

For example, where a taxpayer has a taxable income of R 400 000 and has failed to submit a tax return for 34 months the administrative penalty will amount to R 17 000. It must be remembered that the penalty is levied for each annual tax return that is filed late.

Thus, those taxpayers who choose to delay submitting the submission of their tax returns can face a nasty surprise when SARS imposes the administrative penalty for the late submission of tax returns.

Individual taxpayers who choose to delay submitting the submission of their tax returns can face a nasty surprise from Sars.
Image bought from i-Stock Stock photo ID:479528416  nd3000

Initially, the administrative penalty only applied to the late submission of tax returns by individual taxpayers. SARS announced recently that with effect from December 2018 the administrative penalty would apply to the late submission of company tax returns well.

Thus, those companies which have tax returns outstanding from 2009 can face the administrative penalty as per the table set out above. The greater the company’s taxable income the higher the penalty will be.

Besides the administrative penalty, the failure to file a tax return constitutes an offence under the Tax Administration Act. Section 234(d) of the Tax administration Act provides that upon a conviction for the failure to submit a tax return, the taxpayer may be subjected to a fine or a period of imprisonment not exceeding two years.

Recently, SARS has been pursuing high profile celebrities who have failed to file their tax returns on time. Once the defaulting taxpayer has appeared in court, they can be named and photographs can appear in the press. SARS no doubts hopes that by targeting celebrities it will act as a deterrent to other non-compliant taxpayers.

Taxpayers need to submit their tax returns within the time allowed, failing which they will be subject to the administrative penalty and could also face a criminal prosecution which can result in a criminal record.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, November 2018.

 ***YEAR END NOTICE ***

The November 2108 Business Day Business Law and Tax Review is the last for the year. 

Columns will resume in February 2019. 

Thank you for your support during the challenges of the past year.

***

Celebrating Five years of the Office of the Tax Ombud

The Office of the Tax Ombud was created on 1 October 2013 and celebrates its fifth anniversary in October this year. The office was created to deal with taxpayers’ complaints which could not be resolved by taxpayers using the South African Revenue Service’s internal complaints processes.

The Office has a degree of independence as it reports to the Minister of Finance and can appoint its own staff without having to consult SARS. In addition, the office is funded by a budget approved by the Minister and not SARS.

Before taxpayers can lodge a complaint with the Ombud they must exhaust SARS internal complaints procedures unless compelling circumstances exist. To determine if compelling circumstances exist, it must be established if the complaint raises systemic issues or exhausting SARS complaint procedures will cause undue hardship to the taxpayer or is unlikely to produce a result within a period of time the Ombud considers reasonable.

The question that must be addressed is what constitutes a systemic issue. During August 2018 the Ombud published a list of twenty items that constitutes systemic issues. If a taxpayer encounters a systemic issue they do not need to exhaust SARS internal mechanisms first before filing a complaint with the Ombud.

The systemic issues are the following:

·         Delay in refunds in certain specific cases – the Ombud deals with twelve categories in this regard:

o   Failure to link submitted documentation requested by SARS to the main file

o   The unwarranted placing of Special Stoppers

o   Using the filing of new returns as an excuse to block refunds;

o   Delay in the lifting of stoppers and lack of a timeframe for doing so

o   Refunds for one period being withheld while an audit/verification is in progress on another period

o   Using historic returns to delay the payment of refunds

o   Raising assessments to clear unallocated credits

o   Requesting further information during an audit

o   Assessments successfully, but refund still not paid out

o   Raising assessments prematurely; 

o   Debt set-off not withstanding a request for suspension of payment

o   Verification assigned to the auditor but not finalised within the prescribed timeframe

·         Incorrect allocation by SARS of payments made by taxpayers

·         Taxpayers being affected by employer’s non-compliance with legislation relating to IRP5s

·         Inconsistency by SARS in providing taxpayers with timelines for finalisation of audits/verifications

·         Victims of identity theft being held liable for tax debts

·         Non-adherence by SARS to dispute resolution turnaround times

·         SARS’s failure to take information at its disposal into account, specifically relating to information requested during audit/verification and objection procedures

·         SARS taking collection steps when legally barred from doing so

·         SARS’s failure to take information at its disposal into account, specifically relating to the tax compliance system and the “pin” on the client’s profile indication tax compliance status (TCS)

·         Non-adherence to legislative requirements in respect of final demand and third party appointment in terms of section 179 (5) of the Tax Administration Act

·         Numerous follow-ups by taxpayers without being advised of the escalation process (unless the taxpayer was represented by a tax professional)

·         Pay-As-You-Earn Statement of Account issues relating to, inter alia, the reconciliation of the account specifically when recovering a debt

·         Numerous follow-ups relating to situations where SARS issues duplicate income tax numbers under one identity number (unless the taxpayer was represented by a tax professional)

·         SARS incorrectly invalidating the notice of appeal

 

·         SARS revising an assessment without issuing any prior communication

·         SARS revising an assessment without issuing a letter of findings

·         Refunds paid into wrong bank accounts

·         E-filing profile hijacking

·         Delay in e-filing profile transfer between tax practitioners due to as system error

·         Dispute resolution e-filing/system issues

It is anticipated that taxpayer complaints will get to the Ombud quicker than before as, if the complaint is systemic in nature, taxpayers do not need to adhere to SARS internal complaint mechanisms.

The Ombud has become an important means of redress for taxpayers who have encountered problems in their dealings with SARS. It is hoped that in time the independence of the office will be enhanced and greater powers conferred on the office as is the case in other countries.

Areas in which the Tax Ombud should have more power are:

·         In the United States, the Taxpayer Advocate, an office similar to the Tax Ombud, can issue Taxpayer assistance orders directing the Internal Revenue Service to refrain from taking action against taxpayers in certain well-defined cases. It is unfortunate that, in South Africa, the Tax Ombud does not, at this stage, have a similar power.

·         Another problem that still needs to be addressed is the issue of legal assistance for indigent taxpayers. In the United States, taxpayers can go to Low Income Taxpayer Clinics for assistance with their tax affairs. It is hoped that, in time, something similar will be introduced in South Africa.

·         The Ombud does not have the power to award wasted costs to taxpayers as is the case in some jurisdictions and hopefully in time this will be considered.

The SARS Service Charter has been published and this should assist the Ombud in evaluating how SARS is meeting the timeframes specified therein.

The Tax Ombud must be commended for the work done by the office since 2013 in educating taxpayers about taxpayers’ rights and addressing the administrative complaints in the tax arena. Hopefully, government will accept the recommendations of the Davis Tax Committee on Tax Administration and formally legislate the proposed Taxpayer Bill of Rights to further entrench taxpayers’ rights in South Africa.

Congratulations to the Office of the Tax Ombud and its staff on reaching its fifth anniversary and wishing the office every success in its endeavours in the future in addressing taxpayers’ administrative complaints and teaching taxpayers about the rights they have when interacting with SARS.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, October 2018.

Be Aware of Bogus Tax Practitioners

The Tax Administration Act requires that any person who renders tax consulting services or completes tax returns for a fee must register as a tax practitioner with the South African Revenue Service (‘SARS’). To register with SARS,  the tax practitioner must be a member of a Registered Controlling Body approved by SARS.

Currently recognised controlling bodies are:

• Chartered Institute of Management Accountants (CIMA)
• Chartered Secretaries Southern Africa (CSSA)
• Financial Planning Institute (FPI)
• Institute of Accounting and Commerce (IAC)
• SA Institute of Chartered Accountants (SAICA)
• SA Institute of Professional Accountants (SAIPA)
• SA Institute of Tax Practitioners (SAIT)
• The Association of Chartered Certified Accountants (ACCA)
• Association of Accounting Technicians Southern Africa (AAT(SA))

In addition, the following controlling bodies were automatically recognised in terms of the Tax Administration Act:

• Law Society of South Africa
• General Council of the Bar of South Africa, Bar Councils and Societies of Advocates referred to in Section 7 of the Admission of Advocates Act, 1964
• Independent Regulatory Board for Auditors (IRBA)

Only members of the bodies referred to above may apply to be registered as a tax practitioner with SARS. Other persons cannot be registered as tax practitioners.

The purpose in requiring tax practitioners to register is to protect taxpayers from unscrupulous tax practitioners.

In July this year, tax practitioner Nosicela Ntozini was convicted on 159 counts of fraud and for failing to register as a tax practitioner. She was sentenced to six and a half years imprisonment. She was employed by SARS as a call centre agent and submitted income tax returns for 38 taxpayers, claiming fraudulent tax refunds.

She manipulated the SARS system to secure the refunds and received a percentage of the refunds from the taxpayers in question. SARS paid out a total of R399 134 to the taxpayers. Ntozini received R109 660 from the taxpayers as her share of the fraudulent refunds.

In addition to the fraud committed by the accused, she failed to register as a tax practitioner. The failure to register as a tax practitioner is a criminal offence under section 234 (c)  which can give rise to a fine or a period of imprisonment not exceeding two years.

Taxpayers can seek help from SARS officials in completing tax returns during filing season and no fee is payable for that assistance. Taxpayers should not employ SARS officials to assist in completing their tax returns as that is a violation of the SARS code of conduct.

Where a tax practitioner fails to comply with their statutory obligations, the taxpayer may lodge a complaint with SARS which in turn may then lodge a formal complaint under section 241 of the Tax Administration Act against the tax practitioner’s Registered Controlling Body.

It is important that taxpayers choosing to appoint a tax practitioner to attend to their tax affairs only appoint a duly registered tax practitioner to do so.

Tax practitioners who are not registered with SARS approved controlling body 

will not be able to answer taxpayers' queries.

Image bought from i-Stock Stock photo ID:475765167 CreativaImages 

Before selecting a tax practitioner, taxpayers should check with SARS, via the SARS website, that the tax practitioner they are dealing with is duly registered as required by the law. If the person is not registered with SARS, that fact should be reported to SARS so that appropriate action can be taken by SARS against the offender.

Also, where a tax practitioner guarantees the taxpayer a tax refund, and wants a share of that refund, the taxpayer should be concerned about the integrity of the tax practitioner and immediately check whether that person is, in fact, a duly registered tax practitioner.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, September 2018.

SARS Commits to Service Charter

SARS finally released the SARS Service Charter on 1 July 2018, the day on which filing season for 2018 commenced. One important use of the Charter is to allow the Office of the Tax Ombud to evaluate SARS’ actual levels of service against the level of service prescribed in the Charter. SARS faced calls from the Office of the Tax Ombud to release the Charter, but it remained outstanding for a number of years.

The Charter sets out what SARS does and how it seeks to meet its mandate under the South African Revenue Service Act, 34 of 1997. The document sets out taxpayers’ rights and obligations, but does not create any new rights. The rights in the document flow from the Bill of Rights in the Constitution and the obligations flow from the fiscal statutes.

The rights and obligations set out in the Charter are as follows:

‘SARS will:

Help you by providing

• Courteous and professional service at all times

• Clear, accurate and helpful responses

• Instructions that are clear and concise on the actions you need to take and by when

• Access to SARS via eFiling, the SARS Contact Centre, SARS branches and Mobile Tax Units

• Self-explanatory leaflets and booklets on the SARS website www.sars.gov.za and in branches

Be fair to you by

• Expecting you to pay only what is due under law

• Treating everyone equally

• Ensuring everyone pays their fair share

• Informing you if and when prescribed timeframes cannot be met

Respect your constitutional rights and privacy by

• Keeping your tax affairs strictly confidential

• Furnishing you with reasons for decisions taken regarding your tax and customs affairs

• Applying the law consistently and impartially

If you are not satisfied, you may

• Exercise your right to request reasons for decisions and outcomes regarding your personal tax affairs

• Exercise your right to object and appeal against an assessment or qualifying decision

• Lodge an administrative complaint via eFiling, at a SARS branch or via the SARS Contact Centre

• After having exhausted all administrative complaints processes within SARS, lodge a complaint with the Office of the Tax Ombud

In return, your obligations are to

• Be honest

• Submit full and accurate information on time

• Comply with all prescribed administrative processes and timeframes

• Pay your tax and/or duties on time and in full, using the correct payment reference number(s)

• Encourage others to pay their tax and/or duties on time and in full

• Not encourage or be party to any corrupt activity or fraud in any form

• Ensure that SARS has your correct personal information and payment details

• Take responsibility for your tax affairs, even if you have authorised someone to act on your behalf.

• Show our staff respect just as they are expected to respect you. If someone else acts on your behalf, we expect the same respect from them.’

The SARS Service Charter sets out what SARS does and how it seeks to meet its mandate
under the South African Revenue Service Act, 34 of 1997
Image bought from i-Stock "Compliance" by almagami

From a review of the Charter it appears that SARS want taxpayers to encourage other taxpayers to pay their tax and or duties on time and in full. Whilst the sentiment for this statement is understood it has no legal basis and cannot be legally enforced.

The Charter also sets out the levels of service taxpayers can expect when interacting with SARS. It deals with the following types of interactions with SARS:

·         Engagement

·         Registration

·         Returns/Declarations

·         Inspection, audit and verification

·         Refunds

·         Payments

·         Debt

·         Disputes in terms of the Tax Administration Act

·         Disputes in terms of the Customs and Excise Act

Where SARS fails to adhere to the time frames specified in the Charter, the taxpayer would have to complain to SARS and adhere to the prescribed complaints process or lodge a complaint with the Tax Ombud in the prescribed manner.

It must be noted that the Charter is not a legal document and is only a statement of intent on the part of SARS.  The Charter does not address the question of taxpayers recovering wasted costs from SARS which is catered for in a number of other countries.

In the United States, the Taxpayer Advocate, an office similar to the Tax Ombud, can issue Taxpayer assistance orders directing the Internal Revenue Service to refrain from taking action against taxpayers in certain well-defined cases. It is unfortunate that, in South Africa, the Tax Ombud does not, at this stage, have a similar power.

Another problem that still needs to be addressed is the issue of legal assistance for indigent taxpayers. In the United States, taxpayers can go to Low Income Taxpayer Clinics for assistance with their tax affairs. It is hoped that in time something similar will be introduced in South Africa.

Hopefully, SARS will meet the timeframes stated in the SARS Service Charter and, whilst the Charter may not be perfect, it is hoped that it will encourage enhanced tax compliance and result in a better relationship between taxpayers and SARS.

Taxpayers need to be aware of their rights and obligations in the tax arena and the Charter should assist in this regard. Likewise, SARS needs to be mindful of taxpayers’ rights and must uphold those rights as stated in the newly released Service Charter.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, August 2018.

E-filing and Submission of Tax Returns

Until 2007 taxpayers had no choice but to file paper-based tax returns with SARS. This required the completion of a paper-based return and also the submission of the taxpayers’ supporting documents and tax certificates. SARS then introduced e-filing, whereby taxpayers could register for e-filing and submit their tax returns electronically. With e-filing it is not possible to submit supporting documents when, for example, an individual files their tax return, the ITR12.

Furthermore, taxpayers have a choice to register for e-filing personally and file their returns themselves or they can appoint a registered tax practitioner to act on their behalf and file their returns. The Tax Administration Act (‘the Act’) sets out who must register as a tax practitioner, as well as the statutory obligations arising where a person is a registered tax practitioner.

A registered tax practitioner must be a member of a SARS Recognised Controlling Body or a body recognised by the Act. All registered tax practitioners must adhere to the code of professional conduct prescribed by their controlling body. If the practitioner does not comply with their code of conduct or the provisions of the Act, SARS can lodge a complaint against the practitioner.

The failure to file returns on time can give rise to action being taken by SARS
against the taxpayer or tax practitioner.
Image bought from i-Stock "Compliance Diagram" by stuartmiles99

Although a taxpayer appoints a tax practitioner to submit tax returns on their behalf, the taxpayer retains the legal obligations imposed by the Act. Thus, if the tax practitioner fails to submit a tax return at all or on time, the taxpayer can be subjected to the administrative penalties for late submission of returns, which can range from R 250 per month to R 16 000 per month that the return remains outstanding. The penalty amount depends on the taxpayer’s level of income.

The failure by a tax practitioner to file returns on time can give rise to action being taken by SARS against the tax practitioner. However, this does not detract from the taxpayer’s personal liability for the failure to lodge a return. SARS can still subject the taxpayer to the administrative penalty and prosecute the taxpayer for non-submission of a return.

Should a taxpayer be dissatisfied with the service received from a tax practitioner, they should terminate the agreement with the tax practitioner. The taxpayer may have a basis on which to lodge a formal complaint with the practitioner’s controlling body or with SARS itself where the practitioner has violated the Act.  If a practitioner delays the submission of a return they can face action by SARS itself. In addition, the taxpayer must remember that the e-filing profile belongs to the taxpayer and can be retrieved from the tax practitioner at any time. 

SARS indicated recently that it will use the National Prosecuting Authority to prosecute taxpayers in the Tax Court for the failure to submit tax returns. It must be remembered that the failure to submit a return when required to do so constitutes a criminal offence, which can give rise to a fine or a period of imprisonment. This will, on a successful prosecution, result in the taxpayer having a criminal record.

Taxpayers using e-filing must ensure that they do not allow unauthorised persons to obtain their login and password details. The Office of the Tax Ombud has in its various annual reports indicated that there have been too many cases of identity theft where taxpayers have been duped into making  their passwords available to unauthorised third parties.

Once a return is filed via e-filing, SARS will often request that the taxpayer submits the documents to support the filed return. The taxpayer should receive notice of such verification requests via e-mail or SMS. The taxpayer is entitled to receive proper notice of SARS requests and, in my opinion, it is not sufficient for SARS to merely post a letter on the taxpayer’s e-filing profile.

E-filing has allowed SARS to enhance its data matching processes to ensure that taxpayers properly declare all income derived by them. Should a taxpayer choose not to declare all income received or accrued they will be subject to the understatement penalty, which can range from 10% to 200% of the income tax underpaid.

E-filing has its advantages to both taxpayers and SARS in that returns can be processed far more quickly than paper-based returns.  However, taxpayers must still submit their tax returns on time. Where a tax practitioner is appointed, that person must act professionally and should not delay the filing of returns without a good reason. 

Whether returns are filed via e-filing or manual submission, or managed by a tax practitioner or the taxpayers personally, the taxpayer remains liable for the failure to submit a tax return on time.  

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, May 2018.

SARS has Legal Powers to Seize Your Income

After a taxpayer has filed their tax return they will receive an assessment from SARS which will reflect either a refund due to the taxpayer or an amount of tax payable to SARS. The assessment will reflect the date by which the tax must be paid, failing which SARS will use its recovery powers to enforce collection of the tax due.

This article deals with SARS’ powers contained in section 179 of the Tax Administration Act (‘the Act’), whereby SARS can appoint a third party holding any funds of the taxpayer, such as a bank, the taxpayer’s debtors or the taxpayer’s employer, to pay the funds to SARS and not to the taxpayer. The power is draconian but has been held to be lawful under the Constitution.

Before SARS may use section 179 it is legally required to issue a final demand to the taxpayer reminding them of the tax due to SARS. The law requires that the final demand must be issued ten business days before the letter appointing the third party is issued. SARS is not required to issue the final demand where the collection of the tax will be prejudiced.

It must be noted that SARS can appoint the taxpayer’s bank as a third party under section 179 and this will have the result that any funds in the taxpayer’s account must be to SARS and not the taxpayer until the tax debt is settled. 

In the case of an employee, SARS can instruct the employer to deduct the amount from the taxpayer’s salary and pay that to SARS instead of to the employee. The Act recognises that an employee needs funds to live on and if the third party appointment or garnishee is too onerous the taxpayer can, within five business days of the appointment, request that the monthly amount deducted is reduced to take account of the taxpayer’s basic living costs.

Failure to engage will result in SARS using its powers to ensure collection of tax due.
Image purchased iStock ID:157682422 "Money Squeeze" by sekulicn 

In the case of a taxpayer other than a natural person, SARS may vary the third party instruction on the basis that it will cause serious financial hardship if the SARS instruction is not revised.

If the person appointed is unable to comply with the third party appointment instruction they must inform SARS thereof, as well as the reasons therefore. SARS may then withdraw or amend the instruction.

The person appointed as the third party by SARS must adhere fully to the instructions set out in the letter appointing the bank, employer or other person as the third party. Failure to comply with SARS’ instructions can result in the third party becoming personally liable to SARS for the amount of the tax debt. In addition, the failure to comply with section 179 as required can give rise to a criminal offence under section 234(n) of the Act. If convicted, the third party can face either a fine or a period of imprisonment.

It is important that taxpayers pay their tax debts as and when they fall due. If they are unable to settle the amount due to SARS they should talk to SARS and make arrangements with SARS to pay the tax due over a period of time. The failure to engage with SARS will result in SARS using the powers it has in the Act to ensure collection of the tax due. 

It is clear that SARS can appoint the taxpayer’s bank or employer or any other person as a third party under section 179 of the Act. It is critical that the person appointed by SARS complies with section 179 and pays the specified amount of tax to SARS, failing which the third party can be held personally liable for the amount due to SARS by the taxpayer and worse still could face prosecution under section 234 of the Act.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, April 2018.