In recent years the South African Revenue Services (SARS) has seen a decline in tax compliance. Government corruption and lack of tax education have been cited as some of the reasons citizens evade or avoid their taxes.
SARS has found that people evade their taxes in the following ways:
- They lie about their expenses to reduce the amount they pay on tax or to obtain an undue refund. For example, they may lie about their business mileage, business expenses or even medical contributions.
- They don’t submit a tax return to SARS or fail to truthfully respond to questions.
- Employers sometimes deduct tax from employees and never pay it over to SARS.
- Vendors, whether registered for VAT or not, sometimes charge VAT and never pay it over to SARS.
- Entities submit fraudulent invoices to pay less tax or to obtain undue (fraudulent) refunds (Income Tax and VAT).
- Individuals do not register for tax to evade paying their dues.
- People do not submit returns as and when required to evade paying taxes due to SARS.
As the deadline for paying your taxes looms, Justmoney talked to tax officials about the consequences of not paying your taxes.
The most common consequence for both individual taxpayers and companies is that SARS imposes interest on the tax amount and that runs until the tax is paid in full, says Phumla Taho, tax consultant at Tax Consulting South Africa.
The interest rate depends on the type of tax but is usually around 10% per year.
Taho says SARS will also impose penalties which can be significant depending on the reason why you failed to pay tax.
“An innocent mistake might mean SARS imposes a penalty to the value of 25% of the tax amount. However, if the taxpayer intentionally did not pay tax, then SARS can impose a penalty to the value of 100% of the tax amount or 200% if it is a repeat offence,” she says.
If the taxpayer is a company, SARS may also in certain circumstances investigate the conduct of the directors and could try to obtain payment of the tax from the directors themselves, says Johnnie Kruger, tax attorney at Tax Consulting South Africa.
The most serious consequence for non-payment of tax is that failing to do so is a criminal offence and taxpayers could therefore face criminal prosecution.
“If found guilty, the taxpayer could face a fine or imprisonment of 2 years depending on the seriousness of the offence,” says Kruger.
If the taxpayer is a company, SARS may criminally investigate the directors as well.
SARS can also issue a judgement against you, making it impossible for you to obtain credit.
If you hold off-shore assets, an order can be obtained compelling the assets to be repatriated to South Africa, or your right to trade or to travel can be held in the interim, says SARS.
Can you be pardoned for evading tax?
SARS does offer a tax amnesty programme, which is available at all times. This is called the SARS Voluntary Disclosure Programme (VDP), says Kruger.
Taxpayers can make an application to a specialist team at SARS that only deals with VDPs. The VDP application can be done via eFiling. However, it is recommended that the taxpayer engage a tax attorney to complete the application on the taxpayer’s behalf, adds Kruger.
The tax attorney will correctly advise you of your rights and obligations when applying for the VDP and assist with the questions.
According to Kruger, you will need to provide SARS with information and documents that prove your non-payment of tax, and interest due. In return for paying the tax and interest, SARS will agree not to impose penalties and not pursue criminal prosecution against you.
The VDP is available to all taxpayers, including individuals, companies and trusts who accidentally or deliberately underpaid their tax, says Kruger.
Kruger recommends that you seek advice from a reputable tax legal expert if you have concerns regarding your outstanding taxes.
Why do you even need to pay taxes?
Tax is used to fund and facilitate the operation of the state, says Taho.
She says that taxes collected are distributed to the different government departments which then use and manage the funds to carry out their set mandates aimed at benefiting the society.
What taxpayers unfortunately forget is that failing to pay tax will mean government does not have the funds to pay social grants and assist poorer communities with additional government funding, adds Kruger.
Simply stated, taxpayers should pay tax to help the poor, he says.
According to SARS, the collection of tax revenue is one of the most informed indicators of how successful a country is in stimulating growth, development, and investment in its economy.
It also shows its success in maintaining an appropriate balance between its fiscal expenditure needs, and available income streams.
The ability of a government to intervene during times of economic crises, market contagion or recessions, depends on the strength and depth of its fiscal position – the tax revenues it has, it can, or is expected to generate, says SARS.
If taxpayers are not persuaded by this sentiment, then they should pay tax because the consequences of failing to pay tax are far worse than the temporary saving achieved by evading tax, concludes Kruger.