Authored by: Melani du Toit (CA S.A.) Senior Accountant and Christopher Renwick (LLB) Tax Attorney at Tax Consulting
From the 7th of December the South African Revenue Service (SARS) will be implementing their new approach to use information supplied by the Companies and Intellectual Property Commission (CIPC) to determine which companies are not tax compliant and impose penalties accordingly.
The national revenue collector issued an official notice to registered accountants and tax practitioners’ during October to confirm Fabian Murray, acting SARS chief officer’s announcement of the implementation of the new line of attack earlier this year.
The notice, which is signed by acting SARS commissioner Mark Kingon, states that administrative penalties for late Corporate Income Tax (CIT) returns will be imposed on over 300 000 companies. Such penalties can range from R250 to R16 000 per month of lateness.
It is a well-known public fact that SARS is short on collection, and as the Tax Administration Act determines a penalty per month of lateness, this will boost their collection. The law also looks at when a company should have been registered for tax. For instance, if you opened a company five years ago and never registered it, the minimum penalty is R250 x 12 months x 5 years = R15,000.
However, this minimum penalty is only applicable in instances where a company was dormant, as the law still demands CIPC and SARS compliance. Where a company is active, depending on various factors, the Tax Administration Act will determine the level of penalties applicable.
What should you do if you feel nervous
The directors of companies that are found to be not tax compliant, should rightly feel uneasy, as SARS will undoubtedly come after them personally, especially where the company does not have means to pay penalties, or plainly ignores it.
There are very clear company law provisions creating a personal liability against being reckless and delinquent on statutory duties.
• A head in sand approach will not be wise here, as everyone dealing with SARS will agree – you fix the problem before SARS targets and / or the system penalises you.
• Where you have ever setup a company or been a director, and you are unsure whether the company is tax compliant, immediately get the status checked up with a CIPC registered tax practitioner, who can access both CIPC and SARS systems and give you a complete and accurate picture. This only takes a day or two to complete. This process is generally known as a tax diagnostic which gives you a complete update and visibility of your situation.
• If there are any sensitivities about your situation, deal with tax attorneys, which ensures you have legal privilege. This is not obtainable from accountants or normal tax practitioners.
• Where you are on the wrong side, fix anything outstanding, before the penalty is imposed. Your ideal skill set is someone who can provide full accounting sign-off, tax attorneys and those who know how to fix tax issues proactively, without causing you to be placed automatically on the SARS audit list.
• The issue comes in in cases where the penalty has already been imposed, as they are not easily waived. SARS makes penalty waiver decisions by committee and you therefore need an experienced accountant, or ideally a tax attorney on more complex matters.