The additional information will also help in determining the levels and structure of wealth holdings as recommended by the Davis Tax Committee. Should taxpayers have failed to declare any income, and then declare their assets and liabilities in their 2023 tax returns, this will raise many a red flag and SARS will impose penalties up to 200% of the capital tax liability.
In order to avoid the wrath of SARS, and to find oneself in the meadow of full tax compliance, errant taxpayers have the opportunity to declare previously undeclared income through the ongoing Voluntary Disclosure Programme (VDP), regulated by the Tax Administration Act.
The VDP offers taxpayers the opportunity to avoid paying penalties where they would have been imposed in regular circumstances. SARS therefore encourages taxpayers with undisclosed assets to take advantage of the VDP process. Taxpayers are reminded that failure to do so may result in administrative or even criminal action being taken against them.
At Tax Consulting, we encourage taxpayers who have made errors or who have omitted certain income in prior year’s tax returns, for whatever reason, to take up the opportunity to regularise their affairs through the VDP.
The VDP was designed to encourage taxpayers to approach SARS before their non-compliance is detected. Voluntariness is one of the requirements as contained in the Tax Administration Act, which regulates the VDP.
Process for non-disclosure
Taxpayers who have already attracted the attention of SARS due to non-compliance, by being selected for an audit, or who have already received a final letter of demand, will unfortunately not be able to participate in the VDP.
They will have to go through the normal processes by correcting their errors which will attract penalties and interest in addition to the outstanding tax liabilities. They may even expose themselves to criminal prosecution.
A major benefit of relief sought through the VDP, is that it covers all tax types (income tax, employees’ taxes such as Pay-as-You-Earn, Unemployment Insurance Fund contributions and the Skills Development Levy, as well as Value-Added-Tax). The only taxes that are not covered are customs and excise duties.
When a taxpayer is granted relief under the VDP, penalties are waived, and the applicant receives amnesty from criminal prosecution. The taxpayer will only be liable for the outstanding tax liability as well as the interest levied thereon.
Be aware of your world-wide income
Many a time, the reason for the non-disclosure of foreign income is due to the fact that taxpayers are unaware of their true tax liability, and which jurisdiction has a taxing right. The South African tax system changed from a source-based system to residency-based system in 2001 – meaning that South African tax residents are taxed on their world-wide income.
However, many South Africans with property abroad have been oblivious of this change and have not included foreign interest income or foreign rental income in their tax returns for many years.
We advise taxpayers who have become aware of any non-disclosure of income to come forward and apply for relief through the VDP, in order to avoid the wrath of a tax collector scorned.