MANY companies, especially smaller ones, are finding it difficult to comply with the new reconciliation process introduced by the South African Revenue Service (SARS) a year ago. The new process requires additional assessments if there are inconsistencies between VAT, the company income tax and employee tax declarations.
Etienne Retief, chairman of the national tax and stakeholders committees of the South African Institute of Professional Accountants, said SARS introduced a system that compared the annual with monthly returns filed, and when it detected differences it automatically issued an Income Tax 14 Supplementary Declaration (IT14SD) requesting reasons for the difference.
"In principle it does make sense for SARS to have this additional auditing ability. The problem is that companies find it difficult to align their accounting and tax systems with the information SARS is requesting and to comply with the prescribed time periods."
SARS spokesman Adrian Lackay, said it should be noted that IT14SD’s were sent to very few companies. It was only in instances where certain risks had been identified that it occurred. He said SARS only took steps against companies that failed to complete a reconciliation after about 60 days. If there was still no response after 42 days and a follow-up call, SARS might disallow certain expenditures.
Mr Retief said the consequences of that could be disastrous. He referred to a company that had revenue of R200m, but suffered losses of several million. It failed to comply with the IT14SD reconciliation time periods and its expenditures and allowances were disallowed, making the full R200m taxable income.
The company was penalised with a 20% penalty because of its underestimation of provisional taxes, leaving it with a huge tax liability, although it had suffered a loss.
"That is not right. SARS does not have legislative powers allowing it do that. The right to a deduction or allowance in terms of the Income Tax Act is not dependable on the filing of an IT14SD," he said.
Mr Lackay said as in all such matters, these assessments were subject to objections and appeals.