THE Tax Administration Act kicked in towards the end of 2012 and the new legislation could have some scary consequences for individual taxpayers.
The act introduces a range of penalties for noncompliance — and even accidental mistakes — that shoots first and asks questions later, so from 2013 it will literally pay you to take more care when filling in your tax return.
Vedika Andhee, tax director for Ernst & Young, said that in the past few months there had been a significant increase in the penalties being levied by the South African Revenue Service (SARS).
“The most common penalties are fixed and percentage-based penalties ... Fixed penalties are levied for failure to comply with an obligation under the Income Tax Act, such as not submitting a tax return within the deadline. The minimum fixed penalty for late submission of a tax return is R250 and is levied for each month that the individual is late in submitting a tax return,” Ms Andhee said.
“If there is more than one tax return outstanding, the cumulative penalty could be significant.”
For example, someone whose tax return on an annual salary of R200,000 is 12 months late will be fined R3,000 (R250 x 12).
She said the second most common penalty was for “understatement”, which would be applied “irrespective of whether it was a genuine mistake or an attempt at deliberate evasion”.
“The only difference between these two scenarios is the percentage that will apply. In the first instance, SARS could contend that reasonable care was not taken in completing the tax return and would apply a penalty of 50% of the difference between the tax that was levied and the tax that should have been levied.
“In the second scenario, SARS could levy a penalty of 150%. Should the taxpayer be a repeat offender in relation to understatement of income, the penalty would be further increased,” Ms Andhee said.
Let us say you make a typographical mistake — and enter R60,000 instead of R600,000 for the amount earned in the past tax year. Typically, a penalty of 50% of the difference between those amounts would be levied. This can escalate to 75% if it is a repeat case.
Ms Andhee said that should the taxpayer not pay any outstanding amounts within the time allowed, SARS might seek to recover the money with a garnishee order — in other words, docking the person’s wages.
If SARS has either applied a penalty in error or there are mitigating circumstances, or you simply want to contest the automatic administrative penalty — which could be significant — there is an objection process that begins with a form at the SARS eFiling site.
Ms Andhee said, however, that the commissioner had limited discretion to remit these penalties and SARS’s history of communication with objecting taxpayers was rather impersonal and brief.
In terms of intentional evasion, the burden of proof lies with SARS, but, again, do not expect to be called in for an interview to state your case.
“The problem is that most people don’t know their rights or the terminology used in the application of administrative penalties, which can make it difficult to contest a penalty,” Ms Andhee said.
“All correspondence regarding such penalties tends to be electronic, which can be intimidating and make it difficult to craft a proper objection.
“Taxpayers who have received a reminder to correct noncompliance ... usually receive no communication about their right to object to the demand for a return. The SARS investigation often does not go further because the process is highly automated,” she said.
Two deadlines near
TWO important tax deadlines arrive on January 31. The first is the deadline for submission of 2012 income tax annual returns (ITR12) by provisional taxpayers who use the eFiling system. A provisional taxpayer is any person who received income which does not constitute remuneration — in other words, income other than a salary.
The second deadline is for the payment of outstanding assessed tax by non-provisional taxpayers who filed their returns via eFiling, for whom the filing deadline was November 23 2012.
According to SARS, as part of the range of incentives to get the public to use eFiling, taxpayers are given until the end of this month to make payment on an assessed tax liability irrespective of when they submitted their returns, giving them up to seven months interest-free to make the payment. However, failure to pay by January 31 will trigger backdated interest.
* This article was first published in Sunday Times: Money & Careers
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