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Tax Practitioners’ Connect Issue 26 (October)

Commissioner appeals to non-compliant practitioners to become compliant, set an example

More than 4000 tax practitioners still owe SARS more than R600 million in arrears, and the tax returns of 4000 of tax practitioners are outstanding. More than 100 tax practitioners have been deregistered due to non-compliance, 9 were deregistered following court orders, 1 was deregistered due to gross misconduct, and 10 were requested to stop the illegal use of the SARS trade name.

SARS Commissioner Edward Kieswetter revealed this picture of non-compliance amongst tax practitioners in his opening address at the recent Tax Indaba, hosted by the South African Institute of Taxation (SAIT). The theme of this year’s Tax Indaba was “Closing the Tax Gap”.

The Commissioner appealed to tax practitioners to work hand-in-hand with SARS rather than support tax evasion schemes or set a bad example for their clients by violating the law themselves.

SARS ‘cannot do it alone’

Focusing specifically on SARS’ dependence on others to create and maintain a tax eco system with integrity, the Commissioner emphasised that “every single individual that is part of the community of tax practice – from taxpayers and traders to the associated legal, financial and accounting fraternities – has to work together to close the tax gap”.

“The highly complex, multiple-dimensional environment in which we operate requires our relentless resolve, but also genuine humility that we cannot do it alone”, he said. 

According to the Commissioner, SARS has seen an increase in tax non-compliance, and dishonest, illegal, and suspicious behaviour. SARS will therefore continue to balance the work we do to improve service with managing risks to improve our ability to detect and respond to non-compliance. 

“This is at the core of what we do. However, we live in a dynamic and fluid environment, on the one hand constantly informed by the needs of taxpayers and traders, and on the other the compliance risk they present. We therefore remain committed to resolving systemic issues to make it easy to comply, whilst constantly working on improving our case selection methodologies and risk profiling in order to detect dishonest or negligent taxpayers for further investigation,” the Commissioner said.

 

Milestones achieved

In an overview of progress achieved during the last year, the Commissioner highlighted a number of milestones, including that SARS:

  • provided R38.3 billion in tax relief measures
  • implemented 40 additional technological enhancements to digital channels which removed 5 million taxpayer engagements out of branches
  • implemented auto-assessments to standard income earners to 3.4 million taxpayers with a view to provide them with a seamless filing experience
  • facilitated 800 000 e-bookings as an increasing number of taxpayers and practitioners started making use of this facility and the SARS tutor-videos.

Pertaining to the detection of non-compliance and making it hard and costly not to comply, he said that SARS, over the past year:

  • detected 1,7 million returns for audit verification through SARS’ risk engines, yielding additional revenue of R57,2 billion
  • detected 2600 individuals with cash flows of more than R1 million who were not on SARS’ tax registers. The Commissioner is expecting this figure to increase “ten-fold or more” as SARS expands its work
  • increased base broadening exercises resulting in the adding of 1,6 million taxpayers to the tax register resulting in additional revenue of R4,6 billion
  • focused on resolving disputes, resulting in a 96% success rate

Task team established to combat fraudulent alterations of taxpayer eFiling profiles

SARS has become aware of a fraudulent practice where eFiling profiles have been abused as a result of identity theft or phishing attempts. These practices are characterised by individuals gaining access to eFiling profiles through phishing or other nefarious means, and changing legitimate taxpayer’s bank details to divert refunds, as well as through submission of false tax returns to facilitate the generation of refunds. 

In order to combat these unscrupulous entities, mitigate such fraudulent activities and restore compliant taxpayer profiles and accounts, a dedicated multi-disciplinary Cyber Crime Task team has been tasked to:

  • provide first response support by contacting complainants telephonically and indicating SARS’s commitment to resolve the matter, as well as provide progress updates
  • manage the restoration of the eFiling profile to the correct owner, including rectifying any cases where returns have been filed with malicious intent
  • recover fraudulent refunds that have been paid out
  • collaborate with various stakeholders in SARS to ensure the stopping and recovery of fraudulent refunds as well as to restore the account of the affected taxpayer
  • initiate criminal investigations, and
  • identify and implement process and system enhancements.

Significantly, SARS has not found any indication that the profile thefts are a breach of SARS’ systems, thus practitioners and taxpayers can safely rely on the eFiling system.

 Incidents of fraudulent/unauthorised alterations of eFiling profiles, can be reported to the SARS Anti-Corruption and Fraud Hotline on 0800 00 2870.  

SARS to commence with reporting unlawful use of trademark

Despite appeals to tax practitioners to desist from using SARS’ name, trademark or the SARS triangle logo unlawfully, this practice seems to continue, specifically the use of the SARS logo on personal correspondence including e-mail signatures.

SARS has consequently taken the decision to start reporting such unlawful use of our trademark to Recognised Controlling Bodies (RCBs) in future, as it constitutes a contravention of Section 30 of the South Africa Revenue Service Act, 1997 (Act No. 34 of 1997) (SARS Act).

Section 30 prohibits any person from claiming an association, or representing a connection with SARS. A contravention of this section of the SARS Act could lead to a fine, or imprisonment not exceeding 10 years, or both.

SARS’ registered trademarks (SARS logos) are also registered trademarks in the name of SARS. Consequently, any unauthorised use thereof constitutes a trademark infringement in terms of the Trademarks Act, 1993. In addition, SARS is the owner of the copyright subsisting in the SARS logo, thus the logo is protected as an original artistic work in terms of the Copyright Act.

Pitfalls of deregistration due to non-compliance

SARS may deregister a registered tax practitioner in terms of any of the following sections of the Tax Administration Act (the Act), if a tax practitioner:

  1. was removed from a related profession by a controlling body for serious misconduct during the preceding five years in terms of Section 240(3)(a) of the Act
  1. was convicted (in the South Africa or elsewhere) during the preceding five years of
    • theft, fraud, forgery or uttering a forged document, perjury or an offence under the Prevention and Combating of Corrupt Activities Act, 2004 (Act No. 12 of 2004); or
    • any offence involving dishonesty

for which the practitioner was sentenced to a period of imprisonment exceeding two years without the option of a fine or to a fine exceeding the amount prescribed in the Adjustment of Fines Act, 1991 (Act No. 101 of 1991) in terms of  Section 240(3)(b) of the Act

  1. during the preceding five years has been convicted of a serious tax offence in terms of Section 240(3)(c) of the Act, or
  1. during the preceding 12 months has, for an aggregate period of at least six months, not been tax compliant to the extent referred to in terms of section 256 (3) and has failed to:
    • demonstrate that he or she has been compliant for that period; or
    • remedy the noncompliance

within the period specified in a notice by SARS in terms of Section 240(3)(d) of the Act.

The “period specified by SARS” is 21 business days.

 

Consequences of deregistration

A tax practitioner deregistered in terms of Section 240(3)(a) to (c) may only register as a tax practitioner again after a period of five years.

A tax practitioner deregistered in terms of Section 240(3)(d) can only register as tax practitioner again after six months from the date when she/he becomes fully compliant.

To date, SARS deregistered 1 tax practitioner in terms of Section 240(3)(a); 9 in terms of Section 240(3)(b), and 106 in terms Section 240(3)(d).

 

Posting of VAT201 returns discontinued

Thirty years after the Value-Added Tax Act, 1991, came into operation on 30 September 1999,  SARS made the decision to stop posting VAT201 returns to VAT vendors.

The change is aimed at promoting the use of SARS’ electronic channels when interacting with SARS, and forms part of SARS’s strategic goal to modernise our systems and provide digital and streamlined services.

Value-added tax (VAT) was envisaged as a more robust consumption tax to replace the general sales tax levied under the Sales Tax Act, 1978. It has proven to be a stable and reliable revenue source that has generated R4.4 trillion since its introduction to 31 August 2021.

SARS would like to make use of this opportunity to thank the VAT vendors whose compliance has helped make VAT a success in South Africa, thereby contributing to building a capable state that fosters sustainable economic growth and social development that serves the well-being of all South Africans.

 

SARS ups the ante regarding PAYE non-compliance

The sheriff attached the assets of a logistics company that owed the South African Revenue Service (SARS) R39-million in unpaid taxes following a civil judgement and writ granted by the Pretoria High Court last month.

The Gauteng-based company, Raptosec Logistics (Pty) Ltd, had unpaid taxes due to SARS for PAYE returns that were submitted without payment.  In another case, the sheriff attached the assets of Edison Power Gauteng (Pty) Ltd. The electrical contracting company had an outstanding debt of R18-million due to PAYE returns submitted without payment.

Commissioner Edward Kieswetter said SARS provides clarity and certainty to make it easy for taxpayers to comply with their legal obligations. However, at the same time, SARS has sharpened its capacity to detect non-compliance and make it costly for all taxpayers, including employers that are not paying the taxes due to SARS.

He reaffirmed SARS’ determination to uproot the culture of non-compliance that is deeply embedded in the operations of some companies.

“I exhort all taxpayers, especially employers, to refrain from this conduct that borders on criminality when they misuse taxes that by law should be paid over to SARS. SARS is absolutely committed to eradicating this culture, and it has deployed all necessary resources to ensure compliance,” the Commissioner said.

In another court case earlier this month, a businessman who used false tax invoices in the calculations of VAT output and input tax was sentenced to five years direct imprisonment on 21 counts of fraud.

Ntabe Trading & Projects CC and Mr MJ Ntabe provided SARS auditors with false supporting documents to substantiate VAT calculations. The auditors consequently raised additional assessments, which resulted in a total prejudice of R1-million to SARS. As the Close Corporation seized operation, only Mr Ntabe was charged. He pleaded guilty to the charges.

 

Crypto assets subject to general principles of tax law

A crypto asset is a digital representation of value that is not issued by a central bank, but is traded, transferred and stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility, and applies cryptography techniques in the underlying technology.

The income Tax Act defines crypto assets as a “financial instrument”. Consequently, transactions or speculation in crypto assets is deemed a taxable event, subject to the general principles of South African tax law. Depending on the facts and circumstances of a case, capital gains tax or normal tax may apply.

The process to understand and document crypto assets in South Africa started in 2014 when National Treasury, the South African Reserve Bank (SARB), SARS, the Financial Sector Conduct Authority (FSCA), and the South and the Financial Intelligence Centre (FIC) issued an initial public statement, alerting the public to the risks of crypto assets.

In 2016 an intergovernmental Fintech Working Group (IFWG) was established comprising members from National Treasury, SARS, SARB, FSCA and FIC. The objective of the IFWG is to foster technologically enabled financial innovation (fintech) by supporting an enabling regulatory environment and reviewing both the risks and the benefits of emerging innovations.

The IFWG released a position paper on crypto assets in 2020, setting out specific recommendations for the development of a regulatory framework for crypto assets, including suggestions on the required regulatory changes to be implemented. The SARB takes the lead in the formulation of these documents, but in the meantime, has confirmed that its position on crypto assets remains as set out in the 2014 Position Paper on Virtual Currencies.  

SARS issued a media release in 2018 to clarify its stance on the tax treatment of crypto-currencies, stating that SARS will continue to apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income.

SARS’ viewpoint is that the onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued; furthermore that failure to do so could result in interest and penalties. This position remains unchanged.

Note that  the word “crypto currency” was officially replaced with the term “crypto asset” in terms of the Explanatory Memorandum on the Taxation Laws Amendment Bill, issued by Treasury on 20 January 2021 with a view to adopt a uniform definition of crypto assets within the South African regulatory framework. Thus the Income Tax Act defines crypto as a “financial instrument” as opposed to “currency”, which would have excluded crypto gains from the ambit of capital gains tax (CGT).

 

Difference between a verification and an audit

Being selected for an audit and being selected for verification are two different processes.

 

What is Verification? Verification is a face-value verification of the information declared by the taxpayer on the declaration or in a return. SARS will notify a taxpayer/trader that the return or declaration is subject to verification. If the return is for the current filing period, SARS will conclude the verification within 21 business days from the date all required information has been received.

 

What is an Audit? An audit is an examination of the financial and accounting records and/or the supporting documents of a taxpayer to determine whether the taxpayer has correctly declared his/her tax position to SARS. SARS issues a Notification of Audit, as well as a notification when additional material is required. Progress reports of the stage of the audit will be issued at intervals of 90 calendar days from the date of the Notification of Audit.

For more information, see our Being Audited or Selected for Verification webpage.

 

SARS develops induction programme for new tax practitioners

SARS has embarked on the process of compiling an induction programme for newly registered tax practitioners.

The objective of the programme is to:

  • ensure that tax practitioners are aware of the legislation that governs their conduct, and
  • ensure that tax practitioners are “SARS Ready”. This means that practitioners are able to set up their tax practices correctly and avoid certain common pitfalls.

The initiative followed on a survey amongst RCBs to establish whether such programmes exist to introduce newly registered tax practitioners to the tax system, applicable legislation and SARS requirements. As only a few controlling bodies have an induction programme, SARS decided to develop one to make available to controlling bodies for roll-out. 

SARS will test the efficacy of the programme in a pilot with a limited number of practitioners before rolling the programme out to all controlling bodies. SARS appeals to tax practitioners selected for the pilot, to provide us with constructive inputs to improve the programme and the tax system in general.

 

What’s New

Administrative penalties for late submission of Personal Income Tax returns to be imposed

SARS will impose a once-off penalty on taxpayers for late submission of Personal Income Tax returns for the 2020 year of assessment and onwards.

The administrative penalty will be imposed on two separate populations of taxpayers namely:

  • taxpayers who were selected for auto assessment for the 2020 year of assessment and failed to accept, decline or edit the return, but then submit a return after SARS has issued an original assessment based on the estimated auto assessment
  • taxpayers who were not auto-assessed and submitted the return after Filing Season due dates, prior to the imposition of a recurring administrative penalty.

The administrative penalty is levied once off. This means it will not recur, as is the case with administrative penalties for outstanding returns.

For more information, see the GEN-PEN-05-G01 – How to Dispute Administrative Penalties via eFiling – External Guide.

 

How to update Registered Representatives

View the updated registered representatives webpage  for easy steps on how to update Registered Representatives.

Note that registration or update of a registered representative can be done on eFiling or the SARS Online Query System (SOQS).

The steps on how to update the Registered Representative on eFiling can be found in this guide

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