The Tax Administration Act, No 28 of 2011 (TAA) currently provides for various forms of relief in respect of disclosures made by qualifying taxpayers of their tax defaults under the Voluntary Disclosure Programme (VDP). The recently published Tax Administration Laws Amendment Bill 2015 (TALAB) makes a welcome proposal to widen the scope of available relief to qualifying taxpayers, to include any penalties relating to the late payment of tax.
The VDP is a formal statutory process, provided for in Part B of Chapter 16 of the TAA, and in terms of which qualifying taxpayers can approach the South African Revenue Service (SARS) on a voluntary basis for purposes of disclosing their tax defaults. Upon a successful VDP application and conclusion of an agreement with SARS, the taxpayer will enjoy relief from understatement penalties (which could be up to 200% in severe cases) and administrative non-compliance penalties. Additionally, SARS will not pursue criminal proceedings against the taxpayer.
Currently, the VDP does not provide relief for late payment penalties or interest (for example, the 10% late payment penalty for Value-Added Tax or employees’ tax). These are generally dealt with outside the VDP process at SARS branch office level, once the VDP process has been completed. In other words, the VDP process, as it currently stands, does not necessarily prevent a taxpayer from seeking relief from late payment penalties or interest. However, the process at SARS branch office level is less formal and, in some cases, open to subjective application of the law as it pertains to available remedies to remit penalties or interest, in whole or in part.
The proposed amendment in the TALAB states that VDP relief will now be widened to include late payment penalties (interest still remains excluded), which essentially eliminates the ‘secondary’ process of attempting to obtain relief at SARS branch office level. The proposed amendment, which becomes effective on the date of promulgation of the TALAB (likely January 2016), brings into play a potentially risky interim time period for prospective VDP applicants. The question now arises whether such applicants should wait for promulgation of the amendment?
The risk in waiting for promulgation is that VDP relief for understatement penalties tapers down where voluntary disclosure is made after SARS has issued a notification of audit or investigation. For example, VDP relief would in most cases result in no understatement penalties being levied, however, where SARS has issued notification of an audit or investigation, it will be entitled, depending on the severity of the case, to levy understatement penalties of up to 75%.
It may therefore be a dangerous (and unnecessary) gamble to wait for promulgation of the proposed amendment on the basis that SARS could, at any time, issue a notification to a taxpayer to conduct an audit or investigation.