South Africa and Taxpayer Audits, Voluntary Compliance
Employees’ Tax Audits
The South African Revenue Service (SARS) implemented a new initiative concerning employees’ tax audits, aimed specifically at travel allowances, employee tax treatment of remuneration paid to expatriate employees, and employee share incentive plans (or “schemes”).
This article is republished from “Recent SARS Audit Initiative,” published by the KPMG International member firm in South Africa. To view the original article online, click here.
Taxpayers may have received a “limited scope audit questionnaire” containing questions relating to one of the above three categories, and may receive three separate questionnaires covering each category if all three apply to a particular taxpayer.
In the three questionnaires, SARS generally indicated an audit of the taxpayer’s last five years of assessment. The questionnaires are fairly comprehensive and include requests for specific information pertaining to a company’s expatriate workforce, share incentive schemes, and travel allowance policy.
Each questionnaire must be signed by the public officer, and is to be accurately completed. It includes a note to the effect that although the audit is limited to selected areas of compliance, a comprehensive audit could follow if areas of non-compliance are identified.
In addition to interest charges, penalties of up to 200 percent could apply to any shortfall of employees’ tax identified by SARS as a result of the audit process. This is in contrast to the situation when SARS states that a voluntary disclosure of issues known to a taxpayer prior to a SARS audit will result in a reduction of penalties and no additional tax will be charged.
Prudent taxpayers will consider taking proactive steps to determine whether their employees’ tax matters are being conducted in accordance with the applicable tax law and SARS practice, and will also determine whether to seek advice if they are issued one or more of the questionnaires, being mindful that any response to SARS could form the basis of a later Objection, Alternative Dispute Resolution, or Appeal process with SARS.
Voluntary Disclosure Program
The Finance Minister, Pravin Gordham, announced in the budget speech earlier this year that SARS would implement a voluntary disclosure program.
The voluntary disclosure program — which would apply to all taxes (including employees’ tax) — will run for 12 months from 1 November 2010 to 31 October 2011.
Defaulting taxpayers who are unaware of any pending or current investigation into their tax affairs may consider relief under the program, if they make a complete disclosure of a default that would trigger additional tax or penalty/interest charges. Defaulting taxpayers, in certain limited circumstances, may also consider using the voluntary disclosure program in situations when a current investigation is taking place.
The voluntary disclosure program will provide qualifying taxpayers with certain benefits ranging from amnesty from any criminal prosecution, to a waiver of additional taxes, penalties (other than administrative penalties) and interest of up to 100 percent, arising from a previous default which must have occurred prior to 17 February 2010.