A new focused approach to combat non-compliance is paying off.
The recent crackdown on the cash and carry sector in the South African economy seems to be bearing fruit.
The South African Revenue Service (SARS) has raised assessments worth R600 million in the past financial year, following on-site inspections and audits of non-compliant businesses.
SARS has also warned that criminal investigations will be instituted in cases where there is evidence of “gross negligence” or “intentional tax invasion”.
A new focused approach to combat non-compliance in high risk sectors was launched in December last year, which included the cash and carry sector.
The approach entailed random on-site inspections to check for under-declarations, non-registration and filing non-compliance.
The South African Institute of Tax Professionals (SAIT) says the focus on cash and carry is long overdue.
It is also consistent with recent statements by SARS commissioner Tom Moyane that the tax base has to be expanded.
SAIT CEO, Keith Engel, says there are a number of sizeable mid-tier businesses that are evading tax by having a dual set of books and by operating in undisclosed cash.
“Many compliant taxpayers have complained over the years that too much focus has been made on the compliant who file their forms and information as required and not enough on outright evaders.”
“We support any effort to bring more forensic audit and other resources to bear so that these outright evaders are fully brought into the system,” says Engel.
SARS conducted about 100 on-site inspections at cash and carry businesses in Gauteng in April. It found at least half of these businesses to be non-compliant with regard to registration, filing or payment.
“There is a significant risk of under declaration due to poor record keeping and high volumes of cash transactions in this sector,” SARS said in an earlier statement.
PwC tax partner, Kyle Mandy, says these businesses face potential understatement penalties of up to 200% of the tax payable where they are found to have engaged in intentional tax evasion.
“On top of this, any person who is guilty of tax evasion or assists another person in evading tax may face criminal charges and a potential prison sentence of up to five years,” he says.
Mandy adds that the voluntary disclosure programme is available to taxpayers to remedy their non-compliance. This can reduce the potential understatement penalties to a maximum of 10%. It also removes the threat of criminal sanction.
However the voluntary disclosure must be done before the taxpayer is informed of an audit or investigation, he adds.
High risk areas which have been identified in the SARS Strategic Plan 2015/16 -2019/2020 include large businesses and transfer pricing, high-net individuals and their trusts, small businesses, tax practitioners, illicit cigarettes, the construction industry, and the clothing and textiles industry.
The focus on the cash and carry sector does not form part of this strategic plan for the next five years.
SARS says in its plan it aims to increase compliance of specific target groups, but it wants to balance compliance with the principle of equity.
One area that has consistently been mentioned is small businesses. Mandy says some progress has been made to ease the tax compliance burden of smaller companies.
“The biggest tax burden that small business faces is not the taxes for which they are liable, but the complexity and time associated with complying with their obligations.”
He says far more needs to be done to simplify compliance for small business. The Davis Tax Committee’s next report on small- and medium-sized enterprises is expected shortly.
“Hopefully this will provide some sound recommendations on how SARS and National Treasury can further ease the compliance burden for small business,” says Mandy.
In its strategic plan SARS endeavours to “align” its processes, tools and organisational structure to address the needs of small businesses.
SARS says in terms of the cash and carry sector non-compliant companies are being assisted with the registration process, outstanding returns and the collection of outstanding debt.
Further risk profiling for full audits where there is evidence of under declaration and collection of outstanding debt continues.