Taxpayer Obligations
The tax laws of each country in the world requires individuals, companies and other taxable entities to pay taxes. This requires everyone liable for tax to register, submit accurate tax returns and pay taxes due. You should not pay less than what you should be paying but you should also not pay more than what you should pay. This requires proper tax management.
Risk of not Paying Tax
SARS has considerable legislative powers and capacity to pursue non-compliance. This is often underestimated by taxpayers at their own peril. The legislative powers and capacity enables debt collection, investigations and audits, access to information, prosecution for non-compliance with non-submission of returns or non-payment of tax due in respect of VAT and PAYE being statutory criminal offences. SARS can conduct search and seizure operations if sufficient grounds for this exist, obtain information from third-parties such as banks, FICA, suppliers, purchasers o goods and/or services, oversight bodies, government departments and other entities. SARS can recover outstanding taxes from third parties including bank accounts, attach assets and sell these assets on auctions, estimate income if no return is submitted and start recovery process if a taxpayer did noy file accurately.
Identification of Non-Compliance
There is an increasing number exchange of information agreements and cooperation with tax administrations in other countries to counter tax avoidance and evasion. SARS also has the capability to trace different entities and assets together that has any kind of link to a taxpayer (individual or corporate).
Also keep in mind that SARS has a constant flow of information from whistleblowers – sometimes an ex-wife or husband, ex-employee that felt unfairly treated, business competitors, angry neighbor etc.
Similar to any other good business, SARS manages risk, including compliance risk and has systems that does data analysis and risk profiling, both at industry and taxpayer level. SARS is actually quite good with this and can direct audit and investigative capacity to the highest risk cases.
Compliance and Mitigation of Tax Risk
It is not worth the risk to not register, not submit returns on time and not pay on time. this can be very costly with the possibility of penalties and interest added to the tax amount due.
Proper tax management, especially for a business, is needed and this requires a thorough knowledge of taxation, accounting and good tax practice. This also means that taxpayers should know how tax incentives and allowances can benefit a business. Tax policy usually encourages investment and certain allowances may be available to support businesses. Good knowledge of VAT exemptions and zero-rated goods and services is also very important. Tax knowledge and good management of tax affairs can allow a business to stay out of trouble with the tax collector and also minimize tax. Taxpayers who intentionally evade taxes may be investigated for tax fraud and tax planning should avoid moving into unacceptable or borderline legal/illegal avoidance. Proper accounting and record keeping in line with regulatory requirements are important. Consideration can also be given to insurance to cover the tax risk, but above all – (1) register on time; (2) file accurately on time; and (3) pay on time.