The South African Revenue Service (SARS) has continually granted a lifeline to non-compliant taxpayers by keeping the Voluntary Disclosure Programme (VDP) open, which allows non-compliant taxpayers to come clean. The VDP came as a saving grace for many, especially as SARS began ramping up its efforts to eliminate non-compliance and massive collection drives.
However, despite the VDP having been available since 2011, and now being part and parcel of the current tax landscape, many tax practitioners and taxpayers remain unaware and uncertain about VDP.
A recent webinar with Tax Consulting South Africa and the South African Institute of Taxation (SAIT) highlighted that many are unknowingly staying on their sinking, non-compliant ship.
The lifeline
The VDP offers taxpayers with skeletons in the closet an opportunity to voluntarily come forward to disclose their tax defaults to SARS. The programme also allows the disclosure of underdeclared income or understatement of any tax liabilities, which is regulated by the Tax Administration Act.
The permanent implementation of the VDP falls directly in line with SARS’ strategic objective to provide clarity, certainty, and seamless routes toward compliance.
While this lifeline remains available, there are, of course, legislative requirements one should meet when applying for relief under the VDP. For instance, an applicant should be a registered taxpayer with SARS, and be up to date with their tax filing obligations.
Once you meet these requirements and have successfully applied under the VDP, taxpayers can reap the benefits of a VDP agreement with SARS, including –
- Confirming the disclosure and what it relates to;
- The waiving of any penalties that may have arisen from the default, except in instances of gross negligence and intentional tax evasion;
- The confirmation of the payable amount and date it is due; and
- The granting of full immunity from criminal prosecution in respect of the default disclosed:
A sinking ship
Despite the benefits of a VDP, polls from a recent Tax Consulting South Africa webinar, held in collaboration with SAIT, indicate that many taxpayers and tax practitioners are not seeking the VDP route.
Whilst the majority (60%) of attendees indicated that they have a small number of clients with under-declared/undeclared income, only 5% stated that they have proceeded with the VDP in these instances.
Concerningly, only 83% of attendees stated that they have only followed the VDP route in a few cases, and not for all their non-compliant clients.
Poll results from Fixing The Past: SARS Voluntary Disclosure Programme webinar with SAIT.
When asked which aspect of the VDP process concerned attendees the most, 43% stated that it was navigating the communication and interaction with SARS. Other attendees (23%) noted that it was the gathering and organizing of the necessary documentation for the application.
Poll results from Fixing The Past: SARS Voluntary Disclosure Programme webinar with SAIT.
Whilst taxpayers can apply for the VDP via SARS eFiling, there are nuances to the process that can be complex. In most cases, it is best to seek legal assistance when applying for a VDP.
Legal lifesavers
When approaching the VDP with a seasoned tax attorney, you have the advantage of legal professional privilege. Additionally, you will have the means and smarts to successfully negotiate and navigate the SARS engagement aspect, which significantly increases the chances of a positive outcome. The process typically includes several steps, including a pre-evaluation to determine your suitability for a VDP and a post-submission process which correctly finalises the application.
Next steps
SARS continues to scrutinise non-compliance, and while many taxpayers and practitioners remain wary of the VDP, it could be the very lifeline they need to avoid SARS’ heavy hand. With tax season opening on 7 July 2023, taxpayers should seize this opportunity to come clean, before it’s too late, and being left in the icy abyss of non-compliance, without an option of evacuation/rescue.
The process, while nuanced, is best handled by a team of tax attorneys and chartered accountants, who understand how to navigate the VDP process effectively and to communicate and interact with SARS.
Written by André Daniels, Head of Tax Controversy & Dispute Resolution at Tax Consulting SA