Carrots and sticks: how SARS plans to make you pay up

Tax return filing season for indivi-dual taxpayers began this month, with the tax authority enhancing its carrot-and-stick approach to ensure that you meet your tax obligations.

The stick has a lot more whack this year, which means there are fewer places to hide for taxpayers who do not file their returns and pay what they owe.

Over the past few years, the South African Revenue Service (SARS) has been making it easier for you to comply, introducing measures such as:

eFiling for taxpayers who have access to the internet;

Electronic returns that you can complete, with the help of SARS staff, at SARS branches;

Returns that contain only the sections you need; and

Returns that are pre-populated with your salary details.

This year, SARS has made further refinements to make it easier for you to fill in your return and pay your tax by, for example:


Giving eFilers access to faster computer software;

Scrapping the need for people who do not owe provisional tax to file provisional tax returns;

Improving the ability of SARS Contact Centre staff to track all your interactions with SARS and to help you resolve a query; and

Allowing you to access your eFiling profile, regardless of whether or not you use a tax practitioner.

But, having made it easier for you to do your part, SARS's focus is now on bringing people who should be paying tax, but who are not, into the net. SARS's approach in this respect is two-pronged:


Tougher penalties for people who fail to submit their returns and pay what they owe; and

Using information from arapidly spreading network of third parties to verify what you declare, or uncover what you fail to declare, on your income tax return.

SARS using 'agents' to check up on your financial affairs
SARS is using information about your affairs that it has obtained from a variety of other sources.

Initially, SARS received information about your salary from your employer only. Now, SARS is also receiving third-party data about the interest you earn on your investments, the sale of shares, your medical scheme contributions and your retirement annuity contributions.

SARS is working towards being able to verify all the information you enter on your tax return with the data it obtains from third parties, Mark Kingon, the group executive of business systems at SARS, says.

SARS is in the process of obtaining information from life assurance companies about your contributions to income protection schemes. Information about your vehicle and the claims you make against a travel allowance will be the next data that SARS will use, he says.

Anthea Scholtz, a director at Deloitte, says Deloitte is aware that certain car dealers that sell and service vehicles have been sentletters that request them to supply SARS with information aboutvehicle values, financing agreements and odometer readings. It is expected that SARS will use this data to cross-check the information you enter on your tax return about your vehicle and its use, ultimately ensuring that you qualify for the tax deductions that you may claim against your travel allowance.

"We are anticipating that SARS will increasingly start to engage with third parties or form relationships with them, so that they may act as 'agents' to supply data to SARS which can then be used by SARS to verify information in individuals' tax returns," Scholtz says.

The draft Tax Administration Bill, which is expected to be tabled in Parliament before the end of this year, proposes that SARS be able to list the third-party returns it requires in a public notice, and this will include information regarding assets under the control or on the premises of third parties, such as yacht clubs.

Minister's warning
Earlier this year, Minister of Finance Pravin Gordhan warned that the tax authority will soon have greater access to information about the foreign investments held by South African residents.

The next big move by SARS to obtain third-party information and put it to good use will start over the next few months, when anyone who receives any kind of employment income will have to be registered for tax purposes, regardless of whether you work part time or earn below the tax threshold (the income level at which you start to pay tax - currently R57 000 a year for people under the age of 65).

The registration of everyone who is paid by employers who deductPay As You Earn tax from employees does not mean that SARS will expect tax returns from all these employees. Currently, SARS does not require tax returns from people who earn a taxable income of R120 000 or less a year from a single employer, unless they have other income or deductions to claim.

But if you are registered for tax, SARS will be able to match the information on the income tax certificates - also known as IRP5/IT3(a) certificates - that are issued to you against your tax number.

It will then be able to identify people who should be paying tax but are not because they earn small amounts from multiple employers.

Employers are now expected to submit your salary and tax deduction details to SARS twice a year, with the first biannual reconciliation due by October 29.

When employers submit thisreconciliation, they will be expected to supply the income tax reference number (if you are registered for tax), identity number, bank details and address of every person to whom they have paid remuneration since March 1 this year. This means that employers have to collect the required information from all their casual workers.

If an employer fails to provide SARS with the information, it could be subject to a penalty equal to 10 percent of the total amount of tax it deducts from all its employees during the tax year.

Once SARS has received an employer's first biannual reconciliation, it will check if any employees are not registered for tax. If this is the case, SARS will use the employees' identity numbers, bank details and addresses to issue them with a tax reference number.
After this initial bulk registration process, SARS will expect employers to use an online process to register for tax purposes any employee who does not have an income tax reference number.

Tax audits
Besides using third-party information to pre-populate your tax return and verify the information you declare, SARS is using a wider source of information to audit taxpayers' affairs.

If SARS picks up some information from a third party or receives a tip-off that makes it believe you have not declared all your taxable income and capital gains, SARS may subject you to an audit.

The audit will attempt to establish whether or not your lifestyle and assets are in line with your declared income. To do this, SARS will make use of data from a number of sources, including banks, insurance companies, stock exchanges, the deeds office, the Company and Intellectual Property Registration Office, the National Transport Information System, other government departments - such as home affairs - the media, your friends and associates.

SARS spokesman Adrian Lackay says that in the past two years more than 10 000 taxpayers have been subjected to an audit.

Ask for a provisional tax form
The first deadline for provisional taxpayers for the 2010/11 tax year is Tuesday, August 31.

SARS is no longer sending out returns to all provisional taxpayers, because many forms are not returned or are returned with data that indicate that the taxpayer is not liable for provisional tax.

If you need a provisional tax return, you must request one from SARS. Taxpayers who do not have to submit such a return will not have to request a form or submit one, even if they are registered for provisional tax.

If you should have submitted a provisional tax return but you have not, SARS will be able to detect this when you submit your annual income tax return, and you may be charged interest and penalties.

Managing your eFiling tax profile
Taxpayer-centricity is a new eFiling function that gives you full control over and knowledge of your tax affairs. This function is available to you regardless of whether or not a tax practitioner submits a tax return on your behalf. It will ensure that you "own your own profile", whether you want a tax practitioner to have access to your return or prevent a practitioner from having access to it.

Currently, the taxpayer-centricity function is available only for income tax (ITR12) and provisional tax (IRP6).

When you register for eFiling, you will be asked whether you want to "Obtain shared access", "Remove tax practitioner access" or take "No action". Choosing "Shared access" enables you to retain access to your return and all correspondence from SARS while also allowing a tax practitioner to access your online return and correspondence.

If you choose to remove a tax practitioner's access to your return, you will block that practitioner from accessing your return and prevent any correspondence from SARS being sent to him or her.

Taxpayers who are already registered for eFiling have the same options, but in order to access them they need to log in, click on "Home" and then choose "Tax types". Then, after selecting your provisional tax, your income tax or both, choose "Click here to edit the access to your tax types".

Stiff penalties if you try to duck your tax obligations
In October last year, SARS announced stiff new penalties for people who fail to register for tax, file returns or pay tax.

The penalties apply monthly - not just once off - and begin at R250 a month for an assessed income of up to R250 000 a year. The penalties increase steeply from there - for example, R500 a month for failing to file a return or pay tax if your assessed income is up to R500 000 a year, and R1 000 a month for an assessed income of up to R1 million a year.

The penalties are in addition to the interest you will be charged on any outstanding amounts at the official rate of 9.5 percent.

In January, the first round of penalties, which amounted to R130 million, was imposed on 230 000 taxpayers who had returns outstanding for multiple tax years. Earlier this month, SARS reported that, as a result, 31 273 taxpayers had paid R33.8 million in penalties and 83 016 returns had been submitted.

However, some 180 000 errant taxpayers ignored the penalty notices, SARS said, and it now plans to deduct the outstanding penalties from their salaries.

SARS commissioner Oupa Magashula says that in August SARS will ask the employers of these taxpayers to notify them that their employers have been requested to deduct outstanding penalties from their salaries in September, unless they contact SARS and make arrangements to pay what they owe. SARS says it has the power to do this in terms of the Income Tax Act, and the relevant section of the Act has been subjected to judicial scrutiny and found to be constitutional.

For defaulters only
SARS has emphasised that this measure is only for taxpayers who are in default and who have failed to respond to repeated warnings.

If you are one of these taxpayers and your employer believes that you will not be able to afford the deduction for outstanding penalties, your employer can contact SARS about reducing the monthly amount that will be recovered.

Errant taxpayers can also contact SARS regarding the payment of these penalties. If you have good reasons for failing to comply with your tax obligations, the penalties can be waived.

SARS has said that if its attempts to recover the penalties from errant taxpayers through their employers fails, it will be forced to appoint banks with whom these taxpayers have accounts to act as SARS's agents to collect the outstanding amounts.


If you have not declared all your income or assets for tax purposes and SARS is not yet on to you, make use of the voluntary disclosure programme that is due to begin on November 1 and will run until October 31 next year.