Non-compliance with tax laws is not always driven by an intention to evade tax, yet the harshness of the penalties can cripple a small business while not addressing the root cause of non-observance.
Nina Keyser, senior tax associate at Webber Wentzel Bowens in Cape Town, says that sometimes the cause of tax non-compliance is simply ignorance.
“However, ignorance of the law, as any South African Revenue Service [Sars] official will tell you, is no excuse for mistakes in your VAT [value-added tax] return.
“A taxpayer who does not comply with the letter of the law is subject to 200% additional tax, penalties and possibly even criminal prosecution.
“These penalties can cripple a business and they do not address the cause of the non-compliance.”
Keyser says Minister of Finance Trevor Manuel should use the budget to address some of these imbalances in the interests of fostering entrepreneurship and broadening businesses’ VAT knowledge.
“There should be a statutory provision dealing with penalties for ignorant taxpayers.
“A first offender that raises ignorance as a defence must be given the option of attending a weekend VAT course — presented by Sars’s existing staff training centres — in lieu of payment of a harsh penalty. Perhaps a smaller fine than currently exists will stop total abuse of this idea.
“If a person refuses to attend the training course, he may not raise his ignorance or his accountant’s incompetence as a factor in mitigation of his penalty. And if is he is again found to be non-complaint, then Sars should really throw the book at him.”
Keyser notes that taxpayers are at the mercy of Sars’s penalty committees, which frequently refuse to take taxpayers’ pleas of ignorance into account when deciding how much additional tax to charge.
“Penalty committees are equally unimpressed by the taxpayer’s ignorance of his accountant’s ignorance,” she said.