The South African Revenue Service (Sars) has forewarned corporate taxpayers of looming penalties if they do not submit outstanding annual tax returns.
The returns will have to be submitted by the end of November to avoid penalties of up to R16 000 per month in December and for each month going forward until the returns are submitted.
Sars said in a note circulated to specific taxpayers that they have been identified as having one or more corporate income tax returns outstanding. It also warns taxpayers with dormant registered companies that they still have to submit any outstanding returns prior to 2018 to prevent a penalty being imposed.
Lesley Bosman, chair of the South African Institute of Tax Professionals’ business tax work group, says this notice – of what is to come – gives taxpayers time to get their affairs in order.
In terms of the Tax Administration Act (TAA) the fixed penalty fee amounts can be imposed on taxpayers who fail to comply with an obligation under the act.
She says the nature of the non-compliance must, however, be gazetted in a public notice, giving the commissioner the power to impose the penalties.
Similar public notices of non-compliance already exist for individual taxpayers who are obliged to submit annual tax returns, as well as an obligation on companies to file certain transfer pricing documentation such as country-by-country reports and their master and local files.
Dawid van der Berg, leader of private company tax services at PwC, says companies who do submit their returns are audited, while non-compliant companies remain audit-free.
“The warning, that companies who have not filed their annual tax returns will receive penalties from December this year, seems like an ‘incentive’ for them to start submitting outstanding returns.”
He says many argue that they have paid the correct amount of provisional tax and that there is no pressure to submit an annual return.
He adds that Sars has noticed that certain companies are submitting their Vat returns and their provisional tax returns, but not the annual returns.
However, if they have received a final demand from Sars they can expect to receive hefty penalties in the holiday month if they are not compliant.
In terms of the TAA, Sars may impose fixed penalty fees of R250 per month if the company has had an assessed loss for the preceding year.
The penalty goes up to R1 000 per month for taxable income of R500 000 to R1 million, R8 000 for taxable income between R10 million and R50 million, and R16 000 per month if the taxable income exceeds R50 million.
Van der Berg says companies that have more than one year of outstanding penalties can expect huge penalties and interest if there is any outstanding income tax.
If it is clear that there have been understatements of income, this can lead to additional penalties in terms of the TAA. These penalties are determined on the behaviour of the taxpayer. In a standard case, where reasonable care has not been taken with the completion of a return, the penalty is 25% of the difference between what had been paid and what should have been paid.
If Sars finds that there has been intentional tax evasion, the penalty is 150% – and if it is a repeat case, the fine is 200%.
Bosman says Sars has yet to issue the gazetted public notice.
“It therefore remains to be seen whether penalties will be levied going forward for incidences of non-compliance by corporate taxpayers, which are not only related to outstanding tax returns.”
She says it is also not clear whether – in the case of outstanding returns – a single outstanding return will be sufficient to trigger the penalty.
Bosman refers to the practice with individual taxpayers where the fixed-amount non-compliance penalties for the non-submission of returns are only imposed once two or more returns are outstanding.