This article discusses the practical considerations around the much-heralded auto-assessment, the latest offering towards easing the tax compliance burden to come from the South African Revenue Service (Sars).
Taxpayers are cautioned to take a step back, and properly check the third party data used by Sars before they accept the assessment.
‘Auto-assessment’ is a misnomer
Tax practitioner and founder of Think-Tax Gauteng, Johan Heydenrych, is of the view that the term ‘auto-assessment’ is a misnomer, and that the process is better described as the “auto-preparation of the income tax return based on third party supplied information”.
Heydenrych notes that the term ‘auto-assessment’ has unnecessarily created anxiety in many taxpayers since it creates an impression that the assessment has already been issued.
He also says that it is not a new type of tax assessment; the process is merely “designed to streamline the administrative process”.
It is basically a pre-populated return.
When a taxpayer receives a notification of an auto-assessment, they must log into their eFiling profile and check the pre-populated return. The onus is on the taxpayer to thoroughly check the return.
The options available to the taxpayer are ‘accept’, ‘edit’, or ‘do nothing.’ Before November 16.
When the taxpayer ‘accepts’ or ‘edits’ the pre-populated tax return, an ‘original assessment’ will be issued.
If the taxpayer does nothing, that is, if they fail to take action before November 16, Sars will issue an “estimated assessment” in terms of Section 95 of the Tax Administration Act (TAA). This estimated assessment will only be issued after January 29, 2021.
If the taxpayer disagrees with the assessment, they have 40 days in which to submit a ‘true and full return’, or the relevant material, and request Sars to issue a reduced or additional assessment. A senior Sars official may extend this period.
Before blindly accepting the pre-populated return …
Be aware that the third party data may be incomplete or incorrect.
It will also not include offshore income, a capital gain/loss, information to be submitted on the sale of a primary residence under the primary residence threshold, rental income, or donations made.
If this information must be provided, the taxpayer should select the ‘edit’ function.
Avoid the ‘estimated assessment’
Heydenrych says it is preferable to select the ‘accept’ or ‘edit’ functions (and provide the additional information) as this will result in an original assessment that is subject to the normal objection and appeal process under the TAA.
If the taxpayer does nothing, the ‘estimated assessment’ will be issued – and the taxpayer’s right to object and appeal against an estimated assessment has been limited by the TAA.
Remain prepared for a tax audit
Heydenrych warns that Sars may still carry out a tax audit. Where the taxpayer has failed to disclose any additional income, the three-year subscription period will most probably not apply. Further, interest and penalties will be levied.
If a taxpayer accepts an incorrect auto-assessment, how can they correct it?
If an assessment has been ‘accepted’ and an ITA 34 issued, Heydenrych says the taxpayer can check to see if the ‘make a correction’ option is still available and, if it is, can then submit a revised assessment.
If the ‘correction’ option isn’t available, he says the taxpayer can:
- Make use of the Voluntary Disclosure Programme (VDP) if taxes were underpaid. Understatement, late payment and underestimation penalties can be avoided but interest will remain payable.
- Request a reduced assessment within three years from the date of assessment in terms of Section 93 of the TAA if taxes were overpaid.
If a taxpayer with other income receives notice of an auto-assessment
The taxpayer must select ‘edit’ and include the additional information.
Sars’s website deals with this as follows:
- Question: I didn’t receive an auto-assessment SMS but see my return is available on eFiling, or should I wait for September 1?
- Answer: You may file now, no need to wait for September 1.
The author notes that if the taxpayer owes Sars money, they have the right to only submit the tax return/complete the auto-assessment process on or before November 16, 2020.
Impact on the accounting and tax profession
Heydenrych is of the view that: “The tax practitioner and the accounting profession as a whole will need to become more involved in providing assurance that the data as communicated by third parties to Sars is complete and accurate.
“If the data provided by third parties is incorrect, then the taxpayer will experience significant difficulties in editing auto assessments and objecting against incorrect assessments. I believe that increased focus should be given to the integrity of third party data submissions by the accounting and tax profession than is currently the case.
“The increased reliance on technology will pave the way for auto assessments for certain indirect taxes such as value-added tax (Vat) and securities transfer tax.
“Automated verification of input tax and real-time payment of output tax will in my view replace ‘batch reporting’ of Vat obligations.”
He says the VAT 201 form “as we know it” will, in his view, be replaced by:
- Real-time automated Vat payments on supplies made, and
- Real-time automated Vat refunds on purchases made by vendors as supported by electronically verified tax invoices.
He adds: “The current auto-assessments of individuals will also pave the way for automated auditing of company income tax liabilities. The compulsory submission of annual financial statements in iXBRL format to the Companies and Intellectual Property Commission may easily be used as [a] basis to query differences in ITR 14 submissions made by companies.”
This new process should make it much easier for salary earners to file their tax returns. It should also ease the workflow and compliance checking at Sars, enabling it to concentrate on the larger income earners.