According to the tax legislation SARS has the right to investigate, charge and prosecute those who do not submit their tax returns. This article looks at the penalties that can be imposed on those submitting late or not at all as well as the penalties for non-compliance and non-submission
One of the fundamental purposes of our tax legislation is to ensure the effective and efficient collection of taxes by prescribing the right and obligations of taxpayers, according to section 2(b) of the TAA. Section 2(c) of the TAA further prescribes the powers and duties of persons engaged in the administration. One of the duties imposed on taxpayers is to ensure that all their tax returns are timeously submitted. This duty affects all tax types and is compulsory even if no income is realised for a particular period. This process is necessary to ensure that taxpayers remain responsible for the income they receive, or if no income is received, submit a nil return which serves as a declaration for the period in question. According to section 95(1) of the TAA, if taxpayers do not submit returns as required, SARS may submit a return on their behalf, based on an estimation. This process is necessary as it ensures that everyone pays a fair share to the fiscus.
According to 2020 Tax Statistics, of the 22 919 701 registered taxpayers for Personal Income Tax only 6 308 515 were expected to submit and 4 337 923 were assessed. For Corporate Income Tax, 2 202 759 companies were registered, 939 781 were expected to submit and only 780 460 were assessed.
Interim penalties for late submission
With effect from 1 December 2021, SARS has been empowered to levy a late submission of return penalty where one or more Personal Income Tax returns are outstanding. As a transitional measure for the first year, the one tax return or more rule will only apply to the 2021 tax return.
Duty to submit returns
Section 25(1) of the TAA provides that a person required under a tax act or by the Commissioner to submit or who voluntarily submits a return must do so:
- In the prescribed form and manner; and
- By the date specified in the tax act or, in its absence, by the date specified by the Commissioner in the public notice requiring the submission.
The provision under this section is peremptory with the result that taxpayers do not have an option, but are obligated to submit returns unless publicly excused to do so. The tax threshold for taxpayers presents problems as most of the taxpayers are unsure whether they should submit returns or not. Most taxpayers negligently fail to submit tax returns as their determination is premised on the monetary value. Their value of income might fall under the threshold but receiving additional income elsewhere does not constitute remuneration. They will be categorised as provisional taxpayers and the law requires them to submit returns.
The threshold increase from 2020 exacerbated this uncertainty. Most of the taxpayers earning below R500 000 might not receive it from one source and an additional source might not be remuneration. This will also trigger the need to register, submit returns and effect payment for provisional tax.
Consequences of non-submission
In terms of section 234(2)(d) of the TAA, any person who wilfully or negligently fails to submit a return or document to SARS or issues a document to a person as required under a tax Act is guilty of an offence and is liable, upon conviction, to a fine or to imprisonment for a period not exceeding two years.
Given the complexities of taxation as demonstrated above, most of the taxpayers who are unsure as to whether they must submit returns or not will be affected adversely as their failure to submit returns might be classified as criminal conduct in line with the provision of section 234 referred to above. Tax education is therefore crucial in ensuring that taxpayers do not end up in non-compliant situations due to a lack of knowledge and face criminal prosecution. Taxpayers are also advised to use the services of tax experts to avoid unforeseen tax consequences. Therefore, a lack of knowledge will not help ignorant taxpayers.
However, taxpayers who deliberately ignore their duty to submit returns to conceal their tax affairs must face the full might of the law. Normally, SARS resorts to imposing penalties and interests instead of triggering the criminal process. SARS’ segmentation into divisions seems to be the main cause of this challenge. According to Chapter 17 of the TAA, the criminal investigation division is saddled with the responsibility of pursuing criminal offences. Unlike under the compliance and audit divisions, they do not have access to the information which SARS auditors gain access to when they conduct audits. Therefore, the information sharing between the audit division and criminal investigation division can be of assistance.
The above is said with full cognisance of the duty of SARS to preserve the confidentiality of the taxpayers’ information, according to Chapter 6 of the TAA. It can however be argued that an auditor who alerts the criminal investigation division about a taxpayer who failed to submit returns is not disclosing any information as no information is received from the taxpayer at that juncture. The duty will only come to play once information is received from the taxpayer by a SARS official. What transpires here is the report about the status of the taxpayer’s affairs as opposed to the disclosure of information.
As demonstrated above, SARS has a myriad of solutions to the challenge of non-submission. Thus far, SARS seems not to do enough to unleash these available remedies and this discourages compliant taxpayers who feel there is selective treatment in contributing to the fiscus. SARS’ compliance risk management division needs to improve its effort in ensuring that taxpayers who are not submitting their returns are strictly followed. The 2020 Tax Statistics reflect that more than 50% of the taxpayers are not submitting returns. The fact that this trend is expected by SARS is a worrying phenomenon. SARS, with its financial muscles, must devote its arsenal towards curbing this disturbing reality. Until there is equal treatment of the taxpayer community, a sense of justice and fairness will not be realised.
For any queries or assistance in submitting your tax returns, please contact Kirsten Mitchell at email@example.com