SARS Urges Small Firms To Comply With Tax Amnesty Or Face Consequences

by Robert Lee, Tax-News.com, London

14 February 2007

As the deadline for the tax amnesty applications draws nearer, the South African Revenue Service (SARS) is continuing to appeal to small businesses that are not tax-compliant to apply.

The amnesty began on August 1, 2006 and will remain in place until May 31, 2007. Companies with an annual turnover of less than R10 million are permitted to participate in the scheme.

The amnesty is designed to entice the substantial number of small businesses currently operating in the 'informal economy' to regularise their tax affairs, while encouraging a compliance culture and broadening the tax base.

However, the South African government has reported that applications for amnesty were coming in at a slow pace, and the authorities are warning that non-compliant firms who fail to declare before the deadline will "face the full might of the law."

Speaking to BuaNews, the government's news service, SARS spokesperson Adrian Lackay said that the tax department had received more than 10,500 applications and over 40,000 public enquiries on the campaign.

"There is a high level of public enquiries but unfortunately they do not translate into applications. With just over 100 working days to go before deadline, we call on businesses to apply," Lackey stated.

Meanwhile, draft regulations prescribing circumstances under which SARS may waive additional taxes, penalties and interests for qualifying small businesses closed for public comment last week. The waivers are applicable to small businesses that have already provided returns to SARS or have been assessed by SARS for taxes, since full amnesty is not available for these taxes.

According to Lackay, this process did not apply to the 'category 1' types of small business in the tax amnesty, namely, businesses that had not paid tax since they were established.

"This applies to the other categories of small businesses that are registered and have been assessed by SARS. You find that some of these businesses have paid income tax and not other taxes like VAT or employee tax and therefore owe us," he said.

Such small businesses that did not apply for amnesty ran the risk of having a 200% penalty imposed on them, he warned. However, if these businesses applied before the deadline, SARS could end up requiring them to pay only the basic tax and waive the rest.

"It must be emphasized that the waiver applies only to additional tax, penalties and interest and excludes the underlying tax portion of the tax debt owed to SARS," Lackay stated.

The maximum amount of additional tax, penalties and interest that may be waived is R1 million and it covers the situation of the vast majority of small businesses. In return, the applicant must settle any outstanding balance within six months or a longer period as SARS may allow, failing which the waived amount would be reinstated.

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