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Small Firms May Qualify For Additional Tax Waivers Under SA Amnesty

by Robert Lee,, London

29 January 2007

South Africa's Minister of Finance, Trevor Manuel, has announced the publication of draft regulations that prescribe the circumstances under which the South African Revenue Service (SARS) may waive additional taxes, penalties and interest for qualifying small businesses.

The measures, which have been released for public comment, are part of the SARS Small Business Tax Amnesty process. They 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. Additional tax, penalties and interest may have been levied on these taxes, thereby increasing the outstanding amount of the small businesses’ tax debt.

Since an objective of the amnesty process is to facilitate the normalisation of the tax affairs of small businesses, a partial waiver of outstanding tax debts has been proposed as part of the amnesty process. However, Manuel emphasised that the waiver applies only to additional tax, penalties and interest and excludes the underlying tax portion of the tax debt owed to SARS.

Applicants have until 31 May 2007 to submit an application for a waiver. The application will not be considered by SARS if a business has pending sequestration or liquidation proceedings against it; the Sheriff of the High Court has attached assets of the applicant in execution of a writ of execution obtained on behalf of SARS; or if notice has been issued by SARS that an audit or investigation is to be conducted on the applicant.

The amount of the additional tax, penalty and interest that will be waived is the amount that relates to the qualifying period covered by the amnesty legislation and is still outstanding as at the close of business on 31 July 2006, the day before the amnesty window period opened. The maximum amount of additional tax, penalties and interest that may be waived by SARS is R1 million (US$138,000), which covers the situation of the vast majority of small businesses. In return the applicant must settle any outstanding balance within six months or such longer period as SARS may allow, failing which the additional tax, penalty and interest waived will be reinstated.

The Small Business Tax Amnesty and Amendment of Taxation Laws Bill, which was passed by parliament in mid-2006, imposes an incremental levy on newly-declared income, up to a maximum level of 5%, based on declarations of income for the 2005/6 tax year.

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.

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