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UNPAID TAX: FOR HOW LONG ARE YOU ON THE HOOK?

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For many years South Africans were perhaps a bit happy-go-lucky when it came to tax matters. You know the sort of thing; “discount for cash”, nudge, nudge, wink, wink. Or stick a student into your converted garage – now a “garden cottage” – and make a bit on the side. No need to bother the Receiver about that sort of thing.

Even the term “Receiver” has a sort of rosy, nostalgic glow about it, not so? Nowadays we have SARS. Big, scary SARS. Pravin Gordhan is no longer the big, scary public face of SARS. But, as Minister of Finance, he’s still ultimately in charge. And we’re all still scared of SARS. Or we should be.

Just how scared people are of SARS was vividly demonstrated a couple of years ago when some SARS officials went on an evangelistic mission to the Bruma flea market. It was probably to encourage people to take advantage of the small business tax amnesty that was on offer at that time.

Imagine the scene: SARS officials approaching, winning smiles on their faces. “We come in peace, just for a chat,” – that sort of thing.

The traders were having none of it. They screamed, they ran, they hid. Some even leapt into rubbish bins, carefully pulling the lids down on their heads.

Imagine the thoughts of the SARS officials concerned: “How disconcerting to be regarded with such terror when I have come in peace.”

On the other hand…The power!
Of course it could be said that, if you are a compliant taxpayer (and what other kind would be reading this august publication?) then you have nothing to fear. In fact, SARS’ effectiveness is a cause for celebration. It means that your less compliant compatriots have fewer places to hide – and quite right too! Greater compliance means lower tax rates. Well, it has up to now. The government has cut income tax rates in recent years. Of course, that’s not going to be so easy in a recession, when SARS is budgeted to end up R70 billion behind its budgeted tax collection target for the current financial year. But that’s surely all the more reason for everyone to pull their weight.

But what if you still have some skeletons in your tax file? OK, not you. A friend, say. For how long do you need to worry? Well… actually it depends on the nature of the particular skeleton. More specifically, did the object of your anxiety ever appear in your tax return?

If it did, and if you were subsequently assessed, then you may be in the clear if at least three years has elapsed since the date of the assessment. In this situation the assessment may have prescribed. What this means is that SARS cannot issue an additional assessment because it is believed that a mistake was made the first time round.

“May have, may have…” I can hear you mutter. “How does ‘may have’ help me?” I get this reaction from my clients all the time.
It all depends on whether SARS believes that the amount that was not taxed first time around is attributable to fraud or misrepresentation on your part. Did you make proper disclosure in your tax return? If you did, then three years from the date of assessment you are free and clear. However, if you left stuff out of your tax return, or put wrong stuff in, then you remain on the hook for any amount of tax that should have been paid.

For how long? The Prescription Act deals with debts and how long they last. Most debts only last for three years. But some debts last a lot longer. For one thing, the state gets favourable treatment. Generally speaking, a debt owed to the state lasts for 15 years. Jolly unfair and probably unconstitutional, I say. Or not. What do I know? (Note to self, stick to the area about which you know.)

But a debt for unpaid tax lasts a lot longer. As in 30 years. Yes, 30 years! By then you could be in Golden Harvest retirement home.

The lesson: do things right the first time round. If you do, then SARS is your friend. No need to jump into the rubbish bin!

Billy Joubert, BA LLB, H Dip Tax, H Dip International Tax, an Admitted Attorney of the High Court of South Africa is Tax Director Head: Transfer Pricing at Deloitte.

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