Much has been written about the Voluntary Disclosure Programme (VDP) which aims to get taxpayers to regularise their tax affairs in a manner that will encourage them to come forward with the knowledge that, although the tax amounts remain due, they will (in most cases) be absolved from paying any penalties and interest, with no criminal action being taken against them.
In order to take part in the tax VDP, the taxpayer must disclose a tax default which occurred prior to 17 February 2010 (the date upon which the Finance Minister announced the VDP). A "tax default" includes the submission of inaccurate or incomplete information; or the failure to submit information; or the adoption of a tax position, where such submission, non-submission, or adoption resulted in:
- the taxpayer not being assessed for the correct amount of tax;
- the correct amount of tax not being paid by the taxpayer; or
- an incorrect refund being made by the Commissioner.
This appears to be fairly straightforward, but consider the position of a vendor, Mr X, who has been claiming the VAT input paid on the acquisition of trading stock, but unbeknownst to Mr X, he has been the victim of fraud. Mr X discovers that the trading stock was never actually acquired, but rather that an employee has been fraudulently generating tax invoices and depositing the cash payments into his personal bank account. Mr X uncovers the fraud in October 2011, and realises this has been going on from January 2010.
As indicated, the legislation only provides for relief if the default occurred prior to 17 February 2010, and the VDP Questions and Answers document (VDP-FAQ) published by SARS, emphasizes this by providing that:
"...from 17 February 2010 onwards, any person in default of submitting a return or payment after 17 February 2010 may be doing so with the intention of using this knowledge about the possible VDP relief. For this reason only defaults prior to 17 February 2010 will qualify for voluntary disclosure relief."
If Mr X decides to make use of the VDP, he will only receive relief in respect of the VAT defaults from January 2010 until 17 February 2010. Penalties and interest will still be levied on the amounts claimed from 17 February 2010 to October 2010 up to the date he settles the VAT owing (though the SARS does have a discretion to waive the penalties in whole or in part).
The VDP-FAQ states that the VDP seeks to give applicants an opportunity to come clean by disclosing their tax defaults and obtain relief (if successful); enhance the culture of compliance in the tax environment; and to grow the taxpayer base and increase revenue collection for the fiscus.
It could therefore be argued that a more flexible and practical approach should be applied by the VDP Unit of the SARS to ensure that more taxpayers can fully enjoy the benefit of the VDP. If the tax default is part of one composite transaction or a series of transactions, it hardly makes sense to limit the relief to the date of 17 February 2010 and then to exclude a portion of what is essentially one tax default.
Of course this cannot apply to situations where taxpayers caused or continued with the tax default post the cut-off date by design, but at the very least the Tax VDP Unit should take applications such as those of Mr X into consideration. Taking a strict approach might be counter-productive as taxpayers may feel that they would rather not disclose, because the VDP benefit is not attractive enough.
Moreover, the wording of the legislation is capable of being interpreted such that a default occurring prior to 17 February 2010 can nevertheless result in underpayments thereafter. Thus these underpayments could well be covered by the VDP. A distinction would be whether or not it was within the taxpayer's control to cease the default at 17 February 2010.
It is worth pointing out that the draft Tax Administration Bill (TAB), in its current iteration, provides for the continuation of the VDP. However, the benefits will be on a less generous basis with relief only from administrative penalties and additional tax.
With the due date for the second round of comments on the draft TAB having passed in December 2010, and the current VDP set to run to the end of October 2011, it is not clear how any such programme under the TAB would dovetail with the current VDP, if at all..
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