These days, it's unlikely that defaulters will escape the all-seeing eye of the tax authorities. Now, small business owners who owe the taxman have a window of opportunity to come clean and escape the usual hefty penalties.
There is something called NITS. The acronym stands for the New Income Tax System. It is the computer system that the taxman uses to, among other things, track down errant taxpayers or people who have failed to register as taxpayers.
Nits enables the South African Revenue Service (SARS) to find out who is buying and licensing expensive cars, who is applying for business licences and services, such as electricity, and probably a few other things we do not know about.
Then there is capital gains tax (CGT). Most taxpayers now keep better records of their purchases, because one day they may need them to support their claim for a reduced CGT liability. A good example is renovating a house, when the records you need to keep include those of the providers of supplies, such as taps and tiles, and services, such as builders, architects and engineers.
And finally there is the Financial Intelligence Centre Act (Fica), which requires a large number of professions and institutions to report any suspicious financial transactions.
You should be aware of all of the above if you have a small business and have never registered as a taxpayer. The taxman will eventually get you and, when he does, you will be in big trouble.
But all is not lost if you have not been paying your due to Caesar. You have until May 31 to take advantage of the tax amnesty declared last year by Finance Minister Trevor Manuel for both registered and unregistered small business taxpayers. Any individual, unlisted company, close corporation (CC), trust, co-operative, or insolvent or deceased estate of an individual carrying on a business may apply to a special unit of SARS to be amnestied.
However, there are limitations. These are:
- The turnover (gross income) of the business (or businesses if the individual or entity carried on more than one business) during the 2006 year of assessment must not have been more than R10 million.
- In the case of a company or CC, all the shares or members' interests must have been held directly by individuals throughout the 2006 year of assessment.
- In the case of a trust, all the beneficiaries of that trust throughout the 2006 year of assessment must have been natural persons.
For the purposes of the amnesty, the "2006 year of assessment" ended on March 31 last year.
Beneficiaries of the amnesty are those small businesses that were unregistered for tax purposes at the end of that 2006 year of assessment; or registered taxpayers who have not declared or who under-declared income from business activities during any year of assessment preceding the 2006 year of assessment.
Amnesty will be granted for the following taxes:
- Income tax on profits, CGT and secondary tax on companies up to the 2005 tax year.
- Value-added tax (VAT), pay as you earn (PAYE), contributions to skills development levies and the Unemployment Insurance Fund, and withholding tax on royalties up to the 2006 tax year.
However, there will be a cost for those businesses that are granted amnesty. An amnesty levy, based on a sliding scale rate, will be applied to the applicant's taxable income for the 2006 year of assessment. The sliding scale is set out in the table on the right.
Dilip Garach, a professor at the University of KwaZulu-Natal school of accountancy and a former Personal Finance/Financial Planning Institute financial planner of the year, says the amnesty is an opportunity for business people to start afresh and to be forgiven for their past tax transgressions.
"It is a golden opportunity to legalise the business and on the whole make a contribution to the South African economy."
Garach says SARS's amnesty unit may not necessarily grant amnesty to all applicants. For example, amnesty will not be granted in cases where income is received in the form of a salary or wage; if the affairs of a taxpayer are already being investigated or audited by SARS; if a return has already been submitted to SARS; and if there is an existing debt with SARS.
Applicants who are unsuccessful with their amnesty applications may object and appeal against the decision by SARS.
Garach says there is often a fear that by taking advantage of an amnesty the applicant may in future be victimised by SARS. He says this has not been the case in the past.
Andrew Walker, of Cape Town-based Walkers Attorneys, says the amnesty is an offer small businesses shouldn't refuse. Any failure to pay income tax is normally subject to a penalty of at least twice the amount that should have been paid. In addition, it is a criminal offence.
For more information, speak to a tax consultant (they are exempt from Fica for the purposes of the amnesty); or contact the SARS Small Business Amnesty Unit at 0860 12 12 20, fax (011) 602 5502 or email [email protected], or go to www.sars.gov.za
This article was first published in Personal Finance magazine, 2nd Quarter 2007. See what's in our latest issue