SARS can legally charge firms with an audit fee for extra resources

02 April 2019

Based on judicial rulings on a recent case, Senior Tax Attorney at Tax Consulting SA Jean du Toit has illutarted how the South African Revenue Services (SARS) is well within its right to charge a firm for any additional resources that it might have to deploy during an audit procedure.

Du Toit’s assessment is based on a Supreme Court of Appeal cased between Purlish Holdings and The Commissioner for SARS, wherein the firm declared no income and subsequently claimed tax returns despite having generated income for the stated period and having paid provisional income tax.

SARS imposed additional penalties on the firm on the grounds that it was forced to deploy additional man-power and resources due to faulty claims from the firm, an imposition that Purlish contested. The court concluded that the liability faced by SARS was financially substantial.

SARS can legally charge firms with an audit fee for extra resourcesAccording to du Toit, the case presented a number of interesting points. “The intriguing part of this judgment is the fact that the SCA confirmed that there is a legislative measure that can be invoked to penalise taxpayers who wastefully consume SARS’ time and resources,” he said.

“Of course, one can understand the rationale for a mechanism that would deter such behaviour, as there are undoubtedly taxpayers who take chances when completing their returns, only to plead ignorance when an audit exposes the fact that this was not done correctly or truthfully,” he added.

The analysis comes at a time when the SARS is clamping down on all tax-related malpractice. Since last year, the entity has been publicly calling out tax defaulters in order to serve as a deterrent to those looking to avoid the newly hiked tax rates across the country. According to du Toit, giving SARS this authority is a sound measure.

“Taxpayers should welcome this decision, as our tax system would be brought to its knees if it becomes necessary for SARS to audit each and every taxpayer,” he said. His claims are particularly pertinent in light of the fact that the agency has been struggling with depleting resources.

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South African companies to be amongst the worst hit by expat tax

16 April 2019

As the realities of the proposed expat tax gradually come to light, experts at financial consultancy Tax Consulting SA have indicated that the new policy is likely to hit companies and employers harder than it is expats themselves, particularly domestic organisations that send employees abroad. 

So far, the focus has been on the struggles in store for wealthy South African expats, who might be taxed a considerable amount of their income if they earn in excess of R1 million. As a result, South Africans living abroad are losing their competitiveness on the job market, given that they require a larger cushion.

Now, more analysis has revealed that the scenario is equally bad for South Africans working for domestic firms, who are sent abroad on assignments. As per the new proposed policy, if the foreign assignment runs for more than 183 days, then the employee is subject to the heavy expat tax.

South African companies to be amongst the worst hit by expat tax

Calculations have placed this tax as high as 45% of foreign income in some cases. Rather than ensuring compliance, which is the purpose of the policy, the new tax is at risk of deterring South Africans from accepting foreign assignments, which runs against the current goals of the government.

The President has made clear his goals of opening South Africa’s doors to foreign businesses. Nevertheless, trade and collaboration with foreign firms is a challenge if South Africans are not predisposed to working abroad. Analysts at Tax Consulting SA have been watching the developments closely, and have warned of this danger. 

“The reality is that with this amendment, any additional cost would ultimately have to be borne by the employer, as no expat would accept an assignment without these benefits and, to ensure that these assignments remain lucrative, the employer would have to increase the expat's package,” said the firm.

The new tax is also likely to affect other sections of South Africans living abroad, including those who are permanent residents in another country but continue to have assets in South Africa. Others who will be hit include permanent residents abroad who have not yet settled their finances in South Africa.