When SARS comes knocking at your door... Tax risk management and the risk of a SARS audit
01 April 2013
Willem Lombaard, Qdos Underwriting Managers
Prior to the budget speech, Finance Minister Pravin Gordhan mentioned in a media briefing that South Africa is facing "heavy winds" and "tight fiscal conditions", which requires a tightening in spending and using national reserves to counter more austere measures. The budget was presented amidst the backdrop of tight fiscal conditions, slow economic growth, a widening budget deficit and declining tax revenues.
The reality is that, as growth slows, it stands to reason that government will focus on collecting every penny it can from taxpayers. And it does!
One of the most effective new tools at the disposal of government is the new Tax Administration Act, which came into effect in October 2012. The Act has given SARS tremendous powers, including the power to investigate any taxpayer at any time. The Act further impacts on taxpayers’ rights and privileges, and contains provisions that could affect the taxpayers’ right to hold a passport, to travel and even trade.
In addition, there is great uncertainty regarding the implementation of the Act, and the extent to which taxpayers will be able to test the powers given to SARS. SARS recognises that it is not easy for individuals and businesses to question their authority. It’s a bit like David versus Goliath.
Insuring against a tax enquiry
According to Stiaan Klue, CEO of the South African Institute of Tax Practitioners, virtually every taxpayer will commit a tax offence at least once in his lifetime, whether it is a minor offence such as failing to inform SARS about a change in address, to a more serious offence such as failing to submit your tax return. On the other hand, the tax goalposts are changing regularly, ranging from annual tax amendments to brand-new precedents being set often by the courts.
Even if taxpayers’ affairs are completely up to date, SARS can still select anyone for an audit. Defending a case against SARS can be complicated, time consuming and most often requires the services of tax specialists to achieve a fair result. The cost of employing the services of tax professionals can run into many thousands of rands.
But what can private or business taxpayers do to remain compliant through all this? According to Klue, perhaps the answer lies in a change in attitude, developing a sense of diligence, and the appreciation for proper tax risk management. Klue said further that it may be time to follow the United Kingdom trend and start insuring oneself against a tax enquiry.
Insurance advisors can recommend products
Tax risk management is the process of proactively putting measures in place to protect oneself against the risk of tax exposure. This is where the insurance advisor and the accountant cross paths. As SARS becomes more prolific and proficient in its investigations and auditing activities, so the risk of suffering a SARS tax audit increases. This risk is an insurable event, and insurance advisors should be informing their clients accordingly, and recommend an appropriate tax enquiry insurance product.
Affordable access to tax experts
Tax enquiry insurance is a relatively new concept in the South African market. However, it has been widely adopted in other countries, notably the UK for close on 20 years now, where the UK tax authorities conduct regular audits on both private and business taxpayers. South African tax authorities are now starting to follow this trend.
As a product concept, tax enquiry insurance is not difficult to understand, and insurance professionals do not need to be tax experts to come to terms with it. Tax enquiry insurance covers the costs of tax professionals to act in defense of a policyholder in the event of a SARS audit, enquiry or dispute. It provides peace of mind, and affords taxpayers the ability to access tax experts to assist when SARS comes knocking.
Are your clients covered?
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