FANews
FANews
RELATED CATEGORIES
Category Tax
SUB CATEGORIES Tax | 

Provisional tax: penalties and interest

09 July 2019 Christopher Renwick, Senior Tax Attorney at Tax Consulting SA

The current problem
Provisional taxpayers find themselves on the receiving end of penalties and interest from SARS on a regular basis. While they may attempt to dispute the penalties, they resign themselves to the payment of interest because, as many tax practitioners will tell you, that’s what you have to do.

“You cannot successfully challenge SARS on interest”.

Typically, a provisional taxpayer (assuming they are aware that they are a provisional taxpayer) fails to file their provisional return in February as required.

4 months down the line and the result is a deemed “zero return”.The implication hereof is that the taxpayer then files an income tax return in tax season and is charged with an underestimation penalty of 20%

20% of the liability is levied as a penalty and, as salt in the wound, 10% interest per annum, calculated pro-rata, is thrown in for good measure.The result of failing to file a return and filing later is 25% additional liability.

Confusion
If I have confused you, don’t be alarmed. Most provisional taxpayers find themselves equally confused when solving the conundrum that is their tax affairs.

Long story short is, that most end up paying more tax than they should. In the form of penalties.

However, and this is where things become important, its not the late filing or failure to file that is the problem facing most provisional taxpayers. In fact, it’s solving the problem incorrectly that is causing the real issue. Bluntly, provisional taxpayers are settling their tax debt poorly.

Problem solving problematically
One method that taxpayers are utilising (whether on the advice of errant tax advisors or not) is to simply file their return and hope they can argue against penalties being imposed.

Others attempt a VDP (Voluntary Disclosure Programme). While a VDP has its merits and does prevent criminal sanction, in most cases, the application is inappropriate for solving a provisional tax underestimation.

A difference in approach
The frustration for me is that these two methods are not, whether individually or collectively, the most appropriate means of resolving a failure in provisional tax compliance.

In fact, why pay penalties and interest when you don’t have to.

The correct engagement with SARS will ensure tax compliance, without the payment of interest and penalties. Fact. However, if you want to engage with a tax professional to make sure you don’t pay penalties and interest, do it before you file your next return.

For best results
There exists a mechanism for the successful avoidance of penalties and interest.

Yes, it carries with it, its own complexities and administrative difficulties. That’s why it’s best to contact someone who has dealt with it before.

Should you choose not to, be prepared to add 25% to your tax bill. Personally, I’m adverse to tipping SARS.

Quick Polls

QUESTION

Is 30 the new 65?

ANSWER

Yes, it is becoming inevitable that retirees need to save for a 30 year time horizon when it comes to retirement
No, why change a model that has been working for many years
At least if a retiree reinvests their pot of cash compound interest will resolve the longevity problem
A E fanews magazine
FAnews August 2019 Get the latest issue of FAnews

This month's headlines

Create designer policies through AI
Are advisers in a precarious position?
A claim, COIDA and a dog bite
Non-disclosure never an innocent fraud
Prescribed assets: The threat to pensions
Cannabis and the issue of trust
Getting the most from disability claims
Subscribe now