Time for VDP running out

Time for the Voluntary Disclosure Programmes (VDP) announced last year by SARS and the South African Reserve Bank is quickly running out for taxpayers and forex transgressors says Dirk Kotze, Tax Partner at global audit, tax and advisory firm Mazars. The deadline for applications for both the tax and exchange control VDPs is 31 October 2011.

South Africa is not alone in offering VDPs. Several countries have similar programmes, the most significant of which is possibly the VDP in the UK for undisclosed funds in Liechtenstein. A number of tax practitioners, including Kotze, are adding their voice to calls to make the VDP a permanent part of local tax legislation, as is often the case internationally.

It’s not necessary to apply for relief under both the exchange control and the tax VDPs. However, says Kotze, both SARS and SARB have confirmed they will exchange information, so those who might be exposed to both tax and exchange control issues should apply under both programmes.

Kotze says Mazars has confirmed with the VDP unit at SARS that failing to submit a tax return does, in fact, constitute a ‘default’ as defined by the VDP programme.

While the Exchange Control VDP requires full disclosure and the payment of a penalty for non-compliance in certain circumstances, the tax VDP requires that the capital amount of the taxes due to SARS be paid, which could potentially make the cost of disclosure quite high.

“The upside for taxpayers, however, is that they will escape the interest charge on previously unpaid taxes as well as the possibility of criminal charges”, says Kotze

Previous disclosure programmes took the form of amnesties, such as the Small Business Tax Amnesty that was offerred to small taxpayers during 2006 and 2007. Under this amnesty, taxpayers merely had to correctly submit their 2006 tax returns and pay a nominal amnesty levy for complete peace of mind on previous indiscretions, both known and unknown.

With regards to the VDP, SARS was quick to point out that this is not a blanket amnesty as taxpayers would have to specifically declare instances of non-compliance in order for the taxes due to be correctly calculated.

“This means that taxpayers who want to make use of the VDP must know what non-compliance exists in their affairs. They will not be able to obtain relief where non-compliance resulted from unknown errors or the incorrect treatment of interpretive matters.”

Taxpayers who aren’t aware of any non-compliance could fail to make use of the VDP. However, all indications are that SARS will step up enforcement action in the future and deal harshly with matters that could have been disclosed under the VDP. “It’s important, therefore, to consider taking up the VDP, particularly for taxpayers who know of past non-compliance. It is also important for taxpayers to consider a review of their various tax systems in order to determine whether unknown instances of compliance exist for which the VDP can be considered.”

As time for the VDP is running out, taxpayers and exchange control transgressors should seriously consider the benefits of the VDP and apply now, Kotze concludes.