Current Edition >> Archive Section >> Special Features >> December 2006

No mercy for small traders shying away from tax amnesty

Small business owners who do not avail themselves of the tax amnesty currently on the table are in for the high jump.
Applications for the SA Revenue Service (SARS) Small Business Tax Amnesty to help them make a clean start must be in before 31 May 2007.
The amnesty is important to the fiscus and the economy because it brings the small business community into the tax net.
History seems to indicate that the take-up for amnesties of this nature is usually fairly slow. The most recent statistic – released by SARS in mid-October – revealed that slightly in excess of 1 000 applications had been forthcoming.
I suggest that the number has increased substantially since then, because of a significant additional development to encourage people to make use of the amnesty.
• Before spelling that development out, it is critical to appreciate that the amnesty as originally conceived is generous, allowing as it does small businesses to be exempt from:
• Criminal prosecution;
• Penalties and interest for failing to comply with various provisions in the tax legislation;
• Liability for certain taxes.

The amnesty was introduced in order to encourage people currently trading in the informal market to enter the SARS tax net; to increase the tax base; and to motivate those traders into getting their details onto the SARS register.
While many such small businesses may not earn sufficient income to generate much tax revenue, the idea is to minimize non-compliance by at least getting the businesses onto the tax register.
Besides, the aggregate of all small business income could in due course make an important difference to SARS' tax take, thereby providing the Minister of Finance some scope to reduce the tax burden on his great many other customers.
One of the main inhibiting factors in the past – a factor that may explain why relatively few have thus far applied for the amnesty – has been that tax advisors, who obviously play a crucial role in encouraging small business people to take advantage of the amnesty, were, until recently, placed in a difficult situation.
Thus, if they were approached to apply for the amnesty on the trader's behalf, the tax advisors were required to report the applicant in terms of the Financial Intelligence Centre Act (FICA) and, if the advisor was also the auditor, he or she was obliged to report the applicant to the Independent Regulatory Board for Auditors (IRBA).
It goes without saying that this placed the advisors in a precarious position. Were they asked about the amnesty, they were legally obliged to immediately report their client. FICA and IRBA were then obliged to notify SARS of the irregularity, which effectively undermined the whole amnesty process.
On 13 October 2006 this stumbling block was removed via a notice that exempted tax advisors from the FICA reporting requirement – a critical step forward.
The Revenue Laws Amendment Bill, currently before Parliament, contains a similar exemption for auditors.
In the wake of the FICA and IRBA exemptions, many more advisors are now putting their clients forward for the amnesty.
The exemption applies whether the client goes ahead and applies for amnesty or not.
The important thing is the tax advisor must at least advise the client to apply for amnesty. So if, for example, a client says to the advisor during a general consultation that he or she has not registered for VAT, the tax advisor would then have to at least recommend that the client applies for the amnesty.
By following this route, the tax advisor is then relieved of the obligation to report that client. Thereafter, it is in the client's interest to apply for the amnesty.
Businesses that are guilty of a tax offence on at least one of many counts such as failing to register for VAT, failing to declare all their income for normal tax purposes, or failing to pay STC on dividends should make haste to apply for the amnesty.
In all such cases they are in transgression of the law and, without the protection of the amnesty, would face the harshest penalties.
SARS has made it quite clear that it will have no mercy once the amnesty deadline – the end of May 2007 – comes around, at which time it will step up its enforcement efforts towards these small businesses.

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