The South African Institute of Professional Accountants (SAIPA) has blasted the South African Revenue Services (SARS) for imposing on unreasonable terms a new tax requirement designed to force taxpayers into helping SARS close non compliance loopholes.
In a statement that labeled the new tax requirement, the new IT14SD reconciliation process, SAIPA labeled the requirement as potentially illegal and warned taxpayers not to undermine the implications of this development.
SAIPA said it was issuing a warning to its members and taxpayers in general regarding the new IT14SD reconciliation process. SAIPA believes that taxpayers and tax practitioners should not underestimate the difficulties attached to fulfilling this new requirement, nor the severe penalties for non-compliance.
The new process was introduced late in 2011 and the first notices have been issued by SARS over the past few months. The IT14SD form requires companies to reconcile their annual financial statements and IT14 return against returns previously filed with SARS relating to VAT, customer and employees’ tax.
“These types of reconciliation are obviously very important in helping SARS to close the loop and identify risks of underpayment to the fiscus. As with the EMP501, which reconciles the employees’ tax paid by a company and the returns it issues to employees, SARS is getting taxpayers to perform the reconciliation on its behalf,” notes says Ettiene Retief, chairperson of the National Tax and SARS Stakeholders Committees at the South African Institute of Professional Accountants (SAIPA). “While I think the idea behind the IT14SD is good, the implementation process is extremely worrying.
Retief highlights SAIPA’s chief concerns. The first is the fact that insufficient lead time was given by SARS, meaning that neither companies nor tax practitioners have the systems or processes in place to perform what is a highly complex reconciliation. Furthermore, it is currently being applied retrospectively—that is, to data which was not prepared with this type of reconciliation in mind.
A second issue is that only 21 days are given to complete the reconciliation, and often notices are sent out by mail during holiday periods. Because they are system-generated, there is no individual assessor to approach for an extension—requests for an extension, says Retief, seem to fall on deaf ears.
A further and most important issue is the inherent complexity of such a reconciliation. Each sector of the economy recognises revenues differently—there is no direct and unambiguous correlation between the revenues of, say, a hotel and the VAT it paid, and the relationship between the two is completely different in the construction industry. In short, because the return is not industry-specific, it adds a further barrier to the process.
“Smaller companies already find their resources stretched to fulfil all their compliance obligations—dealing with a new and complex obligation like this one is a tall order. And larger companies with adequate resources have correspondingly more complex financial affairs. They too find the obligation onerous, especially within the short time frames,” Retief warns. “In my experience, nobody is prepared to attempt the IT14SD on their own, putting a huge strain on tax practitioners.
Retief also points out that SARS has adopted an extremely aggressive stance with regard to penalties for non-compliance. Failure to comply with an IT14SD assessment will trigger an additional assessment that simply denies all the deductions and allowances claimed against income tax.
“This approach, in our opinion, fails the test of legality and will have an extremely negative effect on taxpayer morality,” Retief argues. “I want to emphasise that while SAIPA supports the principle of reconciliation and SARS’s right to identify risks, the method it is using is highly questionable. It is even illegal as it denies the taxpayer the right to just administrative action. We also believe this approach conflicts with SARS’s own Service Charter. Along with other professional bodies, we have been engaging with SARS on this matter for some time but have been unsuccessful in obtaining any relief.”
SAIPA strongly advises taxpayers not to ignore IT14SD requests, and to lodge objections to additional assessments, with a request to suspend payment pending the resolution of the dispute. If the taxpayer fails to request for suspension of payment, SARS will collect, even though the additional assessment is blatantly incorrect and without legal merit.