BUSINESS NEWS - The deadline for the submission of up-to-date payroll information by employers on their employees is fast approaching, and non-compliance could cost them dearly.
The South African Revenue Service (Sars) has a powerful tool in the form of highly punitive administrative penalties to fight non-compliance in the timeous submission of tax returns and payments.
This year the annual reconciliation declaration (EMP501) submission period closes on May 31 and late submissions will attract a penalty equal to 1% of the year’s pay-as-you-earn (PAYE) tax liability. The penalty will increase each month by one percentage point up to 10% of the year’s PAYE liability.
According to a Sars spokesperson, the revenue service has seen a “definite” increase in compliance where penalties have been imposed.
The fear of future penalties drives continued compliance.
Reasonable grounds
Many taxpayers expressed frustration when their requests for the remission of penalties and interest were disallowed when there were reasonable grounds for such a request.
Nico Theron, founder of Unicus Tax Specialists SA, says it is not as though Sars has a choice whether to impose a penalty or not.
In terms of the Tax Administration Act, Sars is obliged to impose a penalty whether the submission or payment is one hour or one day late.
There is also a provision in the act that allows Sars to remit penalties if certain requirements are met, such as reasonable grounds for non-compliance.
“That is often times where the trouble comes in,” says Theron, who is also chair of the South African Institute for Taxation (Sait) tax administration and dispute management work group.
“In my experience Sars does sometimes remit a penalty if the circumstances allow it, but what I am also seeing in practice is that Sars does not seem entirely sure about its process.”
He says the legislation is clear, but often a remittance request is declared invalid for some obscure reason. Theron says in his opinion there are circumstances where a taxpayer does qualify for a remittance, but Sars disallows it.
The Sars spokesperson says the penalty remittance process as set out in the Tax Administration Act is very clear.
“However, the law requires each request for remittance to be evaluated on its own merits. It is therefore possible that a taxpayer and Sars disagree on the law or the facts of a particular case,” he says.
Sars did not provide the number of penalties raised and the amount remitted during the previous tax year.
