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Voluntary disclose: What it is and how to make use of it

Recently there has been a very positive uptick in activity at the Voluntary Disclosure Unit (VDP) of the South African Revenue Service (SARS). While public perception was previously that taxpayer’s matters were not attended to, practitioners have seen a welcome improvement in efficiency, turnaround time, and interaction with the VDP unit. Although SARS aims for a 201-day turnaround time, some recent applications have been settled in as few as 30 days.

What is a VDP?

The purpose of the VDP is to enhance voluntary compliance in the interest of good management of the tax system and the best use of SARS resources. The VDP aims to encourage taxpayers to come forward voluntarily to regularise their tax affairs with SARS and avoid the imposition of understatement penalties and other administrative penalties. Any individual or company who wants to disclose their tax affairs to SARS voluntary can do so, provided they qualify for the VDP.

Should I use it?

In short, yes. The maximum fine for understatement penalties from SARS can be up to 200% for intentional tax evasion, while criminal prosecution is another option which they can pursue. The VDP system is an approachable low-risk mechanism to use if you have defaulted.

Can I do it myself?

Although this is possible, since the application is merely made through e-Filing, it is strongly recommended that you are assisted by a registered tax practitioner, since the resolution of the matter may become technical. The benefit of a VDP will almost certainly outweigh the costs incurred for relying on professional assistance.

What are the requirements?

The following requirements must be met to qualify for the relief:

  • The disclosure must be voluntary.
  • It must be full in all material aspects.
  • It must involve the potential imposition of an understatement penalty in respect of the default.
  • It must not result in a refund due by SARS. This is particularly challenging in value-added tax cases.
  • It must be made in the prescribed form and manner – this is where the involvement of a tax practitioner is crucial since failure in this regard can result in the application being rejected.

What are the consequences of a successful application?

An agreement is concluded between SARS and the applicant that reflects the outcome of the application process. Typically, the agreement includes the disclosed additional taxable income and, depending on how long ago the default occurred, interest. In general, full relief is given from understatement penalties and no criminal prosecution will follow.

The renewed focus on VDP application by SARS is welcoming and taxpayers should make use of the mechanisms made available to them to get their tax affairs up to date so that they can avoid more serious consequences for non-disclosure or understatement.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)