Monday 14 May 2018

E-filing and Submission of Tax Returns

Until 2007 taxpayers had no choice but to file paper-based tax returns with SARS. This required the completion of a paper-based return and also the submission of the taxpayers’ supporting documents and tax certificates. SARS then introduced e-filing, whereby taxpayers could register for e-filing and submit their tax returns electronically. With e-filing it is not possible to submit supporting documents when, for example, an individual files their tax return, the ITR12.

Furthermore, taxpayers have a choice to register for e-filing personally and file their returns themselves or they can appoint a registered tax practitioner to act on their behalf and file their returns. The Tax Administration Act (‘the Act’) sets out who must register as a tax practitioner, as well as the statutory obligations arising where a person is a registered tax practitioner.

A registered tax practitioner must be a member of a SARS Recognised Controlling Body or a body recognised by the Act. All registered tax practitioners must adhere to the code of professional conduct prescribed by their controlling body. If the practitioner does not comply with their code of conduct or the provisions of the Act, SARS can lodge a complaint against the practitioner.
The failure to file returns on time can give rise to action being taken by SARS
against the taxpayer or tax practitioner.

Image bought from i-Stock "Compliance Diagram" by stuartmiles99

Although a taxpayer appoints a tax practitioner to submit tax returns on their behalf, the taxpayer retains the legal obligations imposed by the Act. Thus, if the tax practitioner fails to submit a tax return at all or on time, the taxpayer can be subjected to the administrative penalties for late submission of returns, which can range from R 250 per month to R 16 000 per month that the return remains outstanding. The penalty amount depends on the taxpayer’s level of income.

The failure by a tax practitioner to file returns on time can give rise to action being taken by SARS against the tax practitioner. However, this does not detract from the taxpayer’s personal liability for the failure to lodge a return. SARS can still subject the taxpayer to the administrative penalty and prosecute the taxpayer for non-submission of a return.

Should a taxpayer be dissatisfied with the service received from a tax practitioner, they should terminate the agreement with the tax practitioner. The taxpayer may have a basis on which to lodge a formal complaint with the practitioner’s controlling body or with SARS itself where the practitioner has violated the Act.  If a practitioner delays the submission of a return they can face action by SARS itself. In addition, the taxpayer must remember that the e-filing profile belongs to the taxpayer and can be retrieved from the tax practitioner at any time. 

SARS indicated recently that it will use the National Prosecuting Authority to prosecute taxpayers in the Tax Court for the failure to submit tax returns. It must be remembered that the failure to submit a return when required to do so constitutes a criminal offence, which can give rise to a fine or a period of imprisonment. This will, on a successful prosecution, result in the taxpayer having a criminal record.

Taxpayers using e-filing must ensure that they do not allow unauthorised persons to obtain their login and password details. The Office of the Tax Ombud has in its various annual reports indicated that there have been too many cases of identity theft where taxpayers have been duped into making  their passwords available to unauthorised third parties.

Once a return is filed via e-filing, SARS will often request that the taxpayer submits the documents to support the filed return. The taxpayer should receive notice of such verification requests via e-mail or SMS. The taxpayer is entitled to receive proper notice of SARS requests and, in my opinion, it is not sufficient for SARS to merely post a letter on the taxpayer’s e-filing profile.

E-filing has allowed SARS to enhance its data matching processes to ensure that taxpayers properly declare all income derived by them. Should a taxpayer choose not to declare all income received or accrued they will be subject to the understatement penalty, which can range from 10% to 200% of the income tax underpaid.

E-filing has its advantages to both taxpayers and SARS in that returns can be processed far more quickly than paper-based returns.  However, taxpayers must still submit their tax returns on time. Where a tax practitioner is appointed, that person must act professionally and should not delay the filing of returns without a good reason. 

Whether returns are filed via e-filing or manual submission, or managed by a tax practitioner or the taxpayers personally, the taxpayer remains liable for the failure to submit a tax return on time.  

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, May 2018.