SARS initially launched the limited Voluntary Disclosure Programme (“VDP”) from November 2010 to October 2011, with the objective to encourage taxpayers to voluntary disclose tax defaults, which excludes Customs and Excise defaults.
In general, the main purpose of the VDP is to afford taxpayers an opportunity to disclose tax defaults with the objective to ensure compliance and avoid the imposition of understatement penalties of up to 200%, together with administrative penalties. Interest on the default will still be payable even if the VDP is successful.
The VDP became a permanent programme when the Tax Administration Act, as per Proclamation No. 51 in the Government Gazette 35687, dated 14 September 2012, was enacted.
Requirements for a valid VDP application
For an application to be valid, the following requirements should be complied with:
The disclosure must be voluntary;
It must involve a default that has not previously been disclosed by the applicant or representative of the applicant;
It must be full and complete 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; and
It must be made in the prescribed form and manner.
Important Considerations
Even though all the requirements stipulated above must be complied with, additional care must be taken to ensure full and complete disclosure in all material aspects.
The term “material” from a tax perspective, in comparison to financial reporting, is not based on any percentage calculation and includes the total default. As a result, all aspects pertaining to the default must be explored to confirm that no further omissions are identified for the historical tax periods. A taxpayer must also consider how the said default will affect any of the taxpayer’s other taxes, which may lead to further defaults.
Following the above, we recommend that a taxpayer, when considering applying for the VDP, conduct a full compliance review of its historic transactions prior to submitting the VDP application. This includes a review of the documentation, together with an assessment of the nature of expenses and/or input tax deductions claimed.
Should any of the requirements for a valid VDP application not be met (eg. Where input tax is deducted without valid source documents), the VDP application can be rejected by SARS and all relief offered in terms of the VDP may be void.
In addition, even after a VDP agreement has been concluded and it is found that full disclosure was not made by the taxpayer, SARS may withdraw the VDP relief and pursue prosecution for a tax offence arising from the tax default.
VATIT SA will gladly assist taxpayers to perform the necessary compliance reviews for the tax periods subject to VDP and also represent taxpayers applying for the VDP.
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