Covid19 will have a material impact on various businesses in the form of cash flow difficulties or tax compliance challenges, where employees are working off-site without the required resources or source documents to submit its required tax returns (VAT, PAYE, Income Tax, Provisional Tax etc.). They might find themselves in a position where they are subject to an administrative penalty of 10% for either the late payment of tax or the late submission of a return. In addition, these penalties together with the unpaid capital amount of the taxes will be subject to interest levied at the prescribed rate in terms of Tax Administration Act 28 of 2011 (“TAA”).
A Taxpayer who is aggrieved by such a penalty may request SARS to remit the 10% late payment or submission penalty in terms of the TAA. Section 217 of the TAA makes provision for specific grounds for remittance in respect of ‘nominal’ or ‘first incidence of non-compliance’. However, section 218 of the TAA also provides that SARS may remit a late payment penalty if satisfied that one or more of the circumstances, as listed under that section, rendered the person incapable of complying with its obligations. Circumstances listed under section 218 include, a natural or human-made disaster, a civil disturbance or disruption in services, a serious illness or accident, or any other circumstance of analogous seriousness.
The failure to make payment and/or submit a return timeously as a result of COVID-19 may in certain circumstances qualify for relief, subject to approval from SARS. A disruption in service, caused by the national lockdown confining non-essential financial employees to home, could provide the basis for a Taxpayer to request the remittance of late submission and/or payment penalties. However, each Taxpayer will have to apply based on its specific circumstances and should prepare a detailed application motivating its reasons.
Furthermore, section 187(6) of the TAA provides that, if a senior SARS official is satisfied that interest payable by a Taxpayer is as a result of circumstances beyond the Taxpayer’s control, that the interest may be remitted. In terms of section 187(7), the qualifying circumstances are limited to a natural or human-made disaster, a civil disturbance or a disruption in services, or a serious illness or accident. In terms of SARS Interpretation Note 61, it is stated that “circumstances beyond a person’s control’ are generally those that are external, unforeseeable, unavoidable or in the nature of an emergency, such as an accident, disaster or illness which resulted in the person being unable to make payment of VAT due.”
Therefore, as with penalties, the failure to make payment as a result of a natural disaster or serious illness of an employee tasked with the payment and/or submission of a return could serve as basis for the remittance of interest.
It is important to note that the mere existence of one of these factors is not sufficient and that the Taxpayer would need to demonstrate that it had an impact in its ability to submit and pay its liabilities before the statutory due dates.
Contributed by Nico Grobler, VAT Manager, VAT IT SA.
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