South Africa: SARS issues updated guide on taxation

On 1 November 2023, the South African Revenue Service (SARS) issued an updated guide on taxation. This guide providing a high-level overview of the most significant tax legislation administered in South Africa by the Commissioner for the South African Revenue Service (SARS). The updated guide covers the following topics:

  • Calculation of taxable income: The updated guide provides a detailed explanation of how to calculate taxable income, including taxable and exempt pensions.
  • Electronic payment and filing: The updated guide encourages taxpayers to use SARS’s electronic payment and filing system, which is convenient and efficient.
  • Deductions: The updated guide provides a list of deductible expenses and losses, which can reduce a taxpayer’s taxable income.
  • Withholding taxes: The updated guide explains the different types of withholding taxes that are payable in South Africa, such as withholding tax on interest and royalties.
  • Transfer pricing and thin capitalization: South Africa’s transfer pricing and thin capitalization rules apply arm’s length principles to transactions, operations, schemes, agreements or understandings constituting affected transactions entered into between certain connected persons resulting in any tax benefit being derived by a person that is a party to the transaction. From a compliance perspective, the burden of proof is on the taxpayer to show that the transaction, operation, scheme, agreement or understanding complied with the arm’s length principle.
  • Alternative dispute resolution: As part of a process of reducing the costs associated with dispute resolution, the formal dispute resolution process (the appeal process) has been supplemented by an alternative dispute resolution (ADR) process. A dispute which is subject to ADR may be resolved by agreement whereby the taxpayer or SARS accepts, either in whole or in part, the other party’s interpretation of the facts or the law applicable to those facts or both.
  • Administrative non-compliance and understatement penalties and criminal offences for non-compliance with tax legislation: The TA Act provides for, amongst other things – a. the imposition of interest (Chapter 12 of the TA Act); b.the imposition of non-compliance administrative penalties, that is, fixed amount penalties and percentage-based penalties (Chapter 15 of the TA Act); and c.the imposition of an understatement penalty in the case of prejudice to SARS or the fiscus as a result of the failure to submit a tax return required under a tax Act or by the Commissioner, an omission from a return, an incorrect statement in a return, or if no return is required, the failure to pay the correct amount of tax, or an ”impermissible avoidance arrangement” (Chapter 16 of the TA Act). A person may also be liable upon conviction of criminal offences relating to non-compliance with tax Acts, to a fine or to imprisonment for a period not exceeding two years, due to matters such as non-payment of taxes, failure to submit tax returns, failure to disclose income, false statements, assisting any person to evade tax or claiming a refund to which the person is not entitled. The criminal offences mentioned here are not exhaustive (Chapter 17 of the TA Act).
  • Advance tax rulings: Advance rulings promote clarity, consistency and certainty regarding the interpretation and application of a tax Act. SARS may make an advance ruling on any provision of a tax Act. Generally, a BPR and a BCR apply to proposed transactions.
  • Automatic exchange of information: Automatic exchange of information (AEOI) involves the systematic and periodic transmission of bulk taxpayer information by the source country to the residence country. An effective model for AEOI requires a common standard on the information to be reported by financial institutions and exchanged with residence jurisdictions to establish a global approach to combating offshore tax evasion.
  • Voluntary Disclosure Programme: The Voluntary Disclosure Programme (VDP) was introduced as a permanent measure to increase voluntary compliance in the interest of enhanced tax compliance, good management of the tax system and the best use of the SARS resources.
  • VAT: The updated guide provides a comprehensive overview of VAT, including the different VAT rates and exempt goods and services.

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