Have You Recently Discovered an error in your VAT obligations?
Finding a mistake in your VAT obligations can be stressful, but addressing it effectively is crucial. In South Africa, the Voluntary Disclosure Program (“VDP”) offers a potential relief mechanism to rectify such issues. By voluntarily disclosing your error, you may reduce penalties that SARS will levy or avoid further legal proceedings should they discover the error themselves.
In this article, we will explore the applicability and requirements of the VDP application to determine if it’s the right solution for your situation.
Eligibility Criteria for South Africa’s Voluntary Disclosure Program (VDP)
To apply for the VDP, a “default” must have occurred. According to Section 225 of the Tax Administration Act 28 of 2011 (TAA), a “default” means submitting inaccurate or incomplete information to SARS, failing to submit information, or adopting a “tax position” that results in an understatement.
Once you have identified that a default has occurred, as per the TAA and the SARS website, the following requirements must be met in order to qualify for a VDP application:
| Requirement | Brief description |
| Must be voluntary; | The disclosure must be made freely. You cannot apply if SARS is already aware of the issue. However, for businesses that have failed to register, they can approach SARS for guidance before submitting a VDP application. Information shared during this process will not disqualify the application. |
| involve a default which has not occurred within five years of the disclosure of a similar default; | For this requirement, the facts of each case will have to be considered to determine whether a “similar” default has occurred.
“Similar” defaults are not explicitly defined but are generally defaults that resemble prior issues. |
| be full and complete in all material respects; | The application must include all relevant background information, supporting documents, and details of all parties involved.
Should SARS discover that any significant information was omitted, the application will be dismissed. |
| involve a behaviour referred to in the understatement penalty table in Section 223 of the TAA | These behaviours include:
– Substantial understatement – Reasonable care not taken in completing return – No reasonable grounds for “tax position” taken – Impermissible avoidance arrangement – Gross negligence – Intentional tax evasion
In their application, the taxpayer must be able to justify that one of these behaviours apply for the application to be considered. |
| not result in a refund due by SARS; | When a default leads to a refund being due from SARS, it should be rectified using the standard provisions and procedures set forth in the TAA, rather than through the VDP. |
| AND be made in the prescribed form and manner. | The application must be submitted via the VDP01 form on eFiling, accompanied by an explanation letter and supporting calculations. |
What to Expect After Applying to the Voluntary Disclosure Program
If SARS accepts your VDP application, they will enter into a written agreement with you. This voluntary disclosure agreement outlines the relief granted and any remaining liability to SARS.
It’s essential to understand that a VDP application will typically offer relief for the following:
- No criminal prosecution for a tax offence resulting from the default.
- Reduction of understatement penalties, specifically as outlined in columns 5 or 6 of the penalty table.
- Complete (100%) waiver of administrative non-compliance penalties, whether already imposed or potentially applicable under Chapter 15 or any tax Act.
However, this relief generally does not apply to penalties related to late payments or late submission of returns.
The VDP agreement is legally binding, and any breach could result in SARS withdrawing the agreement.
Ready to address your defaults?
The VDP aims to encourage voluntary compliance and improve the overall management of the tax system. Let’s leverage this opportunity to get your tax affairs in order and ensure smooth, compliant operations.
Frequently Asked Questions (FAQs)
- What is the Voluntary Disclosure Program (VDP)?
The VDP is a program by SARS that allows taxpayers to voluntarily disclose VAT discrepancies, potentially reducing penalties and avoiding prosecution for certain defaults.
- Who qualifies for the VDP?
Eligibility for the VDP requires that the disclosure is voluntary, involves a recent “default,” and meets the specific requirements as outlined by SARS, including not resulting in a refund.
- What is considered a “default” under VDP?
A “default” is defined as submitting inaccurate information, failing to submit required information, or taking a tax position that leads to understatement.
- Can I apply for VDP if SARS is already aware of my default?
No, disclosures must be voluntary, meaning SARS should not yet be aware of the issue at the time of application.
- What relief does the VDP offer?
The VDP may offer relief including reduced penalties, no criminal prosecution, and waiver of administrative non-compliance penalties, but does not cover late payment penalties.
