Mabhelandile Ntuli Attorneys

Tax, Labour, Corporate Commercial, Litigation 20 Pivot Street, 1558, Blue Hills, Ext 32, Midrand.
Tax, Law, with certainty Tel: 067 1939 506 Fax: 086 4883 884
Monday to Friday 8:00 – 16:30 Email: andile@mabhelandilentuliattorneys.com
` www.mabhelandilentuliattorneys.com

#Newsflash! #Taxflash! #VDP!

A ‘voluntary’ disclosure in SARS’ VDP process: Get it right the first time!

What is the Voluntary Disclosure programme?

The Voluntary Disclosure programme (VDP) is a mechanism prescribed for in sections 225
to 233 of the Tax Administration Act No. 28 of 2011 (TAA) which allows taxpayers who are in
default of their tax affairs to voluntarily disclose and regularise their tax affairs with the South
African Revenue Service (SARS) and escape the would be ramifications of such a default
which include criminal prosecution, understatement penalties and other penalties imposed
by the TAA and other tax acts.

Why does SARS have the VDP?

The purpose of the VDP is to enhance taxpayer compliance to ensure good management of
the country’s tax system and SARS’ resources.

The ‘voluntary’ in VDP

In terms of section 226 of the TAA, a person may apply for VDP in their personal,
representative, withholding or other capacity, unless that person is aware of a pending audit
or investigation into the affairs of the person seeking relief, or an audit or investigation has
commenced but not yet been concluded. Section 226 is the precursor to section 227. The
latter, lists the requirements of the VDP, one of which is that the disclosure must be
voluntary and must therefore not be a reaction to a notification of a commencement of an
audit in terms of section 42 of the TAA, and, as will be seen below, a reaction to a warning
from SARS regarding a default.

In the case of Purveyors South Africa Mine Services (Pty) Ltd v The Commissioner for the
South African Revenue Service (61689/2019) [2020] ZAGPPHC 409 (25 August 2020) a
taxpayer that suspected that they ought to have paid VAT on the import of an aircraft
communicated their suspected non-declaration to SARS representatives who confirmed that
the taxpayer should have paid import VAT on the aircraft and that it would be liable for
penalties and interest owing from its default. A year later, the taxpayer applied for VDP but
was denied VDP relief because, notwithstanding the fact that there was no notification in
terms of section 42 of the TAA, it was found that the taxpayer’s VDP application was not
voluntary because it was applied for after the taxpayer had been warned that it would be

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Tax, Law, with certainty

MN
Mabhelandile Ntuli Attorneys
Tax, Labour, Corporate Commercial, Litigation 20 Pivot Street, 1558, Blue Hills, Ext 32, Midrand.
Tax, Law, with certainty Tel: 067 1939 506 Fax: 086 4883 884
Monday to Friday 8:00 – 16:30 Email: andile@mabhelandilentuliattorneys.com
` www.mabhelandilentuliattorneys.com

liable for penalties and interest owing from its default. The court’s reasoning at paragraph 12
explained that the word “voluntary” means:

“ ‘an act in accordance with the exercise of free will’. If there is an element of compulsion
underpinning a particular act, it is no longer done voluntary. In the context of Part B of
Chapter 16 of the TAA, a disclosure is not made voluntary where an application has been
made after the taxpayer had been warned that it would be liable for penalties and interest
owing from its mentioned default.”

Comment

The Purveyors case showed us that, when seeking to utilise and take advantage of VDP
relief, it is imperative that all the requirements are met; one of these being that the
application must be made in the prescribed form and manner in terms of section 227(f) of the
TAA. In Purveyors, had the initial communication to SARS been made in the prescribed form
and manner, the taxpayer might have been able to avail itself to the VDP relief.

It is also noteworthy that even if the VDP application is not voluntary, a person may still
apply for VDP in terms of section 226(2) if SARS is of the opinion that the default that the
person seeks to regularise would not have been detected by SARS during the audit or
investigation and such an application would be in the interest of good management of the
tax system and the best use of SARS’ resources. Purveyors failed in this respect because it
made a non VDP disclosure to SARS, thus giving SARS all the information in respect of the
default prior the formal VDP application. True to this, in Reed v Minister of Finance and
Others [2017] ZAGPPHC 987, where the High Court dealt with the question of when a
disclosure is voluntary, at paragraph 35 Louw AJ held:

“If somebody knows something then it is difficult to see how, without straining language into
incomprehensibility, another person can "disclose" the thing known to the first person.
Determining whether something is (disclosable) is not a subjective matter but is purely
objective - does the person have knowledge of the thing or not; if not, it can be disclosed, if
yes it cannot be disclosed.”

This is again an example of why all the requirements of a valid VDP application must be met
when seeking to take advantage of the relief.

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Tax, Law, with certainty

MN
Mabhelandile Ntuli Attorneys
Tax, Labour, Corporate Commercial, Litigation 20 Pivot Street, 1558, Blue Hills, Ext 32, Midrand.
Tax, Law, with certainty Tel: 067 1939 506 Fax: 086 4883 884
Monday to Friday 8:00 – 16:30 Email: andile@mabhelandilentuliattorneys.com
` www.mabhelandilentuliattorneys.com

It is therefore imperative that a person considering making a VDP application must be

decisive and accurate in doing so in order to take advantage of the relief.

Mabhelandile Ntuli Attorneys are registered tax practitioners who provide assistance on a range of tax matters. We approach
tax and legal issues with certainty.

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Tax, Law, with certainty

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