How to manage TAX penalties
BURS is empowered to charge penalties for various reasons, including late submission of returns and underpayment of taxes. One thing is certain, being that these penalties are a cost, which has the potential of paralysing a business or organisation, especially if they are significant. I therefore want to provide hints on how taxpayers can handle these penalties, when they are levied by the taxman. In this article, words importing the masculine shall be deemed to include the feminine.
TYPES OF PENALTIES
BURS can levy penalties of up to 200% for underdeclared taxes. Such taxes are usually unearthed in tax audits. This means that a person who underpays tax by P1m ends up with a tax bill of P3m. Such levels of penalties can cripple the operations of any business and should be managed well. Secondly, BURS levies return submission penalties and these are usually pegged at not more than 100% of tax payable. Whilst these are lower, they are a cost which should be avoided, if possible.
TIPS ON PENALTIES
It often happens that taxpayers may, for one reason or the other, find themselves with a tax penalty bill, which requires their attention. In fact, there is a principle called the Pay-Now-Argue-Later principle which is contained in all the tax Acts. What that principle means is that once a tax bill is raised (which may include a penalty), the taxpayer must pay it then and argue at a later stage. Whilst that is an established and legal principle, you may practically embark on the following to mitigate the levels of tax penalties:
Request waivers: The interesting thing about all tax Acts is that they contain provisions which allow BURS’ Commissioner General to waive penalties depending on the merits of the case at hand. A waiver can be done after lodging a written submission for such waivers. This is technically a plea for lenience from the taxman and it is not a taxpayer’s guaranteed right. These waivers carry weight if they are done by a tax consultant who usually quotes the legislation and decided tax cases.
Objection: An objection is a legal protest against the penalty and this is usually supported by the circumstances of the matter at hand. This is not a plea for lenience but a rebuttal against the penalty charged by BURS. Objections are a legal proceeding which seeks to overturn the assessment or decision made by the taxman. However, it is important to note that objections must be submitted within the stipulated times (30days for VAT and 60days for income tax) and must also be in writing. If BURS does not accept a taxpayer’s objection, the taxpayer has the right to appeal to the Board of Adjudicators, a tax court set by the Ministry of Finance & Economic Development to expedite the resolution of tax disputes. From there, the matter may be escalated to the High Court and then the Court of Appeal.
Periodical payments: Where it is not possible to negotiate the penalties downwards, you may be left with no option but to request BURS for payment terms, usually over a long-enough period to allow ease of payment. Note however, that the periodical payments are merely a gentlemen’s agreement and this does not take away monthly interest charges on the tax balance.
The best way of dealing with penalties is to avoid them at all costs but it is rare to find a taxpayer who always handles their tax matters as prescribed by the tax laws. That simply means that at one point or the other, someone will have to face a heavy tax bill. The worst thing to do is to avoid the taxman as the penalties accrue interest, which may bury you in financial pits. Every business is also supposed to have a tax consultant whom they consult, especially when the going gets tough. Tax consultants understand the technical jargon that the taxman uses and are betterplaced to assist taxpayers.
Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to him. If you want to join our Tax Whatsapp group, send me a text on the cell number below. See you next week.
Jonathan Hore is the Managing Tax Consultant of Aupracon Tax Specialists and feedback can be relayed to email@example.com or 7181 5836. This article is of a general nature and is not meant to address particular matters of any person.