THE TAX DIALOGUE
Jonathan Hore
It often happens that individuals and businesses fail to comply with filing tax returns and even to pay, their taxes but many people are not aware of the possible repercussions. Tax is statutory and any non-compliance is simply breaking the law. The taxman is heavily empowered by law to levy massive non-compliance penalties and interest, which sometimes lead to insolvency or business closures. I want to show you that you are better off complying with tax laws instead of playing catch-me-if-you-can with the taxman. In this article, words importing the masculine shall be deemed to include the feminine.
Tax returns
Every business is required to periodically file tax returns, and these include company tax, VAT, PAYE or Other Withholding Tax. These tax heads have different return filing deadlines and the penalties for non-compliance also differ. Any trading company, trust, society and/or any such person has to register for at least income tax. PAYE registration becomes necessary if the business pays employees in excess of P3 000 per month. VAT only becomes due when the trader offers services or goods subject to VAT in excess of P1 million in any 12 months. Other Withholding Taxes arise when the business pays rent or commission which is at least P3 000 per month or on other payments in respect of construction contracts and non-resident consultants. Individuals also have to file tax returns by 30 September each year.
If a business or individual ignores tax returns, their actions prompt tax penalties when they file such returns. The penalties vary but can be suffocating, especially if the taxman unearths non-compliance through an audit, in which case 200% penalties may be levied. VAT returns attract a penalty of 10% of tax payable per month or a part thereof, which amounts to 100% in 10 months. Tax penalties are unproductive as they suck money from you with no resulting benefits. Sometimes these penalties can become too heavy and can technically lead to insolvency. Trust me, I have seen this happen.
Tax interest is onerous
Tax interest is charged at 1.5% per month or part thereof and is compounded monthly. Effectively, the annual interest rate accumulates to 19.56%, which can dent one’s financial position. Take note that the 19.56% is over and above the penalties which can reach 200%. Effectively, ignoring your tax affairs may gobble up 219.56% of your hard-earned income. Imagine a tax debt of P300 000 surging to P958 680! That’s detrimental to any individual or business, hence the need to avoid accumulation of tax debts. Also note that the taxman charges interest which is more than the principal tax. I have seen tax bills where the interest was more than 10 times the principal amount.
The taxman will catch you
Most taxpayers think that they can easily duck the taxman and believe he has no capacity to chase everyone. Well, that is to some extent true, but there are various ways through which he may catch you. The first one is via an audit on your affairs and that usually results in maximum penalties. The second one is when you want to buy or sell an immovable property and he first checks your compliance. The third one is when you need to tender or engage a new customer who asks for a tax clearance certificate. The fourth one is when one of your employees or ex-employees decides to sell you out to the taxman. So being faithful to the taxman is important becauseas they say, one day is one day.
Conclusion
The simple way out of all this is to ensure that you don’t duck your tax obligations. In fact, it is advisable for every business to walk the business journey alongside a tax consultant. You are safer that way.
Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to Caesar. If you want to join our Tax WhatsApp group or know about our 8 Tax e-books, send me a text on the cell number below.
Disclaimer: Jonathan Hore is a Managing Tax Consultant at Aupracon Tax Specialists. This article is of a general nature and is not meant to address the particular matters of any person. Feedback can be relayed to jhore@aupracontax.co.bw or 7181 5836.