Virtually every taxpayer will at least sometime in his lifetime commit a tax offence, whether a minor transgression such as failing to inform the South African Revenue Service (Sars) about a change in address, to a more serious one such as failing to submit your tax return.
Although the first offence seems minor compared to the second, the fact that it is an offence still exposes taxpayers to penalties and taints their record with Sars, says Stiaan Klue, CEO of the South African Institute of Tax Practitioners.
On the other hand, the tax goalposts are changing almost daily, ranging from annual tax amendments to brand new precedents being set on virtually a daily basis by the courts.
The most significant addition to the tax rule book recently is the Tax Administration Act.
Under this new piece of legislation, the penalties for understatement of income is certainly something taxpayers and their tax advisers should consider carefully when assessing tax exposure, together with potential penalties and other sanctions.
But what can the general taxpayer do to remain compliant?
Perhaps the answer lies in a change in attitude, developing a sense of diligence, and to some extent, appreciation for proper tax risk management, says Klue.
"Although tax risk management has predominantly been the talk among corporate taxpayers trying to limit their fallout with the taxman, and also protect their brand from public ridicule, now the general taxpayer is coming to realise the real financial effect of tax penalties levied against a long list of possible offences that can be committed."
How to manage your risk profile
Klue lists five essential steps in managing your tax risk profile:
1. Change your attitude towards filing tax returns within Sars deadlines. You have a legal and social responsibility to file honestly and on time. If you feel overwhelmed by the whole idea, secure the services of a professional tax practitioner.
2. Keep your own proper tax records for the required five-year period. You are primarily responsible for your own tax affairs, although you use the services of a professional.
3. Ensure your tax practitioner is tax compliant in his/her personal capacity. Sars knows which tax practitioners are delinquent in their personal capacity, and that reputation may expose you.
4. Ensure your tax practitioner is a member of a professional controlling body. From July1 2013, all tax practitioners must belong to a professional body and follow strict standards.
5. Do not offer a contingency fee to your tax practitioner calculated as a percentage of the refund paid by Sars. This practice is not professional and may expose you to either under-declaration of income or inflated deductions.
Klue points out that Sars' modernisation programme, which includes the self-assessment e-Filing system, has equipped the regulator with valuable statistical data and the ability to develop a world class risk engine that can expose any form of non-compliance and fraud.