Consequences of ignoring the VAT Act

Consequences of ignoring the VAT Act

In this series of articles, Cameron Kotze – the Tax Partner at Ernst and Young – discusses some topical tax issues for our readers.

THE Value-Added Tax Act (“the VAT Act”) has various requirements that a person who carries on a taxable activity must comply with to adhere to the law. Non-compliance with these requirements can get you in trouble of varying proportions.Most of us, especially those whose income consists solely of remuneration for services rendered as an employee, don’t really have to worry about the requirements of the VAT Act.Although we are rendering a service to our employer when we pitch for work every day, the services we render to our employers are specifically excluded by the VAT Act as a service that is subject to VAT.Transactions involving selling our personal assets (like or personal house or motor car) are not regarded as a taxable activity by the VAT Act and can be ignored for VAT purposes.As soon as you decide to earn income from running a business (buying and selling goods or rendering services) you need to consider whether there are any requirements of the VAT Act that you should be complying with.So for example, if the turnover from your business activity is less than N$200 000 for a twelve-month period, there is no need to register for VAT.In most cases the VAT Act deals with non-compliance in two ways – the sanction (fine or imprisonment) for doing something knowingly or recklessly is usually double the sanction if the taxpayer can prove the non-compliance was as a result of ignorance.The burden of proof obviously rests on the taxpayer to satisfy the Receiver of Revenue that the non-compliance was the result of being ignorant.The VAT Act deals with issues such as failure to submit tax returns, failure to maintain proper records, failure to register for VAT when required to do so, improper use of your VAT registration number and obstructing taxation officers.In addition to the above, the VAT also deals with false or misleading statements made by any person (not necessarily a VAT registered person).This provision in the VAT Act includes making material false or misleading statements or the omission of information from a VAT return or answering questions by a taxation officer.For those who are conducting their business through a company or close corporation it is important to note that every person who is a representative, director, general manager, or holds other similar office in a company or close corporation is deemed to have committed the offence in the absence of any evidence to the contrary.It is therefore important that if you are in such a position you need to ensure that the employees of your company or close corporation do not contravene the VAT Act with regard to making false statements or omitting information from a VAT return.The penalty for making a false or misleading statement is twice the output VAT that would have been paid if the taxpayer made a true and complete declaration the first time.Omitting information from your VAT can therefore have serious consequences especially if the omission is made with intention.No penalty is generally payable if the taxpayer is convicted of an offence and pays a fine or goes to jail.Once you have blemished record with the Receiver of Revenue for whatever reason, it is hard to get rid of the bad taxpayer tag.Be informed and comply with the laws and you won’t have worry about inappropriate tags.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.comNon-compliance with these requirements can get you in trouble of varying proportions.Most of us, especially those whose income consists solely of remuneration for services rendered as an employee, don’t really have to worry about the requirements of the VAT Act.Although we are rendering a service to our employer when we pitch for work every day, the services we render to our employers are specifically excluded by the VAT Act as a service that is subject to VAT.Transactions involving selling our personal assets (like or personal house or motor car) are not regarded as a taxable activity by the VAT Act and can be ignored for VAT purposes.As soon as you decide to earn income from running a business (buying and selling goods or rendering services) you need to consider whether there are any requirements of the VAT Act that you should be complying with.So for example, if the turnover from your business activity is less than N$200 000 for a twelve-month period, there is no need to register for VAT.In most cases the VAT Act deals with non-compliance in two ways – the sanction (fine or imprisonment) for doing something knowingly or recklessly is usually double the sanction if the taxpayer can prove the non-compliance was as a result of ignorance.The burden of proof obviously rests on the taxpayer to satisfy the Receiver of Revenue that the non-compliance was the result of being ignorant.The VAT Act deals with issues such as failure to submit tax returns, failure to maintain proper records, failure to register for VAT when required to do so, improper use of your VAT registration number and obstructing taxation officers.In addition to the above, the VAT also deals with false or misleading statements made by any person (not necessarily a VAT registered person).This provision in the VAT Act includes making material false or misleading statements or the omission of information from a VAT return or answering questions by a taxation officer.For those who are conducting their business through a company or close corporation it is important to note that every person who is a representative, director, general manager, or holds other similar office in a company or close corporation is deemed to have committed the offence in the absence of any evidence to the contrary.It is therefore important that if you are in such a position you need to ensure that the employees of your company or close corporation do not contravene the VAT Act with regard to making false statements or omitting information from a VAT return.The penalty for making a false or misleading statement is twice the output VAT that would have been paid if the taxpayer made a true and complete declaration the first time.Omitting information from your VAT can therefore have serious consequences especially if the omission is made with intention.No penalty is generally payable if the taxpayer is convicted of an offence and pays a fine or goes to jail.Once you have blemished record with the Receiver of Revenue for whatever reason, it is hard to get rid of the bad taxpayer tag.Be informed and comply with the laws and you won’t have worry about inappropriate tags.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com

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