How to clean Tax Mess
Tax laws prescribe that every taxpayer must comply with their obligations under the applicable statutes without compulsion. This is what is called voluntary compliance. The opposite of that is enforced compliance, where tax authorities use their manpower to force taxpayers to comply with tax laws. By nature, humans are dodgy and a number of taxpayers are tempted to illegally duck taxes. Well, don’t confuse me for a tax collector because I am only a tax consultant who wants to help some of you clean the tax mess that they currently are in. In this article, words importing the masculine shall be deemed to include the feminine.
TAX MESS BRIEF
Tax mess is not a technical term but a phrase which I use to describe a scenario where someone finds themselves with much headache arising from non-compliance with tax laws. Tax mess may arise from non-submission of tax returns, be they VAT, income tax or any other tax. Those who fail to pay their taxes in time complicate their circumstances. Now, let me make it clear that late payment of taxes attracts an annual effective interest of 19.36%. This interest is so high that if the debt is not paid over a couple of years, the interest may even exceed the principal debt. I have seen tax interest bills which are more than four times the principal tax. That is not a joke as it can financially paralyse the taxpayer.
Non-submission of returns may also attract late-submission penalties. For example, a VAT return bearing tax payable attracts a monthly penalty of 10% of the tax, if submitted late. If the debt is, say, P1m, the penalty for 10 months will be another P1m (10 months x 10% x P1m). If you ask any businessperson, they will tell you that any cost must be justified and bringing some form of financial gain. Tax penalties just don’t do that. They are unproductive, yet avoidable. BURS also has the right to levy 200% penalties in cases where taxes are under-declared. This usually happens in tax audits. To put things into perspective, a tax debt of P1m may exponentially grow to P3m due to the 200% penalty.
Below are some of the tips you may want to employ to clean your tax mess:
- Tax compliance summary: A tax compliance summary issued by BURS tells you how bad or good your compliance is. If you are in arrears, the first step is to obtain that summary as it details all outstanding tax returns as well as unpaid tax debts. It also shows you how much the taxman would have penalised you for non-compliance.
- Appoint a tax consultant: Once you know what you owe, solicit the services of a competent tax consultant for commencement of the tax mess clean-up. You may need to file returns and make payments or payment plans. In other instances, you may need to engage the debt division at BURS so they know how you plan to settle your tax debt. If you ignore your tax bills, BURS can freeze your bank accounts or confiscate the amounts due from your debtors.
- Voluntary disclosure: Some taxpayers’ tax affairs may be so gross that they cannot extinguish the tax debt even if they attempted to. Technically, the debts render them insolvent. In such cases, there is usually no hope of making amends except to just plead with the taxman for some truce which may involve tax forgiveness or waivers of massive penalties. Remember to always seek the guidance of a tax consultant as you walk through such rocky tax paths.
- Prepare accounts: There are instances where taxpayers would not have prepared books of account, which makes it even more difficult for a tax consultant to assist. In such cases, the best thing would be to gather whatever information you may have and prepare the accounts. From there, tax matters may then be addressed.
- Register for tax: Some taxpayers would have traded for years without registering for tax. The obvious result is that they will owe the taxman everything that a non-compliant person can owe. Registering after a long time of non-compliance usually results in onerous tax bills which usually throw many into financial doldrums.
The best way to address a tax mess is to avoid it from the beginning. If you are already in a tax mess, seek advice on how to get out. If you are clean, ensure that you have a tax consultant by your side as you make money in order to avoid a tax mess.
Well, folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to Ceasar. If you want to join our Tax Whatsapp group, send me a text on the cell number below.