How to get your taxes right – lessons to learn from the (unlucky) Lucky Montana saga

Like any financial relationship, your dealings with the South African Revenue Service (Sars) go both ways. Generally, if you play fair, so does Sars. The extreme instance where Sars revealed Montana’s tax dealings was in response to him making public false statements.

Read more: SARS hits back at Lucky Montana in fight over unpaid tax bill of R55m

And the public, by and large, has not been particularly sympathetic.

Read more: After the Bell: Lucky Montana — fool me once, shame on you, fool me twice…

These are the key lessons you can take away from Montana’s tax misadventures:

1. Honesty is the best policy. This doesn’t just apply to the information you provide to Sars. That information should always be from a point of full disclosure. However, as Montana found out, you can’t go around telling lies about Sars’ dealings with you. As per the Tax Administration Act, Sars is empowered to publicly disclose taxpayer information where it is necessary to counteract false statements that may undermine the integrity and public confidence in the tax system. Sars gave Montana 24 hours’ notice to retract his statements and only chose to share information publicly when he failed to do so.

2. Update your details. This applies not just to Sars, but all your creditors. The onus is on you to ensure your creditors have updated contact details so that they are able to contact you if things go wrong. Sars said attempts to serve the sequestration application at the different physical addresses that Mr Montana provided proved to be unsuccessful. That left Sars with “no other option but to launch an application in the High Court to obtain leave from the Court to serve the application on him viahis email address and by publication of the notice of motion in a local newspaper”.

3. The realities of interest and penalties. In his rebuttal to Sars’ public shaming of him, Montana told media at a press conference that “85% of what is demanded by Sars comprises interest and penalties. This means I could be owing Sars nil or R8-million (which is the actual disputed amount), but with R47-million in interest and penalties.”

It might well be true that the majority of Montana’s debt is made up of interest and penalties – the amount has accrued since 2009 after all.

These are the interest rates and penalties Sars charges.

Interest on late/underpaid tax

• Current rate: 10.75% p.a. decreasing to 10.50% p.a. from 1 November.

Note: the rate is explicitly linked to the Public Finance Management Act reference rate.

Percentage-based “late payment” penalties (most common ones)

Provisional tax: 10% if your first or second provisional payment is late.

PAYE (employees’ tax): 10% for late payment.

VAT: 10% for late payment

Transfer duty: 10% for late payment.

Securities transfer tax: 10% for late payment.

Fixed-amount administrative penalties (mainly for late returns)

• If you don’t submit a required return, Sars levies a fixed monthly penalty based on your prior-year taxable income: R250 up to R16,000 per month, recurring for as long as the return is outstanding (max 35 months, or 47 months if the address is unknown).

Understatement penalties

Applied to shortfalls from returns/errors (unless it’s a bona fide inadvertent error). Percentages depend on behaviour and whether there was voluntary disclosure. Typical standard-case percentages:

• Substantial understatement: 10%
• Reasonable care not taken: 25%
• No reasonable grounds for tax position: 50%
• Gross negligence: 100%
• Intentional tax evasion: 150%

Note that the understatement penalties can increase for obstructive/repeat cases and, on the flip side, they be reduced to 0% to 15% with voluntary disclosure. DM