[imagesource: Shutterstock]

People often confuse the terms ‘tax avoidance’ and ‘tax evasion’, using them interchangeably when they are actually markedly different.

Tax avoidance is the act of minimising tax liability within the limits of the law or without breaking the law.

In other words, taxpayers can use legitimate methods to reduce the amount of tax payable with regard to their financial activities.

Tax evasion, on the other hand, is the unlawful attempt to reduce tax liability, by providing false information, inflating deductions without legal proof, hiding documents that record business profits, and claiming excessive expenditure, to name a few tactics.

There is a very fine line between the two and, if done incorrectly, tax avoidance can easily venture into the territory of tax evasion.

If you’ve been straddling that line, you could be in trouble, because the South African Revenue Service (SARS) is once again on the warpath.

According to Moneyweb, Commissioner Edward Kieswetter is looking to collect “tens of billions” in taxes from institutions and people who are deliberately hiding it from the revenue service.

He says that SARS has uncovered various schemes to avoid paying tax and is now working to unravel them and collect what’s owed.

The crackdown comes in the wake of the national lockdown, and the resultant economic decline, which saw projected tax revenues falling by R300 billion:

The tax authority’s work to close this gap can already be seen in it collecting about R500 million in tax from people who were not paying the tax due on the renting of second or third properties.

Aside from rental revenues, it has also prevented R500 million from being paid out by clamping down on export schemes where shell companies claim value-added tax (Vat) rebates, but don’t trade as businesses and just shut down after a few months.

The schemes were uncovered using sophisticated artificial intelligence technology to find patterns across different databases.

SARS is not oblivious to the current socio-economic climate in South Africa.

“When measured year-to-year, we see a contraction of almost 12% in employment taxes.”

Deferred taxes have played a part, but applications for retrenchments increased from 144 000 to 248 000 in the first six months and the number of unemployed has increased by over 2.2 million over the same period.

Problems have also become apparent in the number of businesses applying for business rescue rising from 104 to 182, alongside liquidation applications that have increased from 1 295 to 1 435 for the first half of the year.

It’s going to be a while before the country returns to pre-COVID-19 levels, if ever, which is why it’s more important than ever to navigate your or your business’s place in the economy with extreme caution.

To make sure that you’re on the right side of the law, it is advisable that both individuals and businesses are in possession of the relevant knowledge before using any strategies to minimise taxes.

Best practice is to bring in an expert who can help you navigate the tricky world of tax avoidance so that you can utilise it without crossing a line.

We recommend Galbraith | Rushby, who offer tax compliance and advisory services to individuals and businesses.

They’ll take on the heavy work so that you can focus on growing your profits and getting back on track.

[source:moneyweb]