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An analysis on the meaning of “voluntary” within the context of the Voluntary Disclosure Program

In brief

This article, by Francis Mayebe, Candidate Attorney in the Tax Practice in  Johannesburg and Virusha Subban, Head of the Johannesburg Tax Practice, looks at the criteria and guidelines for voluntary tax disclosure in South Africa. The article outlines a recent case, and analyses the meaning of “voluntary” within the context of the voluntary disclosure program in South Africa.


The voluntary disclosure program (VDP) in South Africa, introduced by the Tax Administration Act, 2011 (“TA Act“), aims to increase tax collection, promote good management of the tax system, and allow the best use of the South African Revenue Service (SARS) resources. The VDP allows non-compliant taxpayers an opportunity to regularize their tax affairs by disclosing any tax defaults in previous years of assessment.

Section 227 of the TA Act sets out the criteria with which a taxpayer must comply for a voluntary disclosure to be considered valid for purposes of the VDP. In order to be accepted by SARS as a valid voluntary disclosure application, the application must:

  • Be voluntary
  • Relate to a default that has not occurred within five years of the disclosure of a similar default
  • Be full and complete in all material aspects
  • Relate to a behavior referred to in column 2 of the understatement penalty table in the TA Act
  • Not result in a refund due by SARS
  • Be made in the prescribed form and manner.

In the case of Purveyors South Africa Mine Services (Pty) Ltd v CSARS (Purveyors), the pinnacle of the discussion surrounded the interpretation of the words “voluntary” and “disclosure” within the context of the VDP. 

In 2015, Purveyors South Africa Mine Services (PTY) Ltd (the Taxpayer) imported an aircraft into South Africa under a dry lease agreement with Freeport Minerals Corporation, a company incorporated and tax resident in the United States of America. The aircraft was mainly used to transport its executives and other personnel to African countries where the Taxpayer had operations.

The Taxpayer was liable to pay import Value Added Tax (VAT) on the importation of the aircraft. Approximately a year after the Taxpayer imported the aircraft, it became aware of its liability to pay VAT and accordingly engaged SARS in this regard, providing an overview of the facts. In 2017, SARS held the view that the Taxpayer should have paid VAT on the imported aircraft and warned the Taxpayer of the potential penalties that could be imposed as a result of the Taxpayer’s failure to account for, and pay, the VAT due. The Taxpayer thereafter applied for voluntary disclosure, which SARS declined on the basis that it did not satisfy the requirements for a valid voluntary disclosure application.

The issues in dispute were the interpretation of the words “disclosure” and “voluntary”. The Supreme Court of Appeal (SCA) took quite a strict and narrow interpretation of the word “voluntary” in finding that the disclosure would only be deemed to have been made voluntary if  “an errant taxpayer comes clean on their violation without being prompted to make amends with respect their defaults when informing SARS”. 

This interpretation by the SCA includes two requirements, which the Taxpayer failed to demonstrate in this case. The first being that the disclosure made by the Taxpayer must not be prompted. The second  being that  it must not be solely intended to avoid certain consequences of which the Taxpayer has become aware before the disclosure. 

In this case, the Taxpayer was well aware of its liability to pay import VAT, as well as the applicable penalties in that respect. The Taxpayer had been informed, on numerous occasions and over a period of about three years, of its tax obligations by numerous parties, including SARS and its auditors, who corroborated SARS’s views. 

The questions to ask in evaluating the intention of the Taxpayer behind the eventually made disclosure, is whether the Taxpayer would have disclosed its tax defaults if SARS was not already aware of them and if the disclosure would have been made solely to avoid the penalties for which it was already liable. 

It is evident from the facts, as also pointed out by the SCA, that the Taxpayer had made prior disclosures of its transgressions to SARS, after which it sought advice from its auditors, who confirmed SARS’s position. The disclosure by the Taxpayer was therefore, neither a proper nor an unequivocal disclosure, as it failed to show in its invoices that VAT had not been charged on the lease of the aircraft. Instead, the disclosure was made as a result of SARS being aware of the default and out of compulsion to make the disclosure in an attempt to avoid the potential penalties.

It is in this respect that the SCA found that the disclosure made by the Taxpayer was not voluntary in the context of the VDP, since SARS already knew about the default, and the disclosure was mainly prompted out of fear of the consequences of the non-compliance. 

The SCA further considered whether a disclosure did, in fact, exist in these circumstances. The Taxpayer was of the view that the requirement for voluntary disclosure was not restricted to the disclosure of something new, of which SARS was not aware. SARS, on the other hand, was of the view that on a proper construction of Section 227 of the TA Act, the Taxpayer did not disclose information or facts of which SARS was unaware. In a textual interpretation of the word, the SCA found that the word “disclosure” means “to open up to the knowledge of others, to reveal”. 

The SCA outlined that the requirement that the disclosure must be made in a prescribed format is a clear indication that the application is sought to prevent taxpayers from disclosing information to SARS and subsequently applying for a voluntary disclosure application. Therefore, the disclosure will be in accordance with the VDP if such disclosure involves information of which SARS was not previously aware. With the aforementioned in mind, the SCA found that the disclosure made by the Taxpayer was not in line with the requirements of Section 227 of the TA Act, as the application disclosed nothing new. 

The judgment by the SCA brings both clarity in the interpretation and application of section 227 of the TA Act, as well as confusion as to how narrowly one can interpret the term “voluntary”. It remains uncertain from this judgment, particularly after the SCA’s view that the “VDP application was prompted by compliance action by SARS officials and the advice from its auditors”, therefore the requirement that the application must be “voluntary” was not met. 

Concluding remarks

On this basis, the question remains as to whether taxpayers who are advised by their auditors, tax, or legal advisors in relation to their tax defaults, and any potential penalties that may be imposed by SARS before applying for VDP, would still meet the requirement of “voluntary”. Another question that remains unanswered is whether the requirement of “voluntary” would be met where VDP applications made by a taxpayer are prompted by compulsion from any other third party (other than SARS). 

The SCA’s finding on this matter narrows the scope in which the VDP could be applied and used. It is important to note that the VDP was introduced with an intention to encourage taxpayers to voluntarily disclose tax defaults. However, tax defaults from a taxpayer’s perspective are not usually certain, and in particular instances, taxpayers would require clarity before engaging in the process of VDP. Following this finding, it can be certain that an inquiry to SARS about a potential tax default excludes you from the benefits of the VDP, as this would be considered as “not voluntary.” 

An additional consideration following this judgment is that it further narrows the meaning of voluntary as previously set out by the Gauteng High Court (HC). When dealing with what could constitute a voluntary disclosure, in Reed v Minister of Finance (Reed), the HC indicated that the crucial factor is whether the taxpayer had prior knowledge of a pending audit or investigation. The HC then went on to define “voluntary” as bringing information to SARS when there is no impending SARS investigation, and if there is an investigation the taxpayer must not be aware of it.

In Purveyors, SARS had knowledge of the defaults by the Taxpayer, however, they had not instituted any investigation or audits on the matter and the Taxpayer had no knowledge of any impending investigations. To that effect, one could see how the outcome of Purveyors could have been different should this approach have been taken. On the contrary, one could argue that the action of SARS in looking into the Taxpayer’s defaults after the inquiry was made, could constitute an investigation, However,  the circumstances in Reed are different from those in Purveyors, in that Reed did not first inquire with SARS, while in Purveyors an inquiry was made by the Taxpayer to prompt SARS to look in its affairs.

Further, Section 223 of the TA Act provides for the understatement penalty percentage table. The fifth column in the table provides for a voluntary disclosure after notification of audit or criminal investigation. With the judgments discussed above, which excludes disclosure after notification or knowledge of an investigation by SARS from VDP, one is left to answer to the relevance of the 5th column under Section 223 of the TA Act. 

With this uncertainty, a taxpayer who suspects they might have a tax default and would like to benefit from VDP must consult directly with a tax expert. Should it be ascertained that there is indeed a default, the taxpayer must timeously make a voluntary disclosure to SARS in the prescribed format, as required by Section 227(c) of the TA Act.


Francis Mayebe is a Candidate Attorney in Baker McKenzie, Johannesburg office.


Virusha is a partner and head of Tax in Baker McKenzie's Tax Practice Group in Johannesburg. She has over 20 years' experience in tax matters relating to customs, excise and international trade.

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