Taxpayers get a new weapon against SARS

A proposed 2026 Budget amendment will address a longstanding limitation in SARS’ Voluntary Disclosure Programme (VDP), providing greater relief to taxpayers when fixing past non-compliance.

This was explained by Tax Consulting SA’s Head of Tax Controversy & Dispute Resolution, André Daniels, and Senior Tax Attorney, Richan Schwellnus.

For many years, the VDP has been a critical mechanism through which taxpayers can regularise historical defaults and restore their tax compliance with the South African Revenue Service (SARS).

VDP relief has been an important instrument in strengthening the integrity of South Africa’s tax system, encouraging transparency and providing a structured pathway for taxpayers to come clean with SARS.

However, a significant VDP limitation has lingered in the background, Daniels and Schwellnus explained.

“Where a taxpayer sought relief under the VDP, that taxpayer could not simultaneously request remission of interest under the relevant tax Act in respect of the same default, absent clear legislative authority,” they said.

This position was definitively confirmed by the Constitutional Court in Commissioner for the South African Revenue Service v Medtronic International Trading S.A.R.L (the Medtronic case).

“In Medtronic, the Court held that it was impermissible to combine a voluntary disclosure application with a subsequent request for remission of interest under the separate provisions of the various tax Acts,” Daniels and Schwellnus explained.

“In simple terms, unless the legislation expressly allowed for the two processes to operate together, they could not be merged.”

Daniels and Schwellnus explained that the decision was legally sound, as courts cannot read into legislation powers that are not there.

“If Parliament has not provided for concurrent relief, the judiciary cannot create it. However, from a practical and policy perspective, the consequences can be significant,” they said.

Taxpayers who make full and frank disclosure under the VDP may obtain relief from understatement penalties and criminal prosecution.

However, they remain exposed to substantial interest liabilities, even in circumstances where there may have been grounds for remission under the relevant tax statute.

“This creates an imbalance,” Daniels and Schwellnus said. The VDP is designed to incentivise taxpayers to voluntarily disclose historic defaults to SARS.

In exchange, taxpayers receive an indemnity against criminal prosecution for that specific default, and possibly reduce understatement penalties.

“If the financial burden of interest remains unaddressed, particularly in older matters where interest may exceed the principal tax, the programme risks losing part of its effectiveness and appeal to taxpayers,” they said.

A legislative intervention

Daniels and Schwellnus explained that the 2026 Budget proposes a targeted amendment to address this very issue with the VDP.

It proposes that taxpayers applying for voluntary disclosure relief be expressly permitted to simultaneously apply for remission of interest under the relevant tax Act in respect of the defaults disclosed in the VDP application.

“This is not an automatic write-off of interest. Nor does it dilute the principle that interest compensates the national fiscus for the ‘lost’ time value of money,” they said.

“Rather, it restores procedural coherence. It allows the decision maker to consider, within the same factual matrix, whether the statutory requirements for remission of interest are met.”

Importantly, Daniels and Schwellnus noted that the proposed amendment is set to take effect from 1 March 2026.

“The intention is to assist potential applicants going forward, without disturbing existing applications or completed matters,” they said.

From a compliance perspective, Daniels and Schwellnus noted that this amendment is both pragmatic and principled.

First, it enhances certainty. Taxpayers contemplating voluntary disclosure will know they can present their full position to SARS in a consolidated manner, rather than navigating parallel processes with uncertain interactions.

“Second, it aligns with the broader objectives of the VDP, namely, encouraging early, voluntary, and complete disclosure by taxpayers.” The removal of procedural fragmentation enhances the regime’s credibility.

Third, Daniels and Schwellnus said the amendment recognises that interest remission is not a favour – it is a statutory discretion.

Where the legislation permits remission in defined circumstances, there is no policy reason to exclude VDP applicants from seeking that relief.

“In a tax environment that increasingly emphasises credibility, enforcement, and responsible compliance, coherence in the law is essential,” they said.

“The proposed amendment is a measured correction that reinforces both fairness and administrative efficiency.”

Taxpayers must act – or face the consequences

Daniels and Schwellnus explained that the proposed amendment is more than a technical adjustment – it is a strategic opportunity.

“Taxpayers with historical defaults often delay action in the hope that exposure will remain undetected or that their tax liabilities will somehow reduce over time,” they said.

“In reality, interest continues to accrue, SARS detection and enforcement mechanisms become more sophisticated, and the risks multiply. Once an audit or investigation has commenced, the door to voluntary disclosure closes.”

Daniels and Schwellnus said the anticipated legislative change signals a clear policy intention – the government wants compliant taxpayers.

It is prepared to provide structured relief, including a pathway to seek remission of interest, but only for those who come forward voluntarily before they are compelled to do so.

“Now is the time to conduct a thorough risk assessment. Identify legacy exposures. Quantify potential tax, penalties, and interest,” they said.

“Consider whether the statutory requirements for remission may be met. Most importantly, act while the initiative remains in your hands.”

Daniels and Schwellnus stressed that the voluntary disclosure process is not merely about reducing penalties for taxpayers.

“It is about restoring credibility, protecting reputation, and creating certainty in an environment where regulatory scrutiny is intensifying. The advantage lies with those who move first,” they said.