South Africans apparently struggle to decide what is right and wrong when they pay tax.
The main problem seems to beknowing the difference between reducing your tax burden legally, by using the law in innovative ways, but still staying within the law, and reducing your tax burden by illegal means. Illegal methods are often used on the basis that the tax authorities will never find out!
But there are a number of problems in defying the law.
* The taxman may concludeyou are evading tax, and take corrective action. This generally involves penalties, which can be up to three times the amount of the tax not paid, and interest, currently charged at 15 percent for the period the tax has been outstanding. If you have deliberately misled the authorities by, for example, falsifying documents, you also risk being convicted of fraud.
* Not only are you effectively "stealing" from the government, but also from fellow South Africans those who are not in a position to evade tax (for example employees whose tax is deducted at source) and those who choose to pay the tax they rightly owe.
Evaders often believe they are justified in deceiving the taxman, and some even boast about their innovative abilities. But they forget that other taxpayers probably have to pay more to satisfy the government's budgetary needs than they would ifthe evaders had paid their fair share.
Sadly, many taxpayers pay more than they legally have to and if they were to benefit from effective, legal tax planning.
You can't go to jail for planning, and it will be a lot less expensive if the taxman does choose to take a look at your affairs.
Tax planning can become complex, and it is important that it does not become your main focus. Transactions must make commercial sense to ensure that costs and inconvenience are not caused purely to generate a tax benefit, and to ensure that the planning does not "fall over" under the anti-avoidance provisions of the Income Tax Act.
For example, taxpayers may be under the impression that they can pay no tax if they buy a company with an assessed loss and put their profits through it.
But the Income Tax Act contains a provision that says if an arrangement is made with the sole or main purpose of using an assessed loss for tax purposes, the set-off of the assessed loss may be disallowed. If the company is acquired for commercial reasons and just happens to have a loss, the anti-avoidance provision would not apply.
Rather pay only as much tax as you really have to legally, by planning commercial transactions tax efficiently.