Getting in the corporate tax net is easy, but getting out of it is gruelling

To voluntarily deregister a company with the CIPC, companies must first ensure they are fully tax compliant, and then submit a deregistration letter and the supporting documents to the CIPC. A taxpayer may then proceed to deregister with SARS.

A walk in the park

Surprisingly, registering for corporate income tax is generally a seamless process. No interaction with the SARS is required. You simply have to complete the steps to register a company with the CIPC, and the company is automatically registered for income tax.

A notice of registration is issued by the SARS, containing details such as the company registration number and registered address. The CIPC system feeds perfectly into the SARS system.

A thorn in the side

On the other hand, deregistering for corporate income tax has become an almost insurmountable exercise. Firstly, there is no communication between the SARS and CIPC. If a company is deregistered with the CIPC, it is not automatically deregistered with the SARS, nor are any tax obligations suspended.

Proof of deregistration from the CIPC must be presented to the SARS, and banks statement for the 12 months ending the day before the deregistration application date.

The tax deregistration process, save for payroll taxes, is not catered for by SARS-eFiling or the SARS Online Query System (“SOQS”). A taxpayer can only submit the deregistration request by sending an email to contactus@sars.gov.za or pcc@sars.gov.za (if you are a registered tax practitioner).

In most cases, months pass before the matter is allocated to a SARS official for resolution. There is no dedicated unit within the SARS that attends to income tax deregistrations. This makes the process costly and strenuous for the taxpayer, which contradicts SARS strategic objective of “Making it easy for taxpayers and traders to comply with their tax obligations”.

Following from the above, taxpayers should ensure that all case numbers pertaining to interactions with SARS regarding the deregistration request are recorded. The case numbers are critical if a formal complaint is required to be submitted to the SARS, and subsequent escalation of the matter to the Tax Ombud.

Finding the yellow brick road

We have noted an increase in notices issued by the SARS notifying a person of SARS’ intent to deregister a person for VAT, where such person is no longer carrying on a VAT enterprise. By extending this approach to all tax types, will result in an improvement of the public’s perception of the SARS.

It would also greatly contribute to creating administrative efficiencies, if interfacing between the systems of the CIPC, Department of Home Affairs, and the Master of the High Court allows for the identification and flagging of taxpayers that have been deregistered. This process can then be used to automatically issue a notice via SARS eFiling to the taxpayer, requiring the taxpayer to submit the relevant supporting documents to the SARS to facilitate the finalisation of the income tax deregistration.

 The takeaway

Taxpayers should ensure that they always remain tax compliant in all respects. Taxpayers should not assume that once an entity is deregistered with the CIPC, income tax obligations are suspended. Taxpayers must swiftly prepare all the relevant documentation, submit a request to the SARS to be deregistered, and follow-up on a regular basis.

Authors:

Tusani Mnyandu, Tax Manager & Ridwaan Seedat, Director