Unlawful tax filing

Some people illegally reduce the amount of tax they must pay. This is called tax evasion. It is not always easy to tell when taxpayers actions are illegal. Some other methods that are used include bad recordkeeping and intentional tax evasion methods, such as a lack of documentation and underdeclaring income.

Read the following case study and answer the questions that follow:

Case study:

Tate Iiyambo is a plumber who operates a cash business. He generally works on word of mouth and obtains business through existing clients. He has a delivery van, which he uses to store all his equipment and fittings that may be required in performing his plumbing jobs. He has a manual invoicing process where he completes all necessary information regarding the job as and when the job is completed on pre-printed paper invoices. Each invoice contains all his business details and Tate Iiyambo personally fills in the customer and job cost details. In any given year of assessment, Tate Iiyambo earns between N$1,000,000 and N$1,500,000 annually in revenue.

a. What opportunities do you think exist for Tate Iiyambo to evade paying tax to Receiver of Revenue or to minimise his tax liability?

b. If Tate Iiyambos plumbing business was to be a registered company called Drips and Plugs (Pty) Ltd, what possible errors do you think could occur when he completes his personal income tax return vs Drips and Plugs (Pty) Ltds income tax return? Think about common errors that could occur or alternative ways in which Tate Iiyambo could evade tax or reduce his tax liability.

c. Assume that you are aware of Tate Iiyambos tax evading mechanisms and have proof that he is under declaring his taxable income. What do you think you should do? Do you think you have a responsibility to notify Receiver of Revenue? Why or why not?