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The Association of Chartered Certified Accountants

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HELLO

Presentation to Standing Committee on Finance

Tax Administration Bill B11-2011

Presented by: •Nicolaas van Wyk Head Technical Policy, ACCA (South Africa) •Johnny Eliades Technical panel member, ACCA (South Africa)•www.acca.co.za

INTRODUCTION

Introduction

• ACCA supports – Simplification of tax system as proposed

by TAB

• POSSITIVES– Consolidating administrative parts of

various tax statutes

• RISKS– Increase in unnecessary compliance

costs for taxpayers due to significant new powers allocated to SARS

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Introduction

• PRESENTATION IN THREE PARTS

– Part 1: 12 tenets of taxation– Part 2: Specific issues of concern– Part 3: Suggestions on tax simplification

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Introduction

• NOTE OF APPRECIATION

– Consultative approach adopted by SARS– ACCA made number of submissions on

draft TAB– SARS process should be model for all

legislative drafting processes

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PART 1: 12 TENETS OF

TAXATION

PART 1: 12 TENETS OF TAXATION

• PURPOSE– Will assist the committee in making a

critical assessment of the TAB– Easy to get lost in detail– Always remember the bigger picture– TAB part of a rewrite of the income tax

act– TAB and any rewrite should support the

12 tenets

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PART 1: 12 TENETS OF TAXATION

• AVOIDANCE VS EVASION– Avoidance is unlawful and unacceptable

• Tax planning schemes designed simply to exploit loopholes

– Evasion is normal practice • Claim a tax deduction

– Avoidance is reduced if tax law is clear and certain

– The right to minimise tax via proper tax planning should be protected and recognised in TAB

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PART 1: 12 TENETS OF TAXATION

• TAX AS A % OF GDP– Levels of taxation should be stated as a %

of GDP– TAB should not increase the level of

taxation by increasing tax compliance costs – Tax and tax compliance is a burden– The imposition of any new tax should be

subject to impact assessment– Measure and evaluate impact against policy

objectives – what is ROI?

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PART 1: 12 TENETS OF TAXATION

• TAX SIMPLIFICATION AND STABILITY– Companies spend +-two months per year

complying with tax regulations• Reduced ability to trade and do business• Less business means less jobs means less profits

means less tax

– Small businesses suffer most• Increase in tax laws due mostly to new anti-

avoidance measures • Small businesses have no time to engage in

esoteric tax planning and are simply trying to cope with the volume of laws.

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PART 1: 12 TENETS OF TAXATION

• OPENNESS, TRANSPARENCY AND ACCOUNTABILITY– Tax policies should be transparent and non-

discriminatory • Unless part of a declared discriminatory policy,

such as one aimed to encourage new enterprise

– Major issues of tax policy• Consultation and stakeholder briefing is

fundamental• Specify options at the start• Ensure appropriate consideration with an audit

trail.

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PART 1: 12 TENETS OF TAXATION

• CERTAINTY– Tax system should ensure certainty in

outcomes and operations– Different taxpayers who look at

legislation should always come to the same interpretation of the law

• TAX COMPETITIVENESS– Governments must be wary of causing

retaliatory action and trade wars by drastic business tax cuts.

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PART 1: 12 TENETS OF TAXATION

• EFFICIENCY– Efficient tax collection system will ensure that

• Tax payable is collected• Tax leakage is prevented• taxpayers have ability to comply

• SUNSET CLAUSES– Tax legislation should be periodically

overhauled and consolidated– All anti-avoidance legislation should have

sunset clauses attached• This will ensure they are regularly reviewed

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PART 1: 12 TENETS OF TAXATION

• CLEAR LINK FROM TAX TO SPEND– Compliance will increase if taxpayers

know • Why they are paying a particular tax• What the tax is being spent on

• AVOIDANCE OF DOUBLE TAXATION– Income should be taxed only once

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PART 1: 12 TENETS OF TAXATION

• HUMAN RIGHTS– Taxpayers should to pay their tax in full and on

time. – States should not impose their will in an

arbitrary or vexatious way• Pernicious tax law is not acceptable: for example,

where it could be argued there is fundamental uncertainty or unjustified additional cost of operating in one particular business vehicle rather than

• ‘TAX SHIFTING’ – GREEN TAXES– Use tax to change behaviour which is damaging

to the environment

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PART 2: SPECIFIC

COMMENTS

PART 2: SPECIFIC COMMENTS

(refer to table) • SECTION 1– Insert a minimum fine amount above

which an offence will be deemed to be a serious tax offence.

• SECTION 3(2)(a)(i)– Remove the term “future tax period”

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PART 2: SPECIFIC COMMENTS

(refer to table) • SECTION 16– Tax Ombud should also be able to:– Review

• Faulty procedures• Unfair treatment• Biased or prejudice actions by SARS • Misleading or inadequate advice by the revenue

authorities• Refusal by authorities to answer reasonable questions,

Mistakes in handling claims of taxpayers • Frivolous investigations conducted randomly by SARS • The compliance burden imposed on tax payers due to

SARS administrative actions

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PART 2: SPECIFIC COMMENTS

(refer to table) • SECTION 16 (continued)

– Tax Ombud should also be able to:– Issue penalties against SARS for possible

misconduct – Making recommendations for the

improvement of the tax system

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PART 2: SPECIFIC COMMENTS

(refer to table) • SECTION 26

– Insert a new section requiring SARS to inform the tax payer that additional information is being obtained from third parties

– Insert a new section requiring SARS to compensate the third party providing the information to SARS

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PART 2: SPECIFIC COMMENTS

(refer to table) • SECTION 28(1)

– Replace section 28(1)(a) and (b) with the following:

– “Submit an Accounting Officer Report as contemplated by section 62 of the Close Corporations Act, 1984 or if so directed by SARS submit an Independent Review Report as contemplated in section 30(7) (b) of the Companies Act, 2008 or if so directed by SARS submit an Audit Report as required by section 30(7) (a) of the Companies Act, 2008”.

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PART 2: SPECIFIC COMMENTS

(refer to table) • SECTION 34– Replace the section with the following:– “Financial Reporting Standards means in

the case of companies, financial reporting standards as prescribed by the Companies Act, 2008. In any other case any appropriate accounting framework that provides fair presentation.”

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PART 2: SPECIFIC COMMENTS

(refer to table) • SECTION 35(1)(c)

– Remove section 35(1)(c), (d) and (e) and replace with the following

– “A reportable arrangement should only be reported if the sole purpose of the transaction is to avoid the payment of tax”.

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PART 2: SPECIFIC COMMENTS

(refer to table) • SECTION 40

– Remove the word “random” from the section

– Include a sentence requiring SARS to have some suspicions about a taxpayer upon which to seek information.

– Include a general provision that entitles the tax payer to compensation in the event that the inspection turns out to be frivolous.

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PART 2: SPECIFIC COMMENTS

(refer to table) • SECTION 40 (continued)

– The TAB should explicitly provide for a mechanism whereby the taxpayers is empowered to recover costs from SARS related to:

– Abuse of power by SARS– Inefficiencies and loss of taxpayer

documents by SARS– Lack of performance by SARS in terms of

the SARS charter.

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PART 2: SPECIFIC COMMENTS

(refer to table) • SECTION 47(1)

– Remove section 47(1) or alternatively the TAB should provide for compensation to be paid to any person required to appear before a SARS official.

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PART 2: SPECIFIC COMMENTS

(refer to table) • SECTION 241

– SARS and professional bodies should issue a guidance note for tax practitioners

– Assist and advise members on their professional conduct in relation to taxation.

– The ACCA is already a signatory to a similar agreement with the revenue office in the UK.

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PART 3: OFFICE OF TAX SIMPLIFICATION

PART 3: TAX SIMPLIFICATION

• OFFICE OF TAX SIMPLIFICATION– Review South Africa’s tax laws to:

• Simplify the tax system• Ease administration • Reduce uncertainty for small businesses

– Should be permanent appointment in TAB– Should report to parliament– Should issue annual barometers that test

efficiency and effectiveness of tax system

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