Tic Tax Toe – get your ‘marks’ in a row with Sars
THE BUDGET speech … what can one say other than, “Oh my goodness.”
In listening to the speech and reading the supporting documents, one can only compliment Finance Minister Tito Mboweni for delivering such a Budget at a time like this.
From a tax perspective, there have been minimal changes. There is a prospective decrease in the corporate income tax rate for all years, starting on or after April 1, 2022, which is a year and a month away. This will, however, be done alongside the broadening of the corporate income tax base, limiting interest deductions, and limiting the utilisation of assessed losses.
This will broaden the tax base quite substantially, and for companies thinking that losses incurred in the year of the hard lockdown will help … well, plan your cash flow very carefully.
Assessed losses will, in all likelihood, be spread over a period, bringing you into a tax-paying position much sooner than anticipated. The benefit from assessed losses will, in real terms, be significantly reduced.
We welcome the 5 percent increase in the tax brackets to reduce fiscal drag.
If we look at national revenue collection, most of the income tax paid by individuals through provisional income tax or in the form of Pay As You Earn or provisional tax payments, amounts to R516 billion. Value-added tax contributes R370bn, and corporates will contribute about R213bn in the country from the profits they realise. The balance of about R265bn in taxes will come from customs and excise duties, fuel levies, and the other odds and sods taxes.
Consider this: there is a drop in revenue collection, no increase in the tax base, no increase in tax rates and proposed limitations on the deductibility of interest, etc. You must ask yourself the logical question: where will the money come from?
There is a limitation on the deductibility of connected party interest, the non-extension of the section 12 J venture capital investment regime, and a clampdown on, and continuous noise about, base erosion and profit shifting. One must see the warning signs.
Gone are the days when you can decide at midnight on February 27 what your provisional tax will be. Gone are the days of haphazardly slapping together an income tax return that two days before your returns are due.
The Tax Administration Act was amended, and negligence has been criminalised. People in charge of a company’s financial affairs can now be held personally liable for any penalties, interest and underpayment of the taxes of the companies they serve.
How will the SA Revenue Service (Sars) reduce the deficit? If they’re not increasing the tax rate, the answer is very simple: enhance compliance, be more rigorous in compliance and bring tax evaders to book.
Through interfacing with thirdparty information, Sars is being placed in a position to assess and evaluate the accuracy and the validity of income tax returns that are submitted.
Hence my reference in the headline to Tic Tax Toe. To be the “player” who gets the three marks in a row, you have to plan your tax affairs legally and appropriately with due care and consideration, failing which you will be exposed to a plethora of implications, including underestimation penalties and late payment penalties. If you deliberately understate your income due to negligence and/or any other reason, your penalties will start at 25 percent.
If you seek to alter the implications of a transaction after it has occurred, you are seeking to evade tax. If, however, you have applied your mind and a transaction is structured correctly – that is, the terms and conditions are agreed between the parties, at an arm’s length price before the conclusion of the transaction – the tax consequences of the transaction will follow the legal form, and if this results in an equitable spread of the tax implications across individuals, corporates and/or multi-jurisdictional entities, that is perfectly acceptable.
Please link all the complexities stated above with the complexity of dealing with Sars in objections and appeals, and you could well be left in the highly compromising position of effectively being taxed by negotiation.
My advice is to ensure that your tax planning is done properly, and your filed tax returns are complete and accurate in every respect.