What’s to be done?

Finweek English Edition - - Cover Cover -

AT ITS SIM­PLEST an ef­fi­cient tax col­lec­tion regime would in­volve a bi­par­ti­san ac­cord be­tween tax au­thor­i­ties and tax­pay­ers, where the lat­ter are fairly taxed in a trans­par­ent sys­tem. How­ever, con­stant rea­son­ing and qual­i­fi­ca­tion of tax re­turns have be­come a highly frus­trat­ing is­sue for tax prac­ti­tion­ers, es­pe­cially if SA Rev­enue Ser­vice em­ploy­ees are un­able to un­der­stand where they’re com­ing from.

Sti­aan Klue, CE of the South African In­sti­tute of Tax Prac­ti­tion­ers (Sait), is also con­cerned about the bad blood that ex­ists be­tween South Africa’s tax au­thor­i­ties and tax prac­ti­tion­ers. “There’s a gen­eral view from the tax au­thor­i­ties that tax prac­ti­tion­ers are up to mis­chief, try­ing to evade tax for their clients – and the tax­man doesn’t like that. It’s im­per­a­tive that that per­cep­tion is amended. Nei­ther Rev­enue nor tax prac­ti­tion­ers are able to do their jobs prop­erly if they don’t trust each other.”

A re­port re­leased by the OECD at the beginning of 2007 even called for an en­hanced re­la­tion­ship with tax au­thor­i­ties, ad­vis­ers and tax­pay­ers. The re­port called on tax au­thor­i­ties to not just fo­cus on the neg­a­tive as­pects of tax in­ter­me­di­aries’ work and to look at their role more widely, since without tax in­ter­me­di­aries it’s hard to op­er­ate tax sys­tems ef­fec­tively. “To get bet­ter com­pli­ance, tax au­thor­i­ties should recog­nise it needs good en­force­ment and good ser­vice pro­vi­sion. That means they need to look at the po­si­tions of the sup­pli­ers and the buy­ers of ag­gres­sive tax schemes,” says Jef­frey Owens in an in­ter­view with Tax­Ad­vi­sor in March this year. “The the­sis goes that if there’s an open, hon­est and trust­ing re­la­tion­ship be­tween th­ese three groups, then it’s a win all the way round.”

The up­side for tax au­thor­i­ties, says Owens, is that they can have more in­for­ma­tion to help them de­velop ef­fec­tive risk-man­age­ment strate­gies. “That in turn will help

them to dif­fer­en­ti­ate the re­sponses be­tween low-risk and high-risk tax­pay­ers. Over the long term, with that kind of en­hanced re­la­tion­ship there will be bet­ter com­pli­ance.” Owens adds some coun­tries have al­ready ap­plied that method­ol­ogy, in­clud­ing the Nether­lands, Ire­land and Switzer­land.

Im­plicit in that as­ser­tion is a ques­tion of favourable tax en­vi­ron­ments that in­vite for­eign in­vest­ment ver­sus an ag­gres­sive and oner­ous tax regime that boosts State cof­fers.

Owens says it’s a fact that multi­na­tion­als con­sider tax-favourable en­vi­ron­ments to base their op­er­a­tional ac­tiv­i­ties when they’re re­struc­tur­ing. “If you look at the large US multi­na­tion­als, around 20% of their in­tan­gi­bles are now held in Sin­ga­pore, Ire­land, Switzer­land and Lux­em­bourg – favourable tax regimes. I think the ba­sic de­ci­sion to re­struc­ture is driven by com­mer­cial con­sid­er­a­tions, but where to lo­cate is partly driven by tax. It should raise some con­cerns for gov­ern­ments if they see part of their tax base move off­shore – cer­tainly if it’s a part that’s gen­er­at­ing sig­nif­i­cant rev­enues.”

Rev­enue ad­mits in its an­nual re­port that prac­ti­tion­ers play a cru­cial role in the tax sys­tem, in that they’re a piv­otal link be­tween the tax­payer and Reve- nue. “Prac­ti­tion­ers are a de facto ex­ten­sion of Rev­enue’s ad­min­is­tra­tion,” it says.

Pro­vi­sional an­a­lysts sug­gest prac­ti­tion­ers rep­re­sent ap­prox­i­mately 3m tax­pay­ers and that 1 162 903 prac­ti­tion­ers file on eFil­ing alone. “That cer­tainly makes them a key stake­holder in Rev­enue’s busi­ness,” says the re­port.

Rev­enue es­tab­lished its prac­ti­tion­ers unit in the 2006/2007 tax year to man­age the regis­tra­tion of prac­ti­tion­ers and ex­plore the im­ple­men­ta­tion of en­hanced ser­vice of­fer­ings. The rest of Rev­enue’s com­mit­ment is nowhere to be seen.

Klue states that tax prac­ti­tion­ers are very aware that a good re­la­tion­ship is a two-way street and that Rev­enue is try­ing its best un­der the cur­rent cir­cum­stances.

“That’s why Sait was es­tab­lished last year – to build up the tax pro­fes­sion’s rep­u­ta­tion and com­pile a code of eth­i­cal con­duct to which its mem­bers are sub­ject. It’s im­por­tant that the pro­fes­sion gets rid of the rot­ten ap­ples,” Klue says. “There are close to 16 000 tax prac­ti­tion­ers in the field with no for­mal train­ing in tax or ac­count­ing and not sub­ject to a code of con­duct. We plan to rec­tify that.”

Trust is key. Sti­aan Klue

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