What’s to be done?
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