HOW SARS PLANS TO MILK YOU FOR EVERY CENT
south Africa has been rated amongst the most taxcompliant countries in the world, mainly due to the past efficiency of the South African Revenue Service (Sars) in administering an increasingly complex tax regime.
However, South Africans are starting to question whether they should continue to comply, mainly due to questions relating to the legitimacy of the state, continued perceived and real squandering of tax money and concerns about technical and administrative capacity at Sars.
Each year Sars launches its “tax filing season”, reminding South Africans to honour the social contract between themselves as citizens and the state. The citizens pay their fair share of taxes in exchange for efficient and reliable services provided by their government.
The tax season started in July and to date more than 1.2m tax returns have been received – slightly less than during the same time last year. Approximately 6.6m individuals are expected to file their tax returns during this tax season, which ends on 31 January next year.
This year significant changes to individuals’ income tax returns initially caused confusion and there were a number of errors in the system.
According to Sars, errors on submitted tax returns include not completing new fields on this year’s return relating to retirement fund contributions and the incorrect declaration of medical expenses, or other expenses. Taxpayers have also neglected to provide supporting documentation to substantiate expenses and claims, says Sars.
Chérie Carstens-Petersen, team leader of technical operations at the South African Institute of Tax Professionals, says it has been the worst start to a filing season in years. However, Sars has been receptive in trying to address the errors.
“Perhaps an aggressive education campaign before the release of the (changed) return would have helped taxpayers ease into the new changes,” she says. “Due to legislative updates, the returns changed quite significantly, causing confusion. In addition to the changes, it seemed as if the various Sars systems such as Easyfile, Sars’s internal systems and eFiling were not talking to each other.”
“Perhaps an aggressive education campaign before the release of the (changed) return would have helped taxpayers ease into the new changes.”
Marc Sevitz, director and chief financial officer of TaxTim, says the most significant changes are the way individual taxpayers report on their deductions for contributions to medical aid schemes and medical expenses, as well as contributions to retirement annuities, travel allowances and foreign employment income.
The amount of paperwork involved in complying with the new reporting requirements has increased substantially.
Sars now requires a differentiation between contributions to a medical aid where the taxpayer is the member, and contributions made for financial dependents such as parents or a child to
another scheme. Taxpayers with disability expenses are now required to submit a lot more information about the disability, including detail such as the practice number of the doctor involved.
The name of the medical scheme and the policy number must be supplied. This requirement has also been extended to retirement annuity contributions.
In terms of travel allowance claims, taxpayers must indicate whether they have purchased the vehicle they are claiming a travel allowance for, or whether they are leasing it.
Sevitz says if the vehicle was purchased, the taxpayer can claim any interest paid and the taxpayer is allowed an annual depreciation, whereas only the lease payment can be claimed in the case of a leased vehicle.
One of the new requirements to claim the tax exemption on foreign income earned (which National Treasury wants to scrap entirely) is to provide details on the actual days worked while outside SA.
Crackdown on trusts
As taxpayers have been using trusts as a tool to reduce the amount of tax they pay, especially when transferring assets into a trust for the benefit of others, Treasury is now clamping down on this practice.
For many years, legislation to ensure that the value of these assets transferred to the trust was correctly treated for tax purposes – either by way of donations tax or through the loan used to move the assets into the trust – has been lacking.
Several anti-avoidance measures, including the latest proposed changes to the draft Taxation Laws Amendment Bill, have rendered trusts less beneficial than they once were from a tax perspective.
High-net-worth individuals have remained in Sars’s focus over the past few years in order to increase tax collections each year, says Sevitz.
“We have seen with the latest Special Voluntary Disclosure Programme (ending this month) how Sars has been attempting to bring in additional tax revenue by having taxpayers declare income that had not previously been declared and therefore paying some tax
“A big point of frustration is that people do not consider the time it takes to obtain the appropriate information necessary to make a full disclosure.”
on the amounts in order to regularise their affairs.” (See sidebar.)
Tax clearance for offshore moves
Recent changes to the process of getting tax clearance for the foreign investment allowance seem to have slipped through quietly.
Jill Wilmans, managing director of Currencies Direct South Africa, says in a statement that the documentation requirements for taxpayers to get
approval if they want to send more than R1m (but less than R10m) a year offshore has become much more daunting.
Sars previously required a recent bank statement, a statement of assets and liabilities as well as proof of the source of capital to be invested offshore. Now documents dating back three years must be submitted. The new rule has only been in place for a few weeks but it is already causing major headaches.
Wilmans says the change has significantly slowed down the process. “Prior to the introduction of these changes, it used to take us a few days to get tax clearance for our clients and have the funds ready to transfer into a foreign currency account, now it’s taking three to four weeks.”
She says the number of applications by South Africans to move their money offshore has increased 100% over the past two years and at an even higher rate in the past six months.
The current political environment where transgressors are not held to account for squandering tax money has an immense impact on the contract between the state and its taxpayers.
The number of applications by South Africans to move their money offshore has increased 100% over the past two years and at an even higher rate in the past six months.
Wayne Duvenhage, chair of the Organisation Undoing Tax Abuse (Outa), says the participation in paying taxes has historically been high in SA. However, this is under severe threat because of the lack of accountability.
“It gives licence to the public to question the conduct of government and (for them) to act in a manner that reduces state funding which can be wasted.”
The increase in legislation aimed at stemming aggressive tax structuring is a reflection of taxpayers’ level of willingness to pay taxes.
Patricia Williams, partner at law firm Bowmans, says one must differentiate between tax morality and the willingness to pay taxes. Sars equates the two and appears to be of the view that adopting tax avoidance strategies is somehow “immoral”, she explains.
According to Williams, taxpayers do not feel it is “the right thing to do” to finance government spending if this is perceived as being squandered. Although there is increased talk of a tax revolt, it has not been actioned by South Africans. ■ email@example.com
Chérie Carstens-PetersenTeam leader of technical operations at the South African Institute of Tax Professionals
Marc Sevitz Director and chief financial officer of TaxTim
Mike Abbott Head of wealth at Sable International
Wayne Duvenhage Chair of the Organisation Undoing Tax Abuse (Outa)
Patricia Williams Partner at Bowmans