Finweek English Edition - - Front Page - By Amanda Visser

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.”

Tax 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.

Tax re­volt?

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. ■ ed­i­to­rial@fin­

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

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