Ex­pect tighter tax con­trols

Pres­sure on fis­cus means big­ger ef­fort to col­lect more rev­enue

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - BET­SIE STRY­DOM & KARUNA NAIDOO

WE CAN ex­pect 2016 to be an in­ter­est­ing year for tax, with a new fi­nance min­is­ter promis­ing a fo­cus on fis­cal con­sol­i­da­tion and sev­eral key pieces of tax leg­is­la­tion due to be en­acted in the com­ing months.

The volatil­ity of the cur­rency due to events that be­gan in De­cem­ber has placed an in­creased fo­cus on govern­ment fi­nances.

On De­cem­ber 14, Pravin Gord­han, the cur­rent fi­nance min­is­ter, stated: “We will stay the course of sound fis­cal man­age­ment. Our ex­pen­di­ture ceil­ing is sacro­sanct. We can have ex­tra ex­pen­di­ture only if we raise ex­tra rev­enue. We will un­re­servedly con­tinue our fis­cal con­sol­i­da­tion process and we will sta­bilise our debt in the medium term. If needs be, we will ac­cel­er­ate this by ei­ther cut­ting spend­ing or mak­ing selec­tive changes to tax pol­icy. Sim­i­larly, any rev­enue rais­ing op­por­tu­nity will be con­sid­ered very care­fully to en­sure that it does not dam­age growth or af­fect the poor neg­a­tively.”

There is clear pres­sure on the fis­cus. As a re­sult, tax fo­cus ar­eas for this year are likely to in­clude con­certed ef­forts by the govern­ment to col­lect more taxes (by fo­cus­ing on tax avoid­ance and im­prov­ing col­lec­tion mech­a­nisms); to in­tro­duce new sources of rev­enue (such as car­bon tax); and to in­crease ex­ist­ing sources of rev­enue (such as VAT).

The Draft Car­bon Tax Bill is set to come into op­er­a­tion in phases with the first phase start­ing next Jan­uary and run­ning to Jan­uary 2020.

It will in­tro­duce car­bon tax, which is a con­tentious pol­lu­tion tax that will add to the al­ready heavy tax bur­den. Car­bon tax will be im­posed to tax fos­sil fu­els at source. It will also ap­ply to in­dus­trial pro­cesses, prod­uct use and raw ma­te­rial use. Car­bon tax is part of the im­ple­men­ta­tion of govern­ment pol­icy on cli­mate change and it, in the words of the me­dia re­lease by the Trea­sury, “seeks to price car­bon by oblig­ing the pol­luter to in­ter­nalise the ex­ter­nal costs of emit­ting car­bon”, in other words, the pol­luter pays.

How­ever, there is scep­ti­cism about whether it will re­duce the emis­sion of fos­sil fu­els mean­ing­fully.

In line with the state­ments made by Gord­han, this could be the year that the VAT rate is raised. As the tax is levied across a broad base, it could add a sig­nif­i­cant amount of ad­di­tional govern­ment rev­enue. An an­nounce­ment might be made in this re­gard dur­ing the Bud­get speech.

Com­ply­ing with the Com­mon Re­port­ing Stan­dard (CRS) will also be on the agenda. The CRS is a stan­dard­ised au­to­matic ex­change model that con­tains the due dili­gence rules for fi­nan­cial in­sti­tu­tions to fol­low to col­lect and then re­port the in­for­ma­tion that un­der­pins the au­to­matic ex­change of fi­nan­cial in­for­ma­tion.

SA is com­mit­ted to start­ing the ex­change of in­for­ma­tion au­to­mat­i­cally on a wider front from next year, to­gether with more than 90 other ju­ris­dic­tions. In or­der to im­ple­ment the stan­dard on a con­sis­tent and ef­fi­cient ba­sis, the draft Tax Ad­min­is­tra­tion Laws Amend­ment Bill, pro­poses amend­ments to en­sure that cer- tain fi­nan­cial in­sti­tu­tions re­port on all ac­count hold­ers and con­trol­ling per­sons, ir­re­spec­tive of whether SA has an in­ter­na­tional tax agree­ment with their ju­ris­dic­tion of res­i­dence or whether the ju­ris­dic­tion is cur­rently a CRS par­tic­i­pat­ing ju­ris­dic­tion.

The Na­tional As­sem­bly re­cently passed the Tax­a­tion Laws Amend­ment Bill and the Draft Tax Ad­min­is­tra­tion Laws Amend­ment Bill. Both of th­ese bills have not yet been signed by the pres­i­dent, but are likely to be en­acted this year.

The draft Tax­a­tion Laws Amend­ment Bill deals with sub­stan­tive changes to the tax laws, while the draft Tax­a­tion Ad­min­is­tra­tion Laws Amend­ment Bill deals with ad­min­is­tra­tive pro­vi­sions of tax leg­is­la­tion.

In terms of the Tax­a­tion Laws Amend­ment Bill, from March 1 fu­ture re­tire­ment sav­ings in prov­i­dent funds will be sub­ject to com­pul­sory an­nuiti­sa­tion (as pen­sion funds sav­ings al­ready are), but im­por­tantly this only ap­plies to fu­ture con­tri­bu­tions (sav­ings) made from March 1. The com­pul­sory an­nuiti­sa­tion will thus not ap­ply to prov­i­dent fund sav­ings up to that date, nor will it ap­ply to prov­i­dent fund mem­bers who are 55 years or older on March 1. In ad­di­tion, the an­nuiti­sa­tion re­quire­ment will not ap­ply in re­spect of prov­i­dent, pen­sion and re­tire­ment an­nu­ity funds where the fund value does not ex­ceed R247,500 on date of re­tire­ment.

Amend­ments pro­posed to im­prove trans­fer-pric­ing doc­u­menta- tion and re­vise the rules for con­trolled for­eign com­pa­nies and the dig­i­tal econ­omy are also due for com­ment. In ad­di­tion, the in­terim re­port of the Davis tax com­mit­tee in­di­cated con­cerns on base ero­sion and profit shift­ing, es­pe­cially on the con­text of cor­po­rate in­come tax, so changes in this sphere can be ex­pected.

The in­terim re­port of the Davis tax com­mit­tee in­di­cated con­cerns on base ero­sion and profit shift­ing It will in­tro­duce car­bon tax, which is a con­tentious pol­lu­tion tax that will add to the al­ready heavy tax bur­den


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