Expect tighter tax controls
Pressure on fiscus means bigger effort to collect more revenue
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