Business Day

Back­date cor­rec­tion of small busi­ness tax, urge ex­perts

- LINDA EN­SOR Po­lit­i­cal Writer en­sorl@bdfm.co.za Business · Tax Credit · Finance · Taxes · Fraud · White-collar Crime · Crime · South African Institute of Chartered Accountants

CAPE TOWN — Tax ex­perts have urged the Trea­sury to back­date the change in the def­i­ni­tion of small busi­nesses so that per­sonal li­a­bil­ity com­pa­nies — such as doc­tors, at­tor­neys, ac­coun­tants and ar­chi­tects — can ben­e­fit from the lower tax rates and al­lowances that they should have en­joyed for the last five years.

The ex­clu­sion of per­sonal li­a­bil­ity com­pa­nies from 2011 is an er­ror the Trea­sury pro­poses to ad­dress in the 2016 draft Tax­a­tion Laws Amend­ment Bill, which is be­fore Par­lia­ment’s stand­ing com­mit­tee on fi­nance. It has pro­posed the amend­ment be ef­fec­tive from March 1 2016.

The South African In­sti­tute of Tax Pro­fes­sion­als ar­gues that while small busi­nesses wel­come the relief, “many small prac­ti­tion­ers are ar­gu­ing that the relief should be back­dated be­cause the prob­lem stems from an in­ad­ver­tent er­ror. The fail­ure to back­date means that sub­stan­tial taxes may be ow­ing plus penal­ties and in­ter­est,” it said dur­ing pub­lic hear­ings on the bill.

The South African In­sti­tute of Char­tered Ac­coun­tants agreed with this view.

PwC tax pol­icy leader Kyle Mandy said the change should be back­dated to 2011, the im­ple­men­ta­tion date for the 2010 Tax­a­tion Laws Amend­ment Act.

He said the un­in­tended con­se­quence of the mis­take was “that per­sonal li­a­bil­ity com­pa­nies were ex­cluded from be­ing small busi­ness cor­po­ra­tions and have … been sub­ject to tax at a higher rate”.

Mandy noted that the Trea­sury was op­posed to a ret­ro­spec­tive cor­rec­tion of the er­ror as it could re­sult in SARS hav­ing to pay re­funds.

“While it is ac­knowl­edged that rev­enue col­lec­tions are un­der pres­sure and that the pay­ment of re­funds would ex­ac­er­bate this prob­lem, two con­sid­er­a­tions are of ut­most im­por­tance.

“Firstly, the amounts in­volved would not be sig­nif­i­cant in the con­text of rev­enue col­lec­tions as a whole. Se­condly, there are ques­tions of fair­ness and eq­uity at stake,” he said.

Mandy also said the er­ror made by the Trea­sury in draft­ing the leg­is­la­tion had re­sulted in “an un­ex­pected tax wind­fall for the fis­cus. It (Saica) is not just that govern­ment should profit from its own mis­takes.”

Mandy said that in many cases, per­sonal li­a­bil­ity com­pa­nies had been li­able for in­ter­est on the late pay­ment of tax be­cause they made pro­vi­sional tax pay­ments on the un­der­stand­ing they qual­i­fied as small busi­ness cor­po­ra­tions.

Saica said if the Trea­sury did not agree to the ret­ro­spec­tive ap­pli­ca­tion of the amend­ment, then as a bare min­i­mum the pe­nal- ties and in­ter­est should be negated by law.

Tax pro­fes­sion­als were also unan­i­mous in their ob­jec­tions to the pro­posed changes to Sec­tion 8c of the In­come Tax Act, re­lated to em­ployee share in­cen­tive schemes, and the pro­vi­sions of Sec­tion 7c, re­lated to in­ter­est-free loans made to trusts, which the Trea­sury be­lieves are used to avoid es­tate duty and do­na­tions tax.

It is not just that govern­ment should profit from its own mis­takes

 ?? Pic­ture: FI­NAN­CIAL MAIL ?? TAXING ER­ROR: PwC tax pol­icy leader Kyle Mandy says any re­funds the govern­ment would have to pay to per­sonal li­a­bil­ity firms would be small in the con­text of rev­enue col­lec­tions as a whole.
Pic­ture: FI­NAN­CIAL MAIL TAXING ER­ROR: PwC tax pol­icy leader Kyle Mandy says any re­funds the govern­ment would have to pay to per­sonal li­a­bil­ity firms would be small in the con­text of rev­enue col­lec­tions as a whole.

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