South Africa to overhaul tax law

By Gary Vogelman and Janel Strauss, Edward Nathan Sonnenbergs
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The third draft of South Africa’s long awaited Tax Administration Bill (TAB) was recently published for a final round of public comment. Since the TAB is now nearing the final stages of the legislative process, every individual and company that pays tax in South Africa requires a basic knowledge of its implications.

Know your new identity

Gary Vogelman
Gary Vogelman
Executive, Tax department
Edward Nathan Sonnenbergs

The TAB introduces a single registration system whereby taxpayers will register for all tax types by means of a single registration form. For example, an enterprise will no longer have to register separately for income tax and value-added tax. The South African Revenue Services (SARS) may, however, allocate various reference numbers to one taxpayer to differentiate between various tax matters. Should the taxpayer correspond with SARS without mentioning the allocated reference number, SARS may disregard such correspondence.

In most instances, registration must take place within 21 business days of becoming liable or entitled to register under a tax act. “Business days” now also excludes days from 16 December to 15 January each year. Biometric information may now be used to authenticate the identity of an individual. This includes any biological data, such as retina, voice, facial or fingerprint recognition.

In line with the single registration system, a single taxpayer accounting system will also be introduced. Taxpayers will have one tax account with a rolling balance of all outstanding taxes. Payment allocation rules may be applied in respect of a specific tax type and SARS may recover taxes by applying the first-in-first-out rule. This could give rise to some interesting issues where the amounts of certain taxes are in dispute and others are not.

Know who you are dealing with

Janel Strauss,Edward Nathan Sonnenbergs
Janel Strauss
Candidate Attorney
Edward Nathan Sonnenbergs

SARS officials are now categorized into three tiers and decisionmaking powers and functions are assigned accordingly. The three levels are (i) the Commissioner personally; (ii) senior SARS officials; and (iii) ordinary SARS officials. The powers which may be exercised by senior SARS officials are greater than the powers exercisable by ordinary officials. All SARS officials must carry SARS identification cards whenever exercising powers in terms of a tax act, which must be shown upon request.

Certain of SARS’ powers are substantially extended by the TAB, for example information-gathering powers. If a person becomes “objectively identifiable” by SARS, relevant material in relation to that person may be procured from that person or from third parties.

SARS may, without prior notice, arrive at and inspect premises to determine the identity of the person occupying the premises, whether that person is conducting a trade or an enterprise, or whether the person is registered for tax and keeps the required records.

A detailed search of a business premises may be conducted by SARS officials without a search warrant if a senior SARS official has reasonable grounds to believe that there may be an imminent removal or destruction of relevant material likely to be found on the premises and that the delay inherent in obtaining a warrant from a court would defeat the object of the search and seizure. Such strong powers raise a number of constitutional issues.

Taxpayers may also be invited to informal examinations at a SARS office, for purposes of being interviewed regarding their own or another person’s tax affairs. Should such an invitation be received, taxpayers should obtain legal advice to ensure that they are well informed of their rights at the meeting.

In line with international practice, SARS may now also issue “jeopardy assessments” which means that taxpayers may be assessed for taxes which will only become due at a future date. Only a senior SARS official may issue such assessments and may only do so if the collection of a tax is in jeopardy (e.g. where assets may be dissipated).

Know your rights

According to SARS, the TAB seeks to achieve a balance between the powers of SARS, on the one hand, and the rights of taxpayers, on the other. Taxpayers should therefore be aware of their rights so that they can be enforced when necessary.

Taxpayers are currently obliged to pay outstanding taxes immediately, despite a pending objection or appeal. This obligation may now be suspended at the discretion of a senior SARS official. The TAB provides various criteria which the officer must consider, such as the compliance history of the taxpayer, the amount of tax involved and the ability of the taxpayer to provide security for the payment.

Should it be decided that the payment may not be suspended, SARS may not recover the tax for another 10 business days. In this way the taxpayer is given a reasonable opportunity to consider its further rights.

The truth will set you free

While the extension of SARS’ powers is aimed to target tax evaders more effectively, the TAB also seeks to ensure better service, efficiency and simplicity to honest and compliant taxpayers. In this context the TAB provides for a permanent voluntary disclosure programme (VDP) applicable across all tax types (excluding customs and excise), unless the taxpayer involved is subject to a pending or existing audit or investigation by SARS.

Full disclosure of a tax understatement can lead to a 100% relief of an administrative non-compliance penalty and a partial relief of an understatement penalty (previously known as additional tax). Also, SARS will not pursue criminal prosecution.

Taxpayers should therefore seriously consider disclosing past non-compliance and the sooner they do the better. If no voluntary disclosure has been made and SARS discovers past non-compliance or tax understatements (which are very possible with SARS’ supplemented powers), perpetrators will face severe penalties which may include criminal prosecution.

Gary Vogelman is an executive in the tax department, and Janel Strauss is a candidate attorney, at Edward Nathan Sonnenbergs

Do the homework before your company merger in South Africa

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Johannesburg

South Africa

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Tel: +27 11 269 7600

Fax: +27 11 269 7899

E-mail: info@ens.co.za

www.ens.co.za

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