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The Association of Chartered Certified Accountants The global body for professional accountants. 83 Offices worldwide 71 global accountancy partnerships 147,000 members More than 50% of our members are women 424,000 students in 170 countries 8,500 Approved Employers worldwide
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The Association of Chartered Certified Accountants The global body for professional accountants • 83 Offices worldwide • 71 global accountancy partnerships • 147,000 members • More than 50% of our members are women • 424,000 students in 170 countries • 8,500 Approved Employers worldwide • www.acca.org.za
Presentation to Standing Committee on Finance Tax Administration Bill B11-2011 Presented by: • Nicolaas van Wyk Head Technical Policy, ACCA (South Africa) • Johnny Eliades Technical panel member, ACCA (South Africa) • www.acca.co.za
Introduction • ACCA supports • Simplification of tax system as proposed by TAB • POSSITIVES • Consolidating administrative parts of various tax statutes • RISKS • Increase in unnecessary compliance costs for taxpayers due to significant new powers allocated to SARS
Introduction • PRESENTATION IN THREE PARTS • Part 1: 12 tenets of taxation • Part 2: Specific issues of concern • Part 3: Suggestions on tax simplification
Introduction • NOTE OF APPRECIATION • Consultative approach adopted by SARS • ACCA made number of submissions on draft TAB • SARS process should be model for all legislative drafting processes
PART 1: 12 TENETS OF TAXATION
PART 1: 12 TENETS OF TAXATION • PURPOSE • Will assist the committee in making a critical assessment of the TAB • Easy to get lost in detail • Always remember the bigger picture • TAB part of a rewrite of the income tax act • TAB and any rewrite should support the 12 tenets
PART 1: 12 TENETS OF TAXATION • AVOIDANCE VS EVASION • Avoidance is unlawful and unacceptable • Tax planning schemes designed simply to exploit loopholes • Evasion is normal practice • Claim a tax deduction • Avoidance is reduced if tax law is clear and certain • The right to minimise tax via proper tax planning should be protected and recognised in TAB
PART 1: 12 TENETS OF TAXATION • TAX AS A % OF GDP • Levels of taxation should be stated as a % of GDP • TAB should not increase the level of taxation by increasing tax compliance costs • Tax and tax compliance is a burden • The imposition of any new tax should be subject to impact assessment • Measure and evaluate impact against policy objectives – what is ROI?
PART 1: 12 TENETS OF TAXATION • TAX SIMPLIFICATION AND STABILITY • Companies spend +-two months per year complying with tax regulations • Reduced ability to trade and do business • Less business means less jobs means less profits means less tax • Small businesses suffer most • Increase in tax laws due mostly to new anti-avoidance measures • Small businesses have no time to engage in esoteric tax planning and are simply trying to cope with the volume of laws.
PART 1: 12 TENETS OF TAXATION • OPENNESS, TRANSPARENCY AND ACCOUNTABILITY • Tax policies should be transparent and non-discriminatory • Unless part of a declared discriminatory policy, such as one aimed to encourage new enterprise • Major issues of tax policy • Consultation and stakeholder briefing is fundamental • Specify options at the start • Ensure appropriate consideration with an audit trail.
PART 1: 12 TENETS OF TAXATION • CERTAINTY • Tax system should ensure certainty in outcomes and operations • Different taxpayers who look at legislation should always come to the same interpretation of the law • TAX COMPETITIVENESS • Governments must be wary of causing retaliatory action and trade wars by drastic business tax cuts.
PART 1: 12 TENETS OF TAXATION • EFFICIENCY • Efficient tax collection system will ensure that • Tax payable is collected • Tax leakage is prevented • taxpayers have ability to comply • SUNSET CLAUSES • Tax legislation should be periodically overhauled and consolidated • All anti-avoidance legislation should have sunset clauses attached • This will ensure they are regularly reviewed
PART 1: 12 TENETS OF TAXATION • CLEAR LINK FROM TAX TO SPEND • Compliance will increase if taxpayers know • Why they are paying a particular tax • What the tax is being spent on • AVOIDANCE OF DOUBLE TAXATION • Income should be taxed only once
PART 1: 12 TENETS OF TAXATION • HUMAN RIGHTS • Taxpayers should to pay their tax in full and on time. • States should not impose their will in an arbitrary or vexatious way • Pernicious tax law is not acceptable: for example, where it could be argued there is fundamental uncertainty or unjustified additional cost of operating in one particular business vehicle rather than • ‘TAX SHIFTING’ – GREEN TAXES • Use tax to change behaviour which is damaging to the environment
PART 2: SPECIFIC COMMENTS
PART 2: SPECIFIC COMMENTS(refer to table) • SECTION 1 • Insert a minimum fine amount above which an offence will be deemed to be a serious tax offence. • SECTION 3(2)(a)(i) • Remove the term “future tax period”
PART 2: SPECIFIC COMMENTS(refer to table) • SECTION 16 • Tax Ombud should also be able to: • Review • Faulty procedures • Unfair treatment • Biased or prejudice actions by SARS • Misleading or inadequate advice by the revenue authorities • Refusal by authorities to answer reasonable questions, Mistakes in handling claims of taxpayers • Frivolous investigations conducted randomly by SARS • The compliance burden imposed on tax payers due to SARS administrative actions
PART 2: SPECIFIC COMMENTS(refer to table) • SECTION 16 (continued) • Tax Ombud should also be able to: • Issue penalties against SARS for possible misconduct • Making recommendations for the improvement of the tax system
PART 2: SPECIFIC COMMENTS(refer to table) • SECTION 26 • Insert a new section requiring SARS to inform the tax payer that additional information is being obtained from third parties • Insert a new section requiring SARS to compensate the third party providing the information to SARS
PART 2: SPECIFIC COMMENTS(refer to table) • SECTION 28(1) • Replace section 28(1)(a) and (b) with the following: • “Submit an Accounting Officer Report as contemplated by section 62 of the Close Corporations Act, 1984 or if so directed by SARS submit an Independent Review Report as contemplated in section 30(7) (b) of the Companies Act, 2008 or if so directed by SARS submit an Audit Report as required by section 30(7) (a) of the Companies Act, 2008”.
PART 2: SPECIFIC COMMENTS(refer to table) • SECTION 34 • Replace the section with the following: • “Financial Reporting Standards means in the case of companies, financial reporting standards as prescribed by the Companies Act, 2008. In any other case any appropriate accounting framework that provides fair presentation.”
PART 2: SPECIFIC COMMENTS(refer to table) • SECTION 35(1)(c) • Remove section 35(1)(c), (d) and (e) and replace with the following • “A reportable arrangement should only be reported if the sole purpose of the transaction is to avoid the payment of tax”.
PART 2: SPECIFIC COMMENTS(refer to table) • SECTION 40 • Remove the word “random” from the section • Include a sentence requiring SARS to have some suspicions about a taxpayer upon which to seek information. • Include a general provision that entitles the tax payer to compensation in the event that the inspection turns out to be frivolous.
PART 2: SPECIFIC COMMENTS(refer to table) • SECTION 40 (continued) • The TAB should explicitly provide for a mechanism whereby the taxpayers is empowered to recover costs from SARS related to: • Abuse of power by SARS • Inefficiencies and loss of taxpayer documents by SARS • Lack of performance by SARS in terms of the SARS charter.
PART 2: SPECIFIC COMMENTS(refer to table) • SECTION 47(1) • Remove section 47(1) or alternatively the TAB should provide for compensation to be paid to any person required to appear before a SARS official.
PART 2: SPECIFIC COMMENTS(refer to table) • SECTION 241 • SARS and professional bodies should issue a guidance note for tax practitioners • Assist and advise members on their professional conduct in relation to taxation. • The ACCA is already a signatory to a similar agreement with the revenue office in the UK.
PART 3: OFFICE OF TAX SIMPLIFICATION
PART 3: TAX SIMPLIFICATION • OFFICE OF TAX SIMPLIFICATION • Review South Africa’s tax laws to: • Simplify the tax system • Ease administration • Reduce uncertainty for small businesses • Should be permanent appointment in TAB • Should report to parliament • Should issue annual barometers that test efficiency and effectiveness of tax system