South Africa: Tale Of A Golden Goose

Last Updated: 3 June 2013
Article by Ben-Schoeman Geldenhuys and Jané Van Reenen

The National Budget will be delivered by South Africa's Minister of Finance, Pravin Gordhan, on 27 February 2013. Taxpayers and tax professionals are waiting with bated breath to see what changes will be announced in the upcoming Budget Speech. One can expect the usual increases, attempts to give money back to taxpayers, only to then take away the 'relief' through increases in levies, tariffs and duties. If rumours in the press and media are taken to heart, the golden goose, South Africa's unappreciated and mostly unrepresented taxpayers and the small, medium and large corporate taxpayers will face an unabated onslaught. In many respects it appears that South African Taxpayers approach the continuous changing tax environment in line with Alfred Lord Tennysons' quote "ours not to reason why ours but to do and die"?

The frightening aspect related to the media and press statements leading up to the Budget Speech is that if the rumours come true all taxpayers and professionals will face new challenges in either monetary or technical forms. Economists now report, almost daily, that the status quo cannot persist. If our government continues on the current path of high taxes, low infrastructure development and non-delivery of infrastructure we face an uncertain and uncharted future. Challenges are not new to the tax world, yet there are current changes which have come into being in a rather stealthy form. A stealthy change related to the tax environment which taxpayers and professionals now face is brought about by the Tax Administration Act No. 28 of 2011 (the TAA).

The TAA, promulgated on 4 July 2012, introduces South Africa's first single administrative legislative environment. Whilst this development is a commendable step towards certainty, clarity and predictability, it has unfortunately enabled the South African Revenue Service (SARS) to introduce certain far-reaching administrative powers, including a stringent and arguably a punitive interest and penalty regime.

Legislation of this nature remains controversial at the best of times. SARS application of the TAA towards taxpayer affairs prior to 2012 is certainly opening a host of legal issues and it is merely a matter of time before the South African courts will be required to address various matters flowing from the TAA, its implementation and administration. In a constitutional democracy, it is perhaps time for taxpayers to embrace the fundamental rights and protection granted by our courts in the face of an ever increasing hostile tax authority. It would be rather unfortunate if the TAA and SARS administrative actions harm our tax system, which is currently comparable to the leading tax systems in the world.

A question may well be raised as to what is all the noise about? Perhaps the issues are best illustrated with reference to certain aspects of the TAA.

How much interest and penalties?

The TAA introduced a new interest and penalty regime, far more onerous for the taxpayer than the previous regime, albeit more predictable. What is even more alarming is that Section 270 of the TAA provides for retrospective application of the provisions of the Act to matters arising before 1 October 2012, except in circumstances where such actions or proceedings have been completed prior to this date.

The TAA provides for three penalties:

  • An understatement penalty, being a percentage between 5 and 200 percent of the shortfall amount;
  • A fixed amount penalty to a maximum of R16 000, calculated with reference to the taxpayer's taxable income for the previous tax year, and imposed for any non-compliance with any obligation imposed under tax law, which penalty is levied monthly for as long as the non-compliance is not remedied; and
  • A percentage based penalty.

Prior to the TAA, in the event that a taxpayer claimed an impermissible deduction, the deduction was simply disallowed, and no penalty was payable, provided that there was no intentional tax evasion at play. In contrast, taxpayers may be punished for an honest mistake under the new regime. In the event that a deduction is disallowed by SARS, the taxpayer will be liable to pay an understatement penalty of up to 200 percent of the understated amount, depending on the conduct of the taxpayer.

In terms of the new interest provisions, interest will be imposed for the period from the so-called "effective date" of the tax to the date the tax is paid. The result, according to SARS, is that the in duplum rule will not apply. This means that the interest payable by the taxpayer may exceed the amount of outstanding tax due to SARS. This arrangement is unheard of in statutory South African law. Furthermore, interest will now be compounded monthly. The irony and unsettling reality faced by taxpayers is that SARS will not pay compounded interest to a taxpayer where it owes money.

The provisions of the TAA provide for the remittance of interest or penalties only in a limited number of well defines exceptional circumstances, thus reducing the Commissioner's discretion in remitting these penalties.

The professionals

The powers given to SARS in respect of penalties were not unexpected. In addition to many provisions relating to taxpayers, SARS has revised the requirements for the registration of tax practitioners. Essentially, it is now a legal requirement for tax practitioners to register with controlling bodies before being allowed to register with SARS. It is certainly noteworthy that the requirements for tax professionals to register with controlling bodies do not apply to SARS. Again, one could sense the irony of having a system where the professionals acting for the taxpayer face severe regulation, however, the administrator is allowed to act as it pleases. If conspiracy theorists are to be taken to heart, it appears that the administrator is seeking to ensure complete control over the professionals dealing with tax matters.

South Africa's tax system is certainly sophisticated and stands tall among world tax regimes including the BRICS, the UK (United Kingdom), the EU (European Union), Australia and perhaps even the USA (United States of America). Yes, a lot still needs to happen locally, however, in some respects, like eFiling, we are pioneering tax in the 21st century.

On 18 January 2013 a US court permanently barred the IRS from enforcing a new regulatory regime for tax-return preparers. The court concluded that the new regulations would place an undue burden on tax-return preparers. Not only would the new regulations require a tax-return preparer to pass a qualifying exam, pay an annual application fee, and take 15 hours of continuing education courses each year, but it would also allow the IRS to levy penalties against tax-return preparers. It is clear from this judgment that US courts do not look favourably upon tax authorities' increased powers, as this could threaten the livelihood of tax practitioners, should they be forced to comply with the new regulatory scheme.

Our TAA includes provisions which would distinguish this case from applying in South Africa. However, the approach by the courts towards unchecked administrative powers to regulate and restrict is likely to be followed by South African courts.

In the end

As tax professionals and taxpayers we have an obligation to ensure that the correct amount of tax is paid. This is determined by virtue of the Income Tax Act and other Tax Acts. Administrative actions and penalties should not replace a robust and sound tax system.

As taxpayers we should question unchecked administrative authority and ensure that our Constitutional Democratic principles are always upheld by the State. And perhaps it is appropriate to end with Shakespeare:

"If we shadows have offended,
Think but this, and all is mended,
That you have but slumber'd here
While these visions did appear..."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions