Tax Profession set for Reform
15 March 2013
Posted by: Author: Stiaan Klue
The South African Revenue Service (SARS) is engaged in a number of initiatives aimed at improving the compliance culture and reducing the tax gap in South Africa, one of which is the introduction of a regulatory regime for tax practitioners – with the primary aim to reform the tax industry.
The proposed regulation of tax practitioners in South Africa was ﬁrst introduced by Minister Trevor Manuel in his budget speech in 2002, in which he indicated "that the SARS would initiate discussions on the appropriate regulation of tax consultants and advisors in South Africa in order to promote compliance and ensure that taxpayers receive advice consistent with tax legislation”. This subsequently resulted in an amendment to the Income Tax Act 58 of 1962 (‘the Act’), by the introduction of section 67A into the Act, and required speciﬁed persons to register with the SARS.
Following the initial registration requirement for all tax practitioners in 2005, irrespective whether they hold formal qualiﬁcations or have any proven practical experience in tax law, SARS proceeded with the development of a regulatory model for tax practitioners. In March 2007 the draﬅ Regulating of Tax Practitioner Bill was released by SARS for public comment, and proposed the establishment of an Independent egulatory Board for Tax Practitioners. However, the proposed regulatory model envisaged in the draﬅ legislation raised several signiﬁcant and valid concerns in the tax industry. Although the draﬅ legislation envisaged the establishment of an Independent Board for Tax Practitioners, the draﬅ legislation did not set the minimum qualiﬁcations, i.e. eﬀective continuing professional education requirements, a code of conduct speciﬁc to tax practice and minimum taxation standards.
During 2007, the tax profession was formally established when the South African Institute of Tax Practitioners (SAIT), was constituted as a voluntary industry professional body.
CHANGE OF COURSE
Aﬅer much deliberation by government, taking into account the concerns and challenges raised by the broader tax profession, during the public commentary phase early 2007, as well as the subsequent establishment of the SAIT in 2007, the Tax Administration Laws Amendment Act, 2012 in December 2012 introduced a two phased approach with regards to the regulation of tax practitioners.
Phase one is the compulsory registration of tax practitioners with a recognised controlling body before 1 July 2013, and phase two will introduce the establishment of the independent regulatory board for tax practitioners. "Te second phase will begin with a review of the success or otherwise of the ﬁrst phase eighteen months aﬅer its implementation (1 July 2013).”
In response to the budget speech in 2002, SARS issued a discussion paper setting out its proposal relating to how the tax profession should be regulated. According to the discussion paper issued at that stage, "there is a signiﬁcant problem for both SARS and taxpayers that no minimum standard in respect of qualiﬁcations or experience is required and that not all tax practitioners are subject to a code of professional conduct”.
The discussion paper indicated that from SARS’ perspective, a "great deal of time and energy is spent unnecessarily and ineﬃciently in correcting errors made by or addressing the unprofessional conduct of a small but signiﬁcant number of tax practitioners. Te unprofessional conduct of a tax practitioner may place the taxpayer’s funds and good reputation at risk.”
In addition to the errors made by tax practitioners and alleged unprofessional conduct, Finance Minister Pravin Gordhan announced in his national budget speech in 2012, that tax practitioners owe R260 million in tax and have 18 000 income tax returns outstanding in their personal capacities.
Although there are valid reasons for regulating tax practitioners, there are various contentious issues that are causing many areas of concern for both taxpayers and tax practitioners relating to the possible impact of this regulation. More importantly, it lacks key elements in certain areas. For example, in an article by PriceWaterhouseCoopers (2005:6) it was noted that "nowhere in the literature thus far provided by SARS on the proposed regulation of tax practitioners is it expressly stated that one of the objectives is to subject tax practitioners to sanctions if they advise or assist their clients in relation to tax avoidance schemes”.
Professor Jackie Arendse, at that stage with the South African Institute of Chartered Accountants (SAICA), noted that it has received "many complaints from members of the public for poor performance or other problems encountered with accountants and related people not registered with SAICA” in this context.
The disussion paper on regulating tax practitioners, on the other hand stated that "a closely related problem is that complainants are not always aware of the code of professional conduct binding a member of a particular profession, for example a chartered accountant. Without this knowledge complainants are not in a position to evaluate whether a tax practitioners’ conduct is in breach of the particular code of professional conduct that might bind him or her.
The problem in South Africa is not unique to the rest of the world. In Australia, for example, the Minister for Revenue announced during 2006 that the Australian government will provide $57.5 million over the next four years for the implementation of a new national legislative framework for tax practitioners. He noted that a problem with the current framework in Australia is that "Business Activity Statement (BAS) service providers has resulted in unregulated people providing tax services” and that "this aﬀects the integrity of the tax system” (Minister of Revenue, 2006:1). Te Australian tax practitioners are now fully regulated by the Independent Regulatory Board for Tax Practitioners (TPB 2013).
The tax profession should embrace the co-regulatory regime legislated on 22 December 2012.
Tax practitioners provide a service to the public, are paid for it and hence should be accountable.
It is therefore imperative that the tax profession not only be regulated, but rather be reformed.
Te non-compliance of tax practitioners in their private capacities is worrying. It is clear that the problem of an unregulated profession is much bigger – and it requires renewed diligence.