Backdate correction of small business tax, urge experts
15 September 2016
Posted by: Author: Linda Ensor
Author: Linda Ensor (Business Live)
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 past 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 (Saica) 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 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 penalties 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.
This article first appeared on businesslive.co.za.