Are Tax Practitioners Now King Rats?
01 September 2009
Posted by: Author: Stiaan Klue
Are Tax Practitioners Now King Rats?
Following the democratisation of South Africa in 1994 the performance of the greater National Treasury function has surpassed all expectations.One of the reasons for the good performance and subsequent prosperity passed to the South African population has been the efficiency of collecting and administering of taxes.
South Africa has a less that perfect compliance culture due to several factors:
-The economic marginalisation and consequent lack of knowledge about tax amongst a large segment of the population;
-The mindset and practices that took hold when circumventing international sanctions.
-The historically limited capacity of the tax and customs administrations to challenge tax evasion and highly arguable and fanciful tax planning structures and techniques.
It is well known that SARS is engaged in a number of initiatives to improve the compliance culture and reduce the tax gap in South Africa.One of these is regulating the tax industry.
Where did it start?
The proposed regulation of tax practitioners was first introduced by Minister of Finance Trevor Manuel in this budget speech in 2002 in which he said "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 resulted in an amendment to the Income Tax Act with the introduction of Section 67A,which required specified persons to register with SARS by 30 June 2005.
In response to the budget speech in 2002, SARS issued a discussion paper proposing how the tax industry should be regulated.This paper stated that no minimum standard for qualifications or experience was required of tax practitioners, and that not all of them were subject to a code of professional conduct.This posed significant problems for both taxpayers and SARS.
Various stakeholders responded to this discussion paper,Jackie Arendse of the South African Institute of Chartered Accountants (SAICA) commented that it had 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 .
This corresponded with the discussion paper from SARS’s perspective which stated that "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”.The paper further stated that from a tax payer’s perspective the unprofessional conduct of a tax practitioner may place the taxpayer’s funds and good reputation at risk.
The foundation of this discussion paper was that a "regulated professional monopoly for tax practices,similar to the professional monopoly that auditors and lawyers enjoy in many countries” be established.It was proposed that an Association of Tax Practitioners be formed that would have "its own legal persona and would be run by the stakeholders themselves”.SARS would be an "important stakeholder but would not be the regulator”.The discussion paper further stated how the board governing such an association would be represented and operated and what the objectives of the board would be Of particular relevance was that the board was "to co-operate at all times with SARS and the National Treasury”, for example with regard to the various categories of membership within the association and qualifications or experience necessary to become a member.
This proposal contained various contentious issues, and raised many areas of concern for both taxpayers and tax practitioners.It lacked key elements in certain areas.In an article by Pricewaterhouse Coopers, the writer referred to the fact 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”.The concern was that SARS would possibly include additional objectives once the registration process had been completed, and then later disclose additional requirements attached to regulation.These issues cast significant doubt on whether the proposed SARS model would in fact be the most suitable model for South Africa.An important comment made by PwC was that "an important function of the regulation of tax practitioners is to strike an appropriate balance between loyalty to the tax system and the client.it also has several other objectives, such as protecting clients from unscrupulous or incompetent tax practitioners”.It appear as if the "current proposal tends to over compensate for past wrongs and leans towards being too severe, which may in itself render the proposal non-executable in practice.
The discussion paper issued by SARS 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 practitioner’s conduct is in breach of the particular code of professional conduct that might bind him or her”.
Draft Regulating of Tax Practitioners Bill
The draft Bill on Regulating Tax Practitioners was released during March last year, five years after the minister announced the regulation of the tax profession.It is clear that SARS has treaded very carefully with this process, and there might be good reason for this if one look at provisions in the current draft Bill. The following problems may be applicable:
Problem 1:Possible civil and criminal liability
Possible civil and criminal liability on the part of tax practitioners could become indeterminate due to the current reporting of irregularities as contained in Section 31 of the draft Bill.It appears that the tax practitioner will be the main informant for SARS.
Problem 2:What will the membership requirements be?
In terms of Section 67A, registration with SARS requires no minimum academic and practical experience.This was not well thought through by the legislature as these registered tax practitioners feel that they are acknowledged as competent and professional.
Problem 3:Will the tax practitioner be able to practice free from undue regulation from the board?
With the current "open door” relationship that is planned between the proposed board and SARS, the answer appears to be no.In terms of Section 37 of the draft Bill the board must inform the commissioner of the details of a reportable irregularity and disclose any information relating to the person concerned.
Problem 4:Will the board indeed be "independent”?
It appears not In terms of Section 7 (7) the minister of finance may appoint an official of SARS as an additional member to the board who has the same rights as the principal members, other than the right to vote.
Source: By Stiaan Klue (TaxTALK)