Tax Administration Update
04 October 2011
Posted by: Author: Faith Ngwenya
Tax Administration Update
In June this year, SARS / National Treasury released the `epoch making’ draft Tax Administration Bill for public comment.This tax Bill steers tax discourse in a very different direction that affects the way in which tax practitioners engage with taxpayers.SAIPA presented its submission to the Standing Committee on Finance.Below is a summary of the submission.The full document can be viewed on the SAIPA website (ww.saipa.co.za).
Tax Ombud (S15, 16, 20 (2)):
There is a general perception that the SSMO has not been successful in achieving the desired outcome.One of the reasons for the perceived poor delivery could be the lack of resources devoted to it and the numerous queries evoked by SSMO.Although the Tax Ombud is not designed to replace the SSMO, it is feared that a similar fate could be fall the Tax Ombud if it is in adequately resourced and lacks binding authority.
If a well-resourced Tax Ombud Office with the necessary binding authority is forth coming, it may not be necessary to have a separate SSMO division, since its function would fall within the office of the Tax Ombud.We are concerned that Section 20 (2) states that ‘the Tax Ombud’s recommendations are not binding on taxpayers or on SARS’, which indicates that the Tax Ombud lacks authority, which would have been most welcomed.This non-binding provision is an obstacle to the effectiveness of the Office of the Tax Ombud - it remains a body with no teeth.
Statements concerning accounts (S28)
SAIPA understands the need for accountants who submit financial statements for a taxpayer to issue a certificate or statement confirming the fairness of the statement.The following are our concerns:
• The format of the statement and the required details must be clarified;
• It is unclear whether this statement is viewed as a standard supporting document that must be accompanied with all company returns;
• Not all types of business require any form of assurance.Section28 (1)(a) implies that the preparer of the financial statements would have ‘examined’ the books of account which is not a requirement in non audited financial statements;
• If SARS used this statement as part of an audit, it is not clear how the financial statements will be tested in the process of detecting risks.SAIPA acknowledges that it is not within the professional norm of a tax practitioner to participate in unlawful practices which transgress any tax laws, and further we understands that professional bodies have an obligation in order to ensure proper governance within the tax discipline.
Issuance of Warrants (S60):
We submit that the wording of section 60 (2) (a) is in adequate.To prevent fishing expeditions and to protect the taxpayer’s constitutional rights, the warrant should at least contain sufficient detail of the alleged offence or failure that the taxpayer can determine, by reading the warrant, what exactly SARS suspects the taxpayer to have done, and in respect of what tax year the offence is suspected of having taken place.This will enlighten the taxpayer as to what documents SARS is allowed to search for. Therefore, the warrants should not simply refer to an alleged contravention of sections of the Income Tax Act or the VAT Act, but it should also contain a description of how and when the taxpayer is suspected of having contravened those provisions.Much more detail should be furnished on the warrant; SAIPA does not suggest that the details disclosed in a warrant should be a reflection of a charge sheet.
Search without warrants (S63)
This bill permits the search and seizure without warrants under clearly defined circumstances. We, however, recommend that searches without warrants be accompanied by an official document from SARS.The details of the searches relating to the tax offence should be comprehensive, indicating the reasons and scope of the search, amongst other things, to limit fishing expeditions.
Legal professional privilege (S64)
Professional privilege is of great importance to allow a taxpayer the access to proper legal counsel, which should not be limited to communication made for the purpose of litigation only, but to allow a taxpayer the freedom to seek advice and relevant counsel with regards to the interpretation and application of taxation law.The legal privilege will allow the taxpayer to obtain proper advice, which can only be obtained when the professional giving the advice has all the relevant facts and information on the table.A taxpayer should be reserved a right not to provide information to a professional if, in turn, the professional is obligated to disclose such to the authorities.We recommend the following framework for legal privilege:
• The legal privilege will only apply to ‘tax advice documents’ to the extent that such is held by the tax practitioner who is appropriately qualified to give such advice, who has a significant function of giving advice on tax law, and is registered with a professional body or institute.
• Tax advice documents include a book, document, communication, minutes of meeting, notes taken during meeting, and record of advice or opinion that is confidential, and are created by, The person for the purpose of instructing a tax advisor to give advice about the operation and effect of tax laws A tax advisor or employee for the purpose of recording research and analysis to give advice about the operation and effect of tax laws A tax advisor or employee for the purpose of giving advice about the operation and effect of tax laws and- Is not created for purposes of committing, promoting, or assisting the committing of an illegal or wrongful act.
Jeopardy assessments (S94)
SARS may make a jeopardy assessment in advance of the date on which the return is normally due, if a senior SARS official is satisfied that it is required to secure the collection of tax that would otherwise be in jeopardy.It is recommended that SARS should forewarn the taxpayer that a `jeopardy assessment’ is in danger of being invoked.The fairness of this clause is also questionable because it will put SARS ahead of other creditors in situations of financial stress.
Personal liability of responsible third party (S159)
Currently, it is not clear in the Bill how a third party should be informed of any impending liabilities. If SARS is obliged to assess the third party, then the third party can object on the same grounds as the original taxpayer, it is unfair to hold the third party liable for a tax that can be disputed. SARS would have to inform a third party of the offending taxpayer’s tax information details; provision for disclosure under these circumstances, must be made in the secrecy.
Burden of proof (S102)
This section introduces the burden of proving whether an estimate assessment is reasonable on the basis of an understatement penalty upon SARS.We recommended that this be extended to both the `jeopardy assessment’ and `third party liability’. provision.
Taxpayer account (S165)
It is not clear at what point a taxpayer may use a surplus in his/her account to offset a tax due - for example, a VAT due or a future direct tax liability.Clarity on this would add value to this new administrative procedure.For example: a VAT refund is due to the taxpayer and has not yet been paid by SARS, while the same taxpayer is required to make payment with regards to employees’ tax or provisional tax.Can the VAT refund be used as a credit towards the payment of employees’ tax or provisional tax?
Deferral of payment (S67) and compromise of tax debt (S200)
It recommended that the TAB provides administrative mechanism which would permit taxpayers to benefit from these concessions and be allowed to apply for these concessions if the necessary requirements are met.
Refunds due to taxpayers (S190(3))
Many taxpayers did not have their VAT refunds returned on time because of a protracted, multi tiered, and comprehensive audit process.VAT remains a high risk for SARS because of its self assessment nature and the `potential’ for vendors to claim non deductible input claims, such as motor cars and entertainment.This welcomed provision permits the payment of a refund to proceed before the completion of an audit on production of `collateral’ or security that the tax liability can be paid if the audit subsequently proves that a refund was not due to the taxpayer but, instead, liability exists in favour of SARS.It is recommended that if within a stipulated period (SAIPA recommends a six-month period), refunds are not paid out to tax payers and audits are still incomplete, the refund should be paid out to the taxpayer although security has not been delivered.
Complaints to controlling body of tax practitioner (S240(3), S241)SAIPA acknowledges that it is not within the professional norm of a tax practitioner to participate in unlawful practices which transgress any tax laws, and further we understands that professional bodies have an obligation in order to ensure proper governance within the tax discipline.
• A formal procedure is followed by SARS to report the tax practitioner to his / her controlling body.The tax practitioner should also have a right to appeal the decision for removal from the roll of tax-practitioner;
• Only the Commissioner may lodge a complaint with a`controlling body’ if a registered tax practitioner acted unlawfully;
• There should be provisions for dealing with tax practitioners that do not belong to any controlling body.
Source: By Faith Ngwenya (Tax Professional)