SOUTH AFRICA’S LEADING TAX JOURNAL NOVEMBER/DECEMBER 2013
Shift from Direct
Taxes to Indirect
Taxes Set to Continue
The Employment
Tax Incentive Bill.
Who stands to
gain here?
SAIT Hosts Annual
Africa Transfer Pricing
Summit for Second Year
Your November
CPD Calendar
The difference between being good at what you do, and being great at it, lies
solely in your ability to make well thought out and calculated decisions. So when
choosing a professional tax body, choose a reliable and honest one that prides
itself on integrity and excellence. Choose sait.
2
TaxTalk
Contents
Issue 43 • November/December 2013
02
04
08
10
10
50
Shifts in the
industry
14 Career Shifts
15 Readers’ Questions
16 Profile - Mike Dingley
Business
Centre
71
72
74
76
78
79
80
82
84
87
Gadgets
Steamlining Your Business Travel Costs
Top People in Tax
Oh Behave! How to Survive the
Christmas Office Party with Your
Dignity Intact
SAIT News - SAIT to Host the Tax
Amazing Race for Students
Leave Pay and Bonus Processing
can be a Breeze
A Night of African Glamour at the
Transfer Pricing Gala Dinner
SAIT Hosts Annual Africa Transfer
Pricing Summit for Second Year
Calendar
Common Mistakes that lead to
Employees’ Tax Exposure and Adverse
Risk Profiling
21
Nicole Paulsen
The Employment Tax
Incentive Bill
Who stands to gain here?
Unemployment remains a critical problem in
South Africa, especially amongst the youth who
are excluded from economic activity due to the fact
that prospective employers are, in many instances,
reluctant to hire young job seekers.
From the Editor
Contributors
Review
Global Tax News
Darling Warns of Tax Rises in
Scotland over Oil Dependence
10 EU Commissioner Barnier
Slams French Tax Levels
11 Netherlands Clamps Down on
Intra-Group Tax Evasion
11 ‘Too Many New Taxes’ in
Irish Budget
11
Focus
21 The Employment Tax Incentive
Bill - Who stands to gain here?
26 Proposed Changes to the VAT
Registration Process
28 VAT Registration of Foreign
E-commerce Suppliers
30 Vat Regime: Stay Or Leave, A
Case Of Indonesia
34 Shift from Direct Taxes to
Indirect Taxes Set to Continue
38 What Ever Happened to the
Customs & Excise Legislation
Re-write Project?
42 Image Rights, it’s Time for
Clarity and Certainty
44 More Holistic Planning Around
Custom Valuation and Transfer
Pricing
47 The VAT Challenges of Crossborder Supplies
50 A Conundrum? The VAT
Consequences of a PBO
Entering into a Joint Venture
with a Third Party
52 “A Custom(ised) VAT Analysis”
54 The Transformation of the South
Africa Revenue Authority in the
Post-Apartheid Era
Lifestyle
64 Guide to Living
Summer Pickings
Welcome the New Year with a Moonlight Celebration
Cherry-Picking at the Ficksburg Festival
Pick a Spot for a Perfect Picnic
66 Top 10 Mountain Biking Destinations
68 Five Heart-Warming South African
Family Holiday Destinations
TaxTalk
01
From the Editor
Employment Incentive Bill
The way forward?
T
“Some trade unions
have voiced their
discontent with this
particular bill, saying
that it will only
increase exploitation
and would not reduce
unemployment”
02
TaxTalk
he end of the year is upon us,
and with tax filing season coming to an
end on the 22nd November for non-provisional efilers, tax professionals will have
their hands full trying to complete their
clients’ tax returns in time. With the added
burden of the no compromise approach
taken by SARS in recent times, tax professionals will have to be more vigilant than
ever before. This is another reason why tax
professionals need to keep up to date with
the changing tax landscape. In order to do
this, registered tax practitioners are urged
to meet their CPD requirements as set out
by their recognised controlling bodies.
SAIT currently has various CPD events
taking place around the country, (refer to
the SAIT website for more details), that
will assist both registered tax practitioners
as well as tax professionals to update their
knowledge, obtain CPD points and ensure
that they are aware of the latest technical
and operational developments in
the industry.
This issue features various articles
around indirect tax. Governments around
the globe continue to use indirect tax as
a means of increasing revenue. As usual,
VAT is a very popular topic, and there is
also some debate around the new draft
customs bill and the ramifications of this.
Our contributors for this issue are experts
in their field and we hope you enjoy
the read.
The last three months have also seen
welcome developments in South Africa.
The first important development affecting
taxpayers, is the announcement by SARS
in October of the appointment of the first
Tax Ombudsman, retired Judge President
Bernard Ngoepe. Judge Ngoepe has a
wealth of experience in tax and adminis-
trative law and TaxTalk wishes him great
success during his tenure. TaxTalk will
provide readers with an update on the
progress of this office next year.
The Medium Term Budget Speech
tabled on 23rd October , also provided
encouraging news for South Africans, as
Minister Gordhan announced that National Treasury has projected that they will
meet the fiscal deficit target for 2013/2014
and that government is resolute in their
commitment to fiscal discipline. Stern
measures are being put in place to avoid
abuse of government funds, and a welcome
announcement is that all credit cards currently in use by Government officials are
going to be scrapped. Government travel
expenses also came under the spotlight
and these will be monitored going forward
and limitations put in place with regard
to accommodation and car hire expenses.
Another area of concern is the amount of
funds spent on events, and venue hire for
these events. Wherever possible, Government venues are to be sourced for this use.
This is good news for taxpayers who have
had to bear the outrageous cost of some
recent events.
There has been much said in the media
recently about the Employment Tax Incentive Bill. Some trade unions have voiced
their discontent with this particular
bill, saying that it will only increase exploitation and would not reduce unemployment. Please turn to page 21 to read
an article from Cliffe Dekker Hofmeyr on
the subject.
We wish all of our readers safe travel
over the holiday season and we look forward to sharing the developments in the
above and other important areas with you
in the new year.
Liz
The
Team
Publisher
Yanic Smit | yanic@mellamarketing.com
Editor
Liz Jones | liz@taxtalk.co.za
Technical sub-editor
Stiaan Klue | sklue@thesait.org.za
Feature writer
Yolande Botha
Art director
Natalia Carvalho
Design and layout
Natalia Carvalho
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P O Box 51632
V&A Waterfront
Cape Town
8002
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Convention Tower
Mezzanine Level 2
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Advertising manager
Collette Evers | collette@4evers.co.za
4Evers Marketing Solutions
Tel: 011 704 0371
Cell: 082 349 9914
Michelle Baker| Michelle.baker@mediamarx.co.za
MediaMarx
Tel: 031 764 6725
Cell: 073 137 1231
Member of the Audit
Bureau of Circulation
Opinions expressed in this publication are those of the authors and do not necessarily
reflect those of this journal, its editor or its publishers. The mention of specific products
in articles or advertisements does not imply that they are endorsed or recommended
by this journal or its publishers in preference to others of a similar nature, which are
not mentioned or advertised. While every effort is made to ensure accuracy of editorial
content, the publishers do not accept responsibility for omissions, errors or any
consequences that may arise therefrom. Reliance on any information contained in this
publication is at your own risk. The publishers make no representations or warranties,
express or implied, as to the correctness or suitability of the information contained and/
or the products advertised in this publication. The publishers shall not be liable for any
damages or loss, howsoever arising, incurred by readers of this publication or any other
person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any
service or product advertised in this publication. Readers of this publication indemnify
and hold harmless the publishers of this magazine, its officers, employees and servants
for any demand, action, application or other proceedings made by any third party and
arising out of or in connection with the use of any services and/or products or the
reliance of any information contained in this publication.
TaxTalk
03
Contributors
Contributors
Analysis. Opinion. Debate.
ALISON VAN DEN BERG - MALAN SCHOLES
Alison is an admitted attorney of the High Court of
South Africa. She is a director at Malan Scholes Attorneys focusing on litigation and indirect tax. She has
over ten years’ experience in handling disputes with
administrative bodies, in particular SARS (Customs)
and the Department of Mineral Resources, for clients
in various industries including mining, manufacturing, transport and retail. Prior to her re-entering
litigation practice, she worked in an accounting firm
where she consulted to clients in customs and international trade for seven years.
Page 38
04
TaxTalk
Cartoon by Zapiro, The Times © 2012. Reprinted with permission
BETSIE STRYDOM - BOWMAN GILFILLAN
Betsie Strydom is a partner in Bowman Gilfillan’s Corporate Department and specialises in corporate tax.
She holds a BA LLB and a Higher Diploma in International Tax from the Rand Afrikaans University and
a Higher Diploma in Tax from the University of the
Witwatersrand. Her areas of practice include domestic
and international tax, commercial law, taxation of
mineral resources, BEE transactions and trusts. Betsie
advises local and domestic clients on transactional
tax issues. She is the author of the chapter on Mining
Royalties in the book Mineral and Petroleum Law in
SA. Her practice areas are corporate tax, international
tax, mining tax, VAT, and tax dispute resolution.
Page 42
CHARLES DE WET - PwC
Charles is a director in the Tax Services
Division at PwC and is the Country Leader
responsible for Indirect Tax in Southern Africa. He has extensive knowledge of various industries and is practice leader for Value-Added Tax practice in our Cape Town office. In
this capacity he specialises in VAT consulting
services and provides advice to a number of
clients. Charles is a frequent speaker at tax
and budget seminars, and is co-author of the
chapter on Indirect Tax in Cyberlaw@SA. He
is the editor of Juta’s Value Added Tax.
Page 34
PROFESSOR DANIEL N ERASMUS
South African and International Tax Attorney, Enrolled Agent practicing before the
IRS and US Tax Court Practitioner, adjunct
Professor of International Tax Law and Senior Domestic and International Tax Advisor
- Daniel practices domestic tax and international tax in South Africa, the USA and in
Africa through www.TaxRiskManagement.
com. He is an adjunct Professor in International Tax Planning & Tax Risk Management
at the Thomas Jefferson School of Law, San
Diego, California and its partner in Africa,
the Middle-East and Asia, the International
Institute of Tax and Finance.
Page 50
DAVID WARNEKE – BDO
David is a Director of BDO South Africa
Advisory Services (Pty) Ltd and is the Head
of Income Tax and VAT Technical within
the National Practice. David is also Adjunct
Associate Professor in Tax at the University
of Cape Town.
David is a Chartered Accountant with 20
years of tax, auditing and accounting experience. He has extensive experience in advising
corporate clients on a wide range of tax issues
including the use of the corporate restructuring rules. David is a member of SAICA’s
Southern Region Tax Committee and SAIT’s
Corporate Tax Committee.
Page 26
FERDIE SCHNEIDER - KPMG
Ferdie is a tax partner at KPMG South Africa
and specialises in VAT. He is a qualified
economist with approximately 23 years experience in Taxation and Public Finance. Ferdie worked at SARS as a tax specialist and at
the Department of Finance of South Africa as
a taxation economist. He served as secretary
to the Tax Advisory Committee of the Minister of Finance and assistant-secretary to the
Katz Taxation Commission. Ferdie consults
to large corporations on VAT, modelling, and
due diligence reviews and presents widely on
VAT and its intricacies.
Page 28
06
TaxTalk
GERHARD BADENHORST - ENS
Gerhard is an executive at ENS and has
20 years’ experience as a Value Added Tax
(VAT) specialist. He specialises in indirect
tax practice, with a focus on advising clients
on VAT matters in various industries, including financial services, mining and property.
Gerhard has presented lectures on VAT
at a number of universities. He is a member
of the South African Institute of Chartered
Accountants (SAICA), the SAICA VAT
sub-committee, and is a member of and
serves on the technical committee of the
South African Institute for Tax Practitioners.
Page 47
HENDRIK VAN DEVENTER – VAN
DEVENTER & ASSOCIATES
Hendrik is a Partner in Van Deventer &
Associates. A tax professional with 19 years’
experience in consulting and line management roles, with a passion for serving
people - clients and staff. Hendrik actively
supports community development, particularly focused on youth development and
promoting “trade from aid”.He is an energetic
and adventurous professional and a serving
committee member on SAIT’s National
Tax Technical and Western Cape Regional
Committee.
Page 87
JED MICHALETOS - DELOITTE
Jed is currently the Lead Director for the national Customs & Global Trade team within
Deloitte Tax. Jed has over 11 years experience
in Customs and Excise and advises a number
of multinational clients.
Jed is the vice chairman of the Customs &
Excise sub-committee of the South African
Institute of Chartered Accountants (“SAICA”) Tax Committee. He sits on the SARS
Stakeholders forum, which is the highest
customs forum in SARS, and also sits on the
SARS Steering Committee which sets the
agenda and manages the Stakeholder forum.
Page 44
NICOLE PAULSEN & RUAAN VAN
EEDEN- CLIFFE DEKKER HOFMEYR
Nicole Paulsen is an associate of the firm’s
Tax practice having completed her first two
rotations in the Dispute Resolution and
Technology, Media and Telecommunications
Departments. Nicole began her career as a
candidate attorney in 2011 at Cliffe Dekker
Hofmeyr and was appointed as an associate
in 2013. Nicole’s article was reviewed by Ruaan van Eeden, a director in the Tax practice
of Cliffe Dekker Hofmeyr. He represents clients in various SARS disputes and advises on
a wide array of indirect taxes including VAT.
Page 21
MARTIANA SIPAHATUR
Martiana holds a Masters in International
Taxation from the University of Sydney,
Australia. She is employed at the Directorate
General of Taxes, The Ministry of Finance
of The Republic of Indonesia (currently
assigned as reviewer of tax preliminary investigation). Martiana has completed training
in International Tax Avoidance, Fraud Audit
Training and Money Laundering.
Page 30
ROSS ROBERTSON - NORTON ROSE
FULBRIGHT
Ross Robertson is a Chartered Accountant
based in Johannesburg. Ross has specific
knowledge in the tax arena, focusing on Corporate and International tax issues.
Ross has experience in VAT, taxation of
financial instruments, trusts and estate duty,
corporate and international tax. Ross is
knowledgeable in the field of carbon taxation. He is actively involved in communications with National Treasury with respect to
the implementation of a carbon tax in South
Africa.
Page 52
PROFESSOR SHARON SMULDERS SAIT
Sharon is the Head of Tax Technical &
Research at the South African Institute of Tax
Practitioners. She is primarily responsible to
liaise with SARS, National Treasury, Parliament and international organisations on all
tax policy matters.
Sharon was an associate professor in taxation with the University of Pretoria where
she lectured taxation on both under-graduate
and post-graduate levels. She has also assisted
the World Bank in 2006-2007 and SARS in
2011-2012 with quantitative research on the
tax compliance burden for small businesses.
Page 54
VICTORIA SINTON - BOWMAN
GILFILLAN
Victoria is a candidate attorney in the tax
department of Bowman Gilfillan. She has
interests in the taxation of sportspersons and
tax dispute resolution.
Prior to joining the firm Victoria completed a Bachelor of Commerce Degree majoring
in Politics, Philosophy and Economics (PPE)
and a Postgraduate LLB at the University of
Cape Town.
Page 48
Review
This month’s review takes a closer look at changes around Value Added Tax (VAT),
a core component of indirect tax in South Africa. VAT is a dynamic facet of taxation
and its application is always evolving, as this month’s snippets also convey.
Value-added Tax on South African Investment Management Services
S
outh Africa has a world class investment management
industry. In order to enhance the utilisation of the industry by
foreign investors, giving rise to increased inflows of foreign funds
to be invested in South Africa and the growth of the investment
management industry, there has been a focus by National Treasury
on amending the tax legislation in order to allow non-residents to
utilise the services of a South African investment manager, without
the foreign investment funds being pulled into the South African
tax net.
These amendments were mostly made to the income tax legislation. However, an important consideration which is often overlooked is the value-added tax ("VAT”) implications in relation
to the services rendered by the investment managers to non-resident investors.
The Value-Added Tax Act No. 89 of 1991 ("the VAT Act”)
provides that the supply of certain services to non-residents are
subject to VAT at the zero rate. However, this provision is limited
to, amongst others, supplies of services which are not in connection
with movable property, excluding debt securities, equity securities
or participatory securities, situated in South Africa at the time the
services are rendered.
In order for the above zero-rating provision to find application,
the following important considerations should be borne in mind:
• The services must be supplied to a person which is not a resident
for VAT purposes. The definition of "resident” in the VAT Act
includes a person which carries on an enterprise or other activity
in South Africa and has a fixed or permanent place in South
Africa relating to such enterprise or activity. In this regard, the
activities which are performed by the South African investment
manager should be carefully considered in order to determine
whether such may give rise to the non-resident investor becoming a resident for VAT purposes;
• Where the assets which are managed by the investment manager
are South African assets (for example shares in South African
companies, bonds issued by South African companies, etc), the
zero-rating provision will only find application if such assets
constitute "debt securities”, "equity securities” or "participatory
securities”. These are defined concepts and, whilst fairly wide
in application, may not encompass certain types of derivative
instruments.
Read More on the SAIT Website under VAT
How Tax can Affect your Residential Property Investment?
Three main investment vehicles are generally used in South Africa to house residential
property and two of these work reasonably
well from a tax point of view - these are to
buy a property in your own name or in that
of a trust formed for this purpose.
Looking purely at the tax implications,
08
TaxTalk
the third option, ownership through a
company, is not as good an option in most
circumstances. Whereas the total effective
tax rate for the first two options is 0% to
13.3% in the case of ownership in one's own
name and 26.6% in the case of ownership
by a trust, the total effective rate for compa-
nies is 30.8%, including 15% dividends tax.
These rates exclude transfer duty or VAT on
acquisition of the property.
This further assumes that you are buying
the property as a long-term investment,
with the aim of letting it out and earning
rental income. If you are purchasing property speculatively, intending to sell it off for
a profit, the tax rates would be even higher
because the proceeds would be of a trading
rather than of a capital nature.
For a company making a speculative
investment, the total effective tax rate,
exclusive of transfer duty or VAT on original acquisition, would shoot up to 38.8%
on disposal of the asset, inclusive of 15%
dividends tax. For an individual investing
speculatively, the rate could be anywhere
between 0% and 40%, depending on where
you fall on the income tax table. As for
a trust buying property as a speculative
investment, the tax rate rises to 40% on
disposal of the asset. Speculators certainly
pay a price.
Read more on Moneywebtax
“The resulting shift from direct to indirect
taxes will present multinational companies
with significant challenges”
Companies to Rethink Structure of Indirect Tax Function
in Wake of Increasing Compliance Pressure
The trend for governments globally to raise more
taxes through indirect taxes is set to continue,
according to a report issued by PwC. The resulting
shift from direct to indirect taxes will present
multinational companies with significant challenges. "Companies may need to a take a different
approach to tax management in the future,”
says Charles de Wet, Head of Indirect Tax for
PwC Africa.
PwC’s report ‘Shifting the balance from direct
to indirect taxes: bringing new challenges’ provides a global perspective on the shift from direct
to indirect taxes. The report also looks at the current indirect tax and VAT challenges facing businesses globally, as well as how indirect tax regimes
compare across major territories and regions.
The financial crisis has made countries look
carefully at the composition of their tax revenues.
The spread of Value Added Tax (VAT) and GST
(in some countries known as Goods and Services
Tax) across the world is continuing at a rapid
pace. Consumption taxes such as VAT and GST
are increasing in prominence and now exist in
more than 150 countries, with other jurisdictions
planning to introduce consumption tax regimes
over the coming months. The number of countries
with only a sales tax (such as the US) is shrinking.
In Africa, 42 of the 51 economies have a VAT
system but only three (South Africa, Mauritius
and Tunisia) have implemented the tax with an
electronic filing and payment capability, which is
commonly used.
Read more on the SAIT website under VAT
News
Global Tax
News
Darling Warns of Tax Rises in Scotland over Oil Dependence
SCOTLAND
Amanda Banks, Tax-News.com
F
ormer UK Chancellor of the Exchequer Alistair Darling
has criticized the Scottish National Party's plans relating to North Sea
oil revenues in an independent Scotland, warning that a proposed "oil
fund" along Norwegian lines is unaffordable without "big" tax rises
and that public spending would depend on volatile oil prices.
Darling, who is part of a cross-party "Better Together" campaign in
support of Scotland's continuing membership of the United Kingdom,
delivered his warning in response to a Fiscal Commission Report
produced by the SNP Government. The report laid out plans for a
short-term stabilization fund and a long-term savings fund from oil
tax revenue, but admitted that investments into the long-term fund
would be "unlikely in the years immediately following independence."
Darling argued that this amounted to an admission that tax rises or
spending cuts would be required to afford such a fund. He added that
an independent Scotland would rely on North Sea oil for 20 percent
of tax revenues, and he contrasted this with the current situation, in
which just 2 percent of the UK tax intake comes from oil. He further
noted that even at times when the oil price has been at its highest,
taxes raised in Scotland have not matched existing spending.
However, the Fiscal Commission Report argues that the Norwegian
oil fund, which was established in 1990, also came into being at a time
of economic downturn and budget deficit, and that it "provides a good
example" for Scotland.
EU Commissioner Barnier Slams French Tax Levels
FRANCE
Ulrika Lomas, Tax-News.com
While underlining various positive aspects of
France's 2014 finance bill (PLF 2014), European Commissioner for Internal Market and
Services Michel Barnier nevertheless warned
that the level of compulsory levies in France
is currently too high, insisting that the "red
line" has been crossed in terms of taxation.
During a recent parliamentary round table
meeting on the draft budget, Commissioner
Barnier made clear that there is simply too
much taxation in France, arguing that such
a large number of high taxes can have a
10
TaxTalk
counter-productive result. Indeed, the rate
of compulsory taxes in France will reach a
record level of 46.1 percent of gross domestic
product (GDP) next year.
Commissioner Barnier nevertheless welcomed the fact that the draft budget for next
year is based on "realistic growth" for the first
time in a long time and welcomed as positive
the fact that 80 percent of efforts to redress
the budget will be achieved via a EUR15bn
(USD20.3bn) reduction in expenditure, while
just 20 percent will be realized via a rise in
taxation (EUR3bn). Barnier emphasized
the need to firmly adhere to these voluntary
commitments, however.
France's PLF 2014 aims to reduce the public deficit from 4.1 percent of GDP this year
to 3.6 percent in 2014, and subsequently to
2.8 percent in 2015, in line with its European
commitments. The French National Assembly has begun its examination of the text.
The European Commission is due to submit an opinion on France's 2014 finance bill
on November 15.
Netherlands Clamps Down on Intra-Group Tax Evasion
News
Netherlands
Ulrika Lomas, Tax-News.com
Dutch Financial State Secretary Frans Weekers has submitted an
amendment to the Government's Tax Plan, extending existing legislation to provide that all companies that are primarily engaged in the
payment and collection of interest and royalties in the Netherlands,
within a group context, must inform the Dutch Tax Administration of
their existence and size in future or face a fine.
The measure forms part of efforts to actively combat international
tax avoidance, without altering the basic structure of the Dutch
tax system.
Under current legislation, the Netherlands requires intermediary
companies that receive interest or royalty payments from other countries and pay out the interest or royalties to third countries, to inform
the Dutch Tax Administration of their existence and size, if they wish
to obtain advance certainty on tax treatment. The requirements state
that such businesses must be conducted with an amount of capital
that is consistent with the functions and risks undertaken.
In order to combat the unintended use of Dutch tax treaties and
Dutch legislation, these provisions will be extended to include those
companies that do not request advance certainty. Such intermediary
companies will also be required to give details of their existence and
size to the Dutch Tax Administration in future.
Furthermore, the Dutch Tax Administration has pledged to spontaneously inform the tax administrations in treaty partner states if an
entity fails to meet the necessary criteria.
‘Too Many New Taxes’ in Irish Budget
IRELAND
Jason Gorringe, Tax-News.com
“Retail sales
have fallen by
25% since the
end of the boom
and 50,000
retail jobs have
been lost”
The Irish Business and Employers Confederation (Ibec) has
warned that the raft of new taxes
announced by the Finance Minister will dampen the economic
recovery and harm employment.
Reacting to Michael Noonan's
latest Budget, Ibec CEO Danny
McCoy said that the Irish economy is "already taxed enough".
He expressed concern about
the retention of what he believes
is an unfair pension levy, which
the Government had promised
to drop. The announcement that
Noonan is to lower the rate from
0.6 percent to 0.15 percent from
2015 was not enough to prevent
McCoy labeling the move "a
major disappointment". In the
meantime, the rate will go up to
0.75 for 2014.
McCoy described the increase
in the lower rate of employers'
PRSI and planned changes to
illness benefits as "at odds with
the Government's own jobs
strategy". Similarly, the hike
in excise duties on tobacco
and alcohol could also prove
counter-productive. McCoy
argued that the increase will only
risk "pushing trade north of the
border and is unlikely to deliver
for the Exchequer".
Not all of Noonan's tax
measures attracted McCoy's consternation, however. He sees the
retention of a reduced 9 percent
value-added tax (VAT) rate for
the hospitality sector as sensible,
while reform to the capital gains
tax system should help boost
employment and revive struggling communities. Revisions to
the research and development
(R&D) tax credit scheme "will
further enhance Ireland's position as a center for innovation"
and a home renovation tax credit
"will help the domestic economy
and construction jobs".
McCoy's comments were
broadly echoed by Retail Ireland
Director Stephen Lynam, who
gave the following overview
of his stance on the Budget:
"Retailers welcome the freeze in
fuel duties and the freeze in VAT
rates. The black market costs
the State hundreds of millions
of euro every year and measures
designed to tackle the problem
are also welcome. Retail Ireland
has long been campaigning on
the issue.
"However, the excise increase will negatively impact
on responsible consumers and
reduce spending in many retail
outlets. Retail sales have fallen by
25% since the end of the boom
and 50,000 retail jobs have been
lost. If the government wants
a sustained economic recovery
it needs to do more to help
consumers and support Ireland's
biggest industry - retail".
TaxTalk
11
Shifts
in the
industry
Learn. Grow. Excel
T
ax practice is a dynamic profession, providing
vast opportunities for continuous learning, facilitating
individual growth and, in turn, offering opportunities
to excel in leading roles, spanning from tax compliance,
risk management, to Chief Financial Officer and other
executive members of the board.
15
“The employment tax
incentive on the other
hand is a tax incentive,
offered by the state to
the eligible employer, in
the form of an amount
by which the overall
monthly employees’ tax
liability is reduced”
Shifts
Career
Shifts
Routledge Modise
Michiel Els
director
Michiel Els has been appointed as a director at Routledge Modise. He
is heading up a new section in the commercial department focusing
on transfer pricing. He holds BLC and LLB degrees from the University of Pretoria, an LLM (Tax Law) degree from the University of
the Witwatersrand and was admitted as an attorney in 2001. He also
obtained an international markets qualification from the Securities
Institute in London where he passed the Registered Person Exam.
Michiel specialises in transfer pricing, international corporate tax,
cross-border mergers and acquisitions, and exchange control law. He
was previously an associate director at KPMG and PricewaterhouseCoopers.
Mazars
Marius van Zyl
Senior Tax Consultant
Marius joined Mazars in September 2013 as a Senior Tax Consultant;
his responsibilities include taking care of the Mazars Bloemfontein’s
Tax Department with specific focus on quality control, case tracking, technical disputes and control measures for e-filing in order to
enhance e–filing compliance.
Before Marius joined Mazars he worked at SARS in the Debt Management division where he held the position of Specialist. Marius left
SARS and joined an established law firm in Bloemfontein to practice
independently as an attorney where he gained exposure in High and
Low Court Litigation, Business Rescue and Estate administration,
whilst building primarily a tax practice.
Deloitte
Vanessa Turnbull-Kemp
Assistant ManAger
Vanessa joins Deloitte with more than six years of taxation experience
having worked at another global professional services firm and most
recently National Treasury, where she was a Deputy Director in the
Legal Tax Design unit. She spent her early years in the International
Tax and International Executive Services divisions, after which she
joined National Treasury. She now joins the Deloitte International
Tax team as an assistant manager where she will provide International
taxation advice to clients.
14
TaxTalk
Ryan Dixon
Transfer pricing specialist
Ryan Dixon has been appointed as a Transfer Pricing Specialist at
Routledge Modise. He has joined Michiel Els who will be heading
up a new section in the firm’s commercial department focusing on
transfer pricing.
Ryan holds BCOM Law and LLB degrees from the University of Johannesburg and a Higher Diploma in Tax from the Thomas Jefferson
School of Law. Ryan specialises in transfer pricing, international corporate tax, cross-border mergers and acquisitions, benchmarking and
exchange control law. He was previously a transfer pricing consultant
at PricewaterhouseCoopers.
Norton Rose
Fullbright
Norton Rose Fulbright appoints a banking
and finance associate
Global legal practice, Norton Rose Fulbright South Africa, is delighted
to announce that Kristen Reddy has joined its banking and finance
practice. Kristen will focus on debt capital markets and securitisations, leveraged and acquisition finance, structured finance transactions, listings, public offerings and private placements as well as
syndicated and bilateral financing structures.
Kristen graduated with an LLB from the University of the Western
Cape in 2004 and went on to gain significant experience at a Magic
Circle law firm while based in London and Singapore.
Riza Moosa, banking and finance head in the South African office of
Norton Rose Fulbright commented:
“I’m very pleased to have Kristen onboard as another of our talented team members. She brings her considerable skill and international
know-how that will further boost an already strong practice. Our
clients work on some of the most complex and innovative financial
transactions and therefore expect global advice from us. One of the
ways we deliver is by hiring internationally experienced lawyers like
Kristen”.
“She spent her
early years in the
International Tax
and International
Executive Services
divisions”
Employment Tax
Incentive Bill
Questions answered
by Nicole Paulsen,
Associate in the Tax
Practice at Cliffe
Dekker Hofmeyr
Readers’
How different is the current Skill Development levy (SDL) from
the proposed tax incentive? A
The SDL is a compulsory levy payable by an employer to the
South African Revenue Service (SARS), in terms of the Skills
Development Levies Act 9 of 1999. The Commissioner for SARS pays
the skills levies over to the relevant sector and education authority
(SETA) to which the specific employer belongs and the money is then
used by the SETA to fund education and training in the workplace. Essentially, the purpose of the SDL is to expand the knowledge and
competencies of the labour force and in so doing, increase the supply
of skilled labour in South Africa.
The employment tax incentive on the other hand is a tax incentive,
offered by the state to the eligible employer, in the form of an amount
by which the overall monthly employees’ tax liability is reduced. In
other words, the employment tax incentive is a cost-sharing mechanism between the private sector and the state which operates by
reducing the amount of tax that is owed by an employer through
the Pay-As-You-Earn system, the primary objective being to create
employment opportunities for young job seekers.
A
How will the state benefit from the proposed tax incentive
plan? The proposed tax incentive will ultimately ensure the creation of
employment for the youth of South Africa and accordingly fulfill one of the state’s most important obligations, namely, job creation. It is important to note in this regard that while the state is responsible
for sharing the costs of expanding job opportunities, by way of financing the proposed tax incentive, the state nevertheless benefits financially from the proposed incentive in that it is not responsible for the
payment of the employees’ actual remuneration and further does have
to set aside a capital outlay for the necessary resources and infrastructure needed in South Africa to ensure the creation of employment for
South Africa’s youth.
The creation of job opportunities for the youth of South Africa will
also benefit the state from an economic point of view. The inclusion
of the youth in economic activity will allow them to acquire the necessary skills, experience and qualifications and in doing so, will increase
the supply of skilled labour in South Africa. In the long-term and
together with the current levy-grant scheme implemented through
the SDL, this will benefit the macro-economic environment as South
Africa will have the necessary skilled labour to drive the economy
forward.
Lastly, a decline in unemployment will also have a significant
impact on the social environment in that there will be a reduction
in the levels of crime as well as a reduction in the amount of money
allocated by the state for social and/or similar grants.
How will the implementation of the proposed tax incentive benefit
the company?
The proposed tax incentive will operate by reducing the amount of
tax that is owed by an employer through the Pay-As-You-Earn system. Accordingly, the proposed incentive benefits the company by reducing
the cost to employers of hiring young people, through a cost sharing
mechanism with government.
How will the implementation of the proposed tax incentive
affect the SDL? A
It is our view that the implementation of the proposed tax
incentive will not affect the current SDL due to the fact that
the proposed tax incentive’s primary objective is the creation of
employment for young job seekers and training and development of
the labour force is incidental to the primary objective. Accordingly, in order to ensure that the workforces gain the necessary skills and
training needed to ensure greater productivity and employability, a
compulsory levy scheme would still be necessary to fund education
and training in businesses within various sectors in South Africa.
However, at this stage it is premature to confirm the effect of the
proposed tax incentive on SDL.
TaxTalk
15
Profile
Mike Dingley
Mike Dingley has 30 years’ experience in the audit, tax and advisory environment, specialising in Owner Managed Business and Tax Consulting. He is the
National Head of Taxation Services Partner at professional services company,
Mazars. Mike has been chairman of the national Tax Service Line Unit, a member of the National Training Officers Committee and a member of the Standards Monitoring Sub Committee of the Board. Mike read for a Master’s Degree
in Tax in 2005. He relocated to Johannesburg to take up the position of National Head: Taxation Services.
With your specific interest
in Owner Managed
Business, and the
introduction of the Tax
Administration Act with its far
reaching powers, what would be
the most important tax advice
that you could give to your
clients and do you think that
taxpayers are taking heed of the
new powers that SARS has at
its disposal?
A
Tax compliance has
taken on a complete new
meaning and clients are advised
to make full disclosure in terms
of the law, to seek advice where
they are unsure and to submit
returns and payments timeously.
Many taxpayers are unaware of
the provisions of the Tax Administration Act and their first
introduction to its far reaching
provisions is when they are
already in trouble.
Have you found that
many taxpayers are aware
of the VDP in the TAB
and if so, have you seen a
dramatic increase in the amount
of taxpayers who want to “come
clean” and become compliant?
The penalty for repeat offenders
is extremely harsh and we would
hope that these penalties would
16
TaxTalk
be a deterrent to taxpayers.
A
We assisted quite a
number of taxpayers in
the previous amnesties and find
that there are not many who are
using the VDP to “come clean”.
Where it has been of great assistance is where we have found
errors and incorrect interpretations prior to audit or investigation by SARS which can then be
rectified through the VDP with
far lower penalties.
Do you believe that the
Tax Ombud will have any
effect on the problems
faced by many Owner Managed
Businesses (OMB)? Many small
business owners do not have the
financial resources to take on
SARS and the Ombud may be
their only alternative. You were
recently quoted in the media as
saying that “his mandate is
limited to service, procedure or
administration, which means
that taxpayers will have to resort
to the existing dispute resolution
processes in matters relating to
interpretation and application of
the tax legislation”. Is there really
a necessity for an Ombud if these
are the only powers that he has?
The perception is that the
Ombud does not really have any
power as National Treasury will
be paying the salaries and SARS
will be providing staff and office
space. If the Ombud’s decision is
not binding on SARS, what route
does the “innocent” taxpayer
have to follow?
A
I do believe that the
Ombud will help as many
of the problems faced by OMBs
are administration matters.
These include objections not
dealt with, collection procedures
incorrectly initiated, clearances
not given and refunds not paid.
The problem that many taxpayers will have to understand is
that the Ombud may not be approached until all conventional
procedures have been exhausted.
These procedures take time and
taxpayers will become frustrated
waiting for the time periods to
elapse before they may approach
the Ombud.
The independence of the
Ombud is a concern and that is
why I previously said that the appointment of a retired judge into
the position was a positive step
rather than appointing someone
from within SARS’ existing management. Having said that, there
is the old adage that someone
must not only be independent
but must also be seen to be
independent, and only time will
tell. The independence issue also
exists in the ADR process where
facilitators are normally SARS
employees. To overcome this,
the facilitators have to abide by
a code of conduct and to be fair,
most of the facilitators I have
worked with have conducted
themselves well.
Prior to the appointment of
the Ombud, the route that a
taxpayer had to take in unresolved administration matters
was to appeal to the Tax Court
where allowed, otherwise to take
the matter on review to the Tax
Court. Certain matters may be
taken to the High Court. These
are costly and take time but
remain the route that a taxpayer
would have to take if SARS did
not abide by the decision of the
Ombud.
It is proposed that the
Employment Tax
Incentive Bill will be
implemented in January 2014. It
will certainly have an impact on
business owners. Do you think
this will become an administrative nightmare for business (and
SARS) to deal with? It could
certainly be open to abuse in
certain areas. Do you see it as a
viable long term option? What
do you think the effect on the fiscus will be
and how do you think that loss of revenue
will be recouped?
A
If one looks at the VAT system, it was
open to abuse and SARS responded by
making the registration and refund procedures extremely difficult. The Employment
Tax Incentive will effectively put cash in
employers’ hands therefore I don’t see the
process being a simple one. The Minister has
said that the incentive is experimental and
its effectiveness and viability will be closely
monitored. To begin with I believe that the
incentive will not be recouped and will be an
expense item only in the budget. Hopefully
it will stimulate the economy, create higher
growth rates and promote higher business
profits.
You have had success in the ADR
Forum and in the Tax Board. This
would necessitate constant reviewing
of legislation and case law. A very necessary
part of a tax professional’s career is to keep
up to date with the latest developments . Is it
your experience that many professionals in
the tax arena are availing themselves of the
opportunities which exist for CPD? (continuous professional development) Also with the
regulation of tax practitioners now a legal
requirement, have you noticed that
taxpayers are now reluctant to deal with the
smaller tax consultants and rather deal with
the larger firms where the perception is that
there is some kind of safety net, i.e. professional liability insurance?
A
Various skills are required to be successful in the ADR forum. I agree these
include being up to date with legislation and
case law but as tax dispute work is such a
specialised field, I believe that in-depth individual research is needed to complement the
CPD updates that are available. Other skills
such as technical drafting, evidence presentation, negotiation and argument are also vital
in the field. The choice of tax practitioner
should not be made according to the size of
the firm but on the ability and expertise a
practitioner can provide. It may be illusionary that a large firm provides a safety net due
to professional indemnity insurance they
carry as most practitioners contractually limit the extent of their liability. The safety net is
actually the competence of the practitioner.
We have recently seen many young
CAs embarking on a career in tax. You
mentioned that you have a great
interest in the development of your staff.
What route (education wise) would you
advise them to take as they embark on this
career path. With the huge interest in
Transfer Pricing and cross border transactions by SARS currently, this seems a very
attractive area of tax to specialise in as the
large corporates have vast amounts of money
to spend in defending the positions they have
taken with these transactions. What advice
would you give these young professionals in
respect of their chosen area of tax consulting?
A
I would advise them to study for a
Master’s Degree in Tax at a university
where the course was sponsored by both the
Law Faculty and the Accounting Faculty. Accountants need to understand tax from a legal perspective. When a person understands
tax from both disciplines it is far easier to
understand and classify transactions and
conceptualise their effect. Transfer Pricing
and cross border transactions have become a
big industry which is likely to increase so it is
definitely an area which young tax consultants should consider for specialisation. My
advice to young professionals is to first study
and work in the tax industry as a generalist
so that the fundamentals are second nature.
During that time they will also find the area
that interests them and where their natural
aptitude lies.
Has there been a smooth transition
moving from Durban to Johannesburg? What have been the highs and
the lows? In your position as National Head:
Tax, do you have to travel on a regular basis?
A
The transition has been smooth as I
have received acceptance and support
from my partners and staff. The highs have
centred around the challenge, successes
and the good feeling that you get when you
have assisted a client with advice that is well
founded in the law and the facts. The lows
have been from missing family and lifelong
friends. As National Head I do have to travel
to Cape Town quite regularly for board meetings and to Durban to consult with clients.
T
TaxTalk
17
Focus
INtegrity. Education. reform
I
ndirect tax continues to be a source of
much needed revenue for the Fiscus.
In the following articles, our experts unpack some
of the technical jargon of the legislation surrounding
indirect tax and some of the intricacies of VAT and
Customs. In this section, we also feature an article from
Indonesia which explains the challenges that country
is facing as they try to justify the change from a Sales
Tax system to a Vat system, and how they propose to
combat fraud in the new VAT system. The abuse of the
VAT system would seem to be a common problem in
many countries around the world.
We also feature an in depth article on the Employment Tax Incentive Bill, a controversial topic which has
received much attention from the media and from the
Trade Unions.
41
The Employment Tax
Incentive Bill
Who stands to gain here?
CPD
15 minutes
The Employment Tax
Incentive Bill
Who stands to gain here?
NICOLE PAULSEN, CLIFFE DEKKER HOFMEYR
U
nemployment remains a critical
problem in South Africa, especially amongst the
youth who are excluded from economic activity
due to the fact that prospective employers are, in
many instances, reluctant to hire young job seekers. This is mainly due to the fact that young j
ob inseekers lack the necessary skills, qualifications and experience. Given the substantial investment generally required to provide the necessary
skills and experience, a well-structured incentive
is required.
Government recognises the need to share the
costs of expanding job opportunities, especially in
relation to young job seekers, within the private
sector. Therefore, in an attempt to address youth
unemployment and thereby stimulate a demand
for young workers in South Africa, approval was
given by Cabinet to the publication, for public
comment, of the draft Employment Tax Incentive
Bill (the Bill). The purpose of the Bill is to implement a tax incentive which will reduce the cost
to employers of hiring young and inexperienced
youth through a cost-sharing mechanism. The Bill
therefore seeks to encourage employers to
create job opportunities for young and inexperienced job seekers, in addition to boosting employment by firms operating in Special Economic
Zones (SEZ).
The Bill gives effect to the announcement by the
President in his 2010 State of the Nation address,
as well as the announcement by the Minister of
Finance in his 2010 budget speech, that Government will table proposals to introduce an employment tax incentive in order to subsidise the cost
of hiring young and inexperienced job seekers.
The Bill further gives effect to the announcement
by the Minister of Finance in the 2013 Budget
Review, that tax revenue of R500 million will be
set aside for the implementation of the incentive
for the 2013/2014 tax year.
While it is the intention of Government to focus
on labour market activation and to thereby stimulate a demand for young workers, through the
implementation of the tax incentive, the question
that remains is whether the Bill will in fact achieve
its objective? In other words, will the Bill stimulate economic activity across the employment
spectrum and thereby benefit all businesses or will
the incentive operate exclusively for the benefit
of large corporations to the exclusion of the small
scale employers? This article will examine the
TaxTalk
21
main features of the employment tax incentive and consider whether
theory will in fact turn into practice.
year of employment the incentive is halved throughout the wage
bands.
PRACTICAL APPLICATION OF THE EMPLOYMENT TAX
INCENTIVE
EXCLUSIONS AND DISQUALIFICATIONS
The employment tax incentive is essentially a cost-sharing mechanism
between the private sector and Government, which operates by reducing the amount of tax that is owed by an employer through the PayAs-You-Earn (PAYE) system. It is proposed that where the employer
hires a “qualifying employee”, the employer is entitled to deduct the
amount of the incentive from the amount of PAYE which the employer is required to remit to the South African Revenue Service (SARS).
What is important to note is that the “qualifying employee” will not
receive an additional monetary benefit relating to PAYE (i.e. the PAYE
credit of the employee remains unaffected). It should further be noted
that the employer’s deduction is limited and may not exceed the total
amount of tax that is owed to SARS through the PAYE system.
ELIGIBLE EMPLOYERS AND QUALIFYING EMPLOYEES
The employment tax incentive is not available to all employers. The
Bill proposes that the employment tax incentive apply only to employers that are registered with SARS for PAYE purposes. Accordingly,
where an employer has a legal obligation to withhold and pay tax on
behalf of their employees, through the PAYE system, the employer
will be eligible for the tax incentive. Due to the fact that the incentive
is aimed at private sector employers, public entities are not eligible for
the employment tax incentive, unless specifically designated by the
Minister of Finance, by way of notice in the Government Gazette.
The employment tax incentive will also apply within SEZs and designated industries where the age restrictions (see discussion below)
will not apply. The employment tax incentive is further limited to
an eligible employer hiring a “qualifying employee”. In this regard, a
number of criteria must be met before an employee will be considered
to be a “qualifying employee”.
Firstly, the employee must be a South African citizen or permanent
resident in possession of a valid South African Identity Document and
must be between the ages of 19 and 29. Further, the employee must
not have been employed with the current employer (or an associated
institution) before 1 October 2013 and must receive a salary that is
between the minimum wage for that specific sector and R6000 per
month. Domestic workers and connected persons to the employer are
specifically excluded from the definition of a “qualifying employee”
due to the private nature of the expense.
CALCULATION OF THE EMPLOYMENT TAX INCENTIVE
The determination of the incentive to be deducted from the employer’s PAYE obligation should take place on a monthly basis and is
calculated as the aggregate of the incentive available for that month
together with any roll-over amounts from previous periods.
The value of the incentive is prescribed by way of a formula with
three different components, which utilises different wage levels. For
example, for monthly wages of R2000 or less, the incentive is 50%
of the monthly remuneration of the employee. For monthly wages
between R2001 and R4000, the value of the incentive is R 1000 per
month per “qualifying employee” in the first twelve months. For
monthly wages between R4001 and R6000, the value of the incentive
tapers down from R1000 to zero. In the first year of employment the
employer can deduct the full value of the incentive, but in the second
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TaxTalk
The employment tax incentive is not intended to benefit employers in
non-compliance with their legal obligations towards their employees,
or employers who structure their business affairs to the detriment of
existing employees with the sole purpose of maximising access to
the incentive.
Accordingly, certain exclusions and disqualifications are proposed
in order to prevent any abuse and exploitation of the employment tax
incentive. The exclusions are summarised as follows:
• An employer who is bound to a sectoral determination or a
bargaining counsel agreement will not be eligible to receive the
employment tax incentive if that employer does not remunerate
that employee in accordance with the minimum wage. Where an
employer is not bound by a sectoral determination, it is proposed
that a minimum wage of R2000 per month is applied.
• An employer will be disqualified from receiving the incentive
where a finding is made by a competent court, the Commission
for Conciliation, Mediation and Arbitration (CCMA) or a counsel
or private agency that the employer “unfairly dismissed” an old
employee in order to hire a new “qualifying employee” and thereby
take advantage of the tax benefit. Employers found guilty of an
“unfair dismissal” under these circumstances will incur a very onerous penalty of 150% of the value of the incentive that they received
for the previous twelve month period and will further be excluded
from any future participation in the incentive.
• Lastly, the Minister of Finance may, after consultation with the
Minister of Labour, prescribe any conditions by regulation that may
be necessary in respect of granting the tax incentive.
PAYE LIABILITY REDUCTION MAY BE DENIED
Even though an employer may be eligible to reduce its PAYE liability
by applying the incentive in a particular month, an exclusion applies
where the particular employer has failed to submit any tax returns
or owes a tax debt to SARS on the last day of that month. However,
where the employer has entered into an arrangement with SARS
regarding the tax debt owing, the aforementioned exclusion will
not apply.
ROLL-OVER RELIEF FOR EMPLOYERS
The draft Bill proposes two instances where an incentive amount
may be rolled over. The first instance is where the incentive amount
exceeds the PAYE due and payable by an employer in that particular
month. In the aforementioned scenario the excess amount may be
rolled over to be used against a potential future PAYE liability.
There is however an excess limit of R6000 per “qualifying employee”
that may be rolled over. The second instance where roll over may
be applied for future use is during a period of tax debt or return
submission.
REIMBURSEMENT
Currently, the Bill does not provide for a reimbursement mechanism
for excess amounts generated. However, from a date to be announced
by the Minister of Finance through notice in the Government Gazette,
employers will become entitled to reimbursements on a bi-annual
basis. It is envisaged that the implementation
of the reimbursement facility will extend the
scope of the incentive to the informal sector,
where employers are currently excluded from
benefiting from the incentive.
COMMENCEMENT AND CESSATION
OF THE EMPLOYMENT TAX
INCENTIVE
It is proposed that the employment tax incentive be implemented from 1 January 2014
to 31 December 2016. However, in order to
avoid a situation where employers delay hiring young job seekers until 1 January 2014,
so as to maximise their access to benefit from
the incentive, it is proposed that the incentive
apply to all qualifying employees who were
hired after 1 October 2013. The proposed
incentive will cease after 1 January 2017 and
incentive amounts not deducted from PAYE
as at 31 December 2016 will be forfeited.
It must be noted that the employment tax
incentive will be introduced in phases. The
first phase of the incentive is intended to
be simple and easy to implement and will
be based on the existing tax administration
platforms. Thereafter, National Treasury and
SARS will review the effectiveness and the
impact of the incentive and a decision on its
future will be made in 2016. Only after the
initial review of the incentive will the second
phase of the incentive be introduced. The
second phase of the incentive will include
additional policy features and will possibly be
a refinement of the first phase.
The implementation of the incentive will
hopefully stimulate the demand for young,
inexperienced job seekers to address some
of the issues and consequences of youth
unemployment in South Africa. However,
the current version of the Bill is likely of no
benefit to small-scale employers that have
little or no PAYE liabilities – and it is exactly
that type of employer who should be first in
line to be incentivised. It remains to be seen
whether the current version of the Bill will be
revised to extend the scope of the tax incentive, so that the benefit is not only exercised
by the large corporations (and in particular
large labour intensive industries), but that
small-scale employers also get a look-in.
T
TaxTalk
23
CPD
15 minutes
Proposed Changes to
the VAT Registration Process
“According to
the Explanatory
Memorandum,
the R5 million
threshold was
intended to prevent
‘questionable
businesses with a
hobby-like element’
from entering the
VAT system”
David Warneke, BDO
T
he Taxation Laws Amendment
Bill No 39 of 2013 (‘the Bill’) proposes a
slight overhaul of the VAT registration
regime. One of the driving factors behind
the overhaul is believed to be the onerous
requirements contained in section 23(3)(d)
of the VAT Act No. 89 of 1991 (‘the Act’)
which have proved to be vastly problematic
for start-up businesses applying for voluntary VAT registration. Start-up businesses
applying for voluntary VAT registration have
to show continuity and regularity of activities
in terms of which taxable supplies could reasonably be expected to exceed R50 000 in a
period of 12 months. Failing this, registration
cannot take place.
According to the Explanatory Memorandum to the Bill (‘the Explanatory Memorandum’), VAT registration requires contradictory considerations. While VAT registration
is a critical component of VAT collections,
VAT registration poses a risk of unwarranted
26
TaxTalk
VAT refunds. In order to balance these risks,
SARS must be certain that persons entering
the VAT net represent genuine businesses.
The proposed solution, as contained in the
Bill, is to streamline both compulsory and
voluntary VAT registration requirements.
Compulsory VAT registration
criteria
The compulsory registration criteria in terms
of the current legislation contain a predictive element. In addition to registration
being compulsory for a person where the
total value of taxable supplies made by that
person in the 12 month period ending at the
end of that month exceeded R1 million, it is
also compulsory at the commencement of a
month where there are reasonable grounds
for believing that the total value of taxable
supplies to be made by the person in the immediately succeeding 12 months will exceed
R1 million. The predictive requirement is
contained in section 23(1)(b) of the Act. The
Bill proposes that the predictive element be
removed. In terms of the proposal, compulsory registration will in future be necessary
where:
• The threshold of R1 million has been
exceeded as above; or
• Where the total value of taxable supplies
in terms of a contractual obligation in
writing during the 12 month period
calculated from the commencement of a
given month will exceed R1 million. This
could apply, for example, to commercial
leasing contracts or tenders won from the
Government.
It should also be noted that the Bill proposes that supplies of e-commerce services be
subject to different registration rules which
are beyond the scope of this article.
Voluntary VAT registration
criteria originally proposed
In terms of the voluntary registration criteria
the Draft Bill originally proposed a separation into two streams – traditional registration (with the ability to claim refunds from
point onwards. However, should the level of
taxable supplies fall below R100 000 over a
two year period, the Commissioner had the
discretion to deregister such a fast-tracked
vendor. The Commissioner has an existing
general discretion to cancel a vendor’s VAT
registration where he or she is satisfied that
the vendor no longer complies with the registration requirements contained in section
23(3) of the VAT Act.
Voluntary VAT registration
criteria currently proposed
commencement) and fast-track registration (with limited refund claim ability).
In terms of the traditional registration criteria, the person must have either been:
• A municipality;
• A designated entity (such as a welfare organisation, foreign donor funded project or parastatal); or
• A person carrying on an enterprise or intending to carry on an enterprise and where taxable
supplies will be made within a period of 12 months, provided that the person has incurred
expenditure of at least R5 million ‘in connection with the commencement’ of such enterprise
or where the person must incur that amount in terms of a written contractual obligation.
A person meeting the above criteria could have claimed VAT refunds from commencement.
According to the Explanatory Memorandum, the R5 million threshold was intended to prevent
‘questionable businesses with a hobby-like element’ from entering the VAT system.
In terms of the fast-track registration process, the only qualifying criteria was that the person
must have been carrying on an enterprise or must have intended to carry on an enterprise that
will make taxable supplies within 12 months of the date of commencement of the enterprise. It
was not proposed that any monetary thresholds would apply.
However, in order to limit the risk to the fiscus of artificial refund claims, VAT refunds
would have been suspended until the Commissioner is satisfied that the vendor had made
taxable supplies of at least R100 000 within a continuous period of 12 months from the date of
commencement of the vendor’s enterprise. Refunds could have been made as normal from that
According to the Draft Response Document
presented by National Treasury and SARS
to the Standing Committee on Finance on
11 September 2013 (‘the Draft Response
Document’), the proposals above are to be
withdrawn and replaced with a softer set
of proposals. The decision to withdraw
the proposals was in response to various
comments on the proposals received by
National Treasury and SARS. It was stated
that the proposals will place an unbearable
burden on small business as the restriction
of refunds prevents a cash flow problem for
such entities. The R5 million expenditure
limit was also described as being onerous and
it was suggested as being unclear whether
this expenditure threshold includes pre-registration expenditure incurred. It was further
suggested that the requirement that the entity
make taxable supplies within the following
12 month period should be deleted.
According to the Taxation Laws Amendment Bill No 39 of 2013 released on 18 October 2013., the current R50 000 taxable supply
threshold test for voluntary VAT registration
will be retained. This means that businesses
will be subject to the R50 000 threshold test
before qualifying for voluntary registration
on the invoice basis. However, businesses that
are unable to satisfy the R50 000 threshold
will be allowed to register for VAT but only
on the payments basis without a withholding
of refunds. (The payments basis means that
VAT is generally accounted for only to the
extent that actual payments are received or
made). These businesses will be allowed to
remain on the payments basis without having
to convert to the invoice basis provided that
the value of taxable supplies made by them in
a 12 month period does not exceed R50 000.
The R5 million threshold category, referred
to above, is deleted in view of the scrapping
of the proposal to withhold refunds.
The commencement date of these proposed rules relating to compulsory and
voluntary registration is 1 April 2014.
T
TaxTalk
27
VAT Registration of Foreign
Ferdie Schneider, KPMG
N
ational Treasury released a tax
bill in October 2013, following the Budget Speech
in February and draft tax legislation on 4 July
2013, proposing changes to the VAT Act to require
VAT registration of certain local and foreign suppliers of electronic services where consumption
takes place in South Africa. In terms of the tax
bill, local and foreign suppliers of electronic services will be required to register for VAT purposes
where the services are supplied from a place in an
export country and where a SA resident receives
these services. A proxy will also pull local and
foreign suppliers of electronic services into the
SA VAT net where payment is made through a SA
bank. The tax bill makes registration compulsory
when the threshold of R50 000 taxable supplies in
a consecutive twelve month period is reached. The
tax bill also provides for suppliers of electronic
services to account for VAT on the payments basis
as opposed to the invoice basis.
In terms of the VAT Act, a price which is silent on
VAT is deemed to include VAT at 14% (the standard rate). Should a foreign e-commerce service
provider required to register for VAT not adjust
its pricing to cater for the VAT, this would mean
that it would have to calculate and fund the VAT
from profits. In order not to impact profits, a VAT
unregistered supplier of electronic services would
have to ensure that its prices are increased by 14%
which would generally place its prices on equal
footing (presumably) to those of VAT registered
CPD
15 minutes
counterparts.
A VAT unregistered supplier of electronic services
would also have to change its systems to effect
price adjustments resulting from the imposition
of 14% VAT; calculate VAT at 14% by applying the
tax fraction (14/114) to the VAT inclusive price or
add 14% to the value; post the VAT calculated per
transaction to a VAT output tax account; identify
SA resident customers and payments made
through SA bank accounts; and effect source
documentation changes (see below).
VAT unregistered suppliers of electronic services
will face various compliance challenges, including system changes (see above) to cater for these
changes, although once-off they could be costly;
source documentation changes would also be
once-off. Tax Invoices would need to contain (a)
the words “tax invoice” in a prominent place; (b)
the name, address and VAT registration number of
the supplier; (c) an individual serialized number
and the date on which the tax invoice is issued;
(d) a description of the services supplied; and (e)
either the value of the supply, tax charged and the
consideration for the supply or where the tax is
calculated by applying the tax fraction (14/114) to
the consideration, the consideration for the supply
and either the tax charged or a statement that it
includes a charge in respect of the tax and the rate
at which the tax was charged; marketing presentations (online and other) may also require change
as prices are deemed to include VAT at 14%; VAT
registration which will be a once-off cost and
depending on whether SARS streamlines the VAT
registration process can be a fairly expensive and
time consuming exercise; VAT filing costs will
be a continuous cost and the frequency of filing
will depend on whether SARS will create a special
category or period within which these suppliers
would need to file; and, in the case of a foreign
electronic services provider, appointing a VAT
representative in SA who needs to be a natural
person would be a low but a continuous cost.
Following the release of the draft legislation
for comment, National Treasury invited key
role-players to workshop the draft legislation. Parliament’s Standing Committee on Finance (SCOF)
then heard submissions on the draft legislation.
The SCOF considered various comments of the
workshop, including the following. The definition
of e-commerce services (the previous naming
convention) was considered to be too wide and
ambiguous as a number of services supplied by
foreign service providers would be caught (business-to-business (B2B) and business-to-customer
(B2C) transactions), which may not have been
intended. Uncertainty also existed with regard
to what does the placing of an order entail and
when does delivery of a service take place? It
was proposed that e-commerce services should
“Following the
release of the
draft legislation
for comment,
National Treasury
invited key roleplayers to
workshop the
draft legislation”
be changed to electronically supplied services
to align it with international norms. The SCOF
accepted the recommendation to replace the
word “e-commerce services” with “electronically
supplied services”, although the tax bill now adopted the term “electronic services”. To attenuate
uncertainty and provide more clarity, the types
of electronically supplied services that would be
subject to VAT would be listed in a regulation that
will be issued by the Minister of Finance. The list
of services should be in keeping with international
norms and would most probably include supply
of images, text and information and making
available of databases; supply of music, films and
games, including games of chance and gambling
games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and
events, and supply of distance teaching.
It was also proposed that the legislation should
not apply to B2Bs as these transactions are catered
for under the current reverse charge provisions
for imported services. In addition it was proposed that the legislation should not be limited to
e-commerce services supplied by non-residents
as this could lead to VAT leakage if residents can
provide e-commerce services from abroad. The
SCOF partially accepted this proposal and accepted that the non-resident requirement should
be deleted. The SCOF viewed that a distinction
between B2B and B2C will increase compliance
for the foreign supplier and could increase fraud
(by B2C). The tax bill gave effect to the SCOF’s
considerations.
It was also proposed that a monetary VAT
registration threshold be introduced. The SCOF
accepted that a VAT registration threshold of R50
000 in a period of 12 months should be accepted.
The tax bill confirmed the R50 000 threshold.
It was also proposed that the effective date of 1
January 2014 be brought forward to 1 November
2013 (or 1 December 2013). The SCOF did not
accept this proposal as the implementation of the
proposal has to follow the legislative approval process which will not be finalised before the suggested date and the date of implementation has to take
account of SARS’ administration system readiness. SARS indicated that 1 January 2014 may not
be feasible and 1 April 2014 was proposed as the
implementation date. The SCOF accepted that the
implementation date will be delayed until 1 April
2014 to allow for SARS system readiness. The tax
bill confirmed the effective date to be 1 April 2014.
The envisaged changes will broaden the VAT
base, address inefficiencies in the reverse charge
(imported services) mechanism, and place foreign
suppliers and their local counterparts on equal
footing.
T
TaxTalk
29
Vat Regime: Stay Or Leave
A Case Of Indonesia
MARTIANA SIPAHATUR, Ministry of Finance of The Republic of Indonesia
T
he issue of changing from VAT to sales
tax has been a serious consideration amongst
stakeholders in Indonesia for the last three years.
One of the tax approaches stated in the Masterplan of Accelaration and Expansion of Indonesia
Economic Development 2011-2025 is taxation
aimed at the final consumer (retail sales tax),
replacing the system of VAT. In February 2013
the National Economic Committee also released
a recommendation of the current tax regime
shifting from VAT to sales tax with a rate increase
from 10% to 13% to level up state tax revenue;
however, the idea was flatly rejected by the
Fiscal Policy Agency due to the possibility of
double taxation and the perceived success of
VAT worldwide.
The cascading tax burden could be minimised if
sales tax applies only when a taxable supply passes
into the hands of the final consumer. National
Economist, Iman Sugema, viewed the migration to sales tax as a relevant option considering
Indonesian’s preference to pay extra charges for
simplified administration.
This discussion also took place within the revenue organisation, the Directorate General of Taxes
(hereinafter referred to as DGT). As a multi-
30
TaxTalk
stage levy charged on every delivery of taxable
supplies, in its practices, VAT was found to be an
administrative burden to both taxpayers and tax
administration alike and consequently ill-suited
to Indonesia. On the other hand, introducing and
developing a sales tax system may prove to be
more expensive than improving the established
VAT system. DGT has not yet declared its position
on the debate.
Sales tax itself is not a new thing in Indonesia.
Prior to the adoption of VAT in 1984, Indonesia had applied sales tax since 1 October 1951.
During the sales tax regime, there were dual tax
collection systems: self assessment (for taxpayers
who were able to maintain bookkeeping) and
official assessment (for small taxpayers exempted
from the obligation of maintaining bookkeeping
but obliged to maintain recording). The problems of monitoring, compounded with respect
to variations of sales tax rates, (nine rates of sales
tax), became the rationales for the migration to
VAT in 1984.
If VAT was considered to be the best indirect
tax regime in 1984, what makes the idea of going
back to the sales tax regime a solution to recent
problems? An Overview of the current VAT
problems in Indonesia from both regulation and
administration perspectives, as follows may help
to provide some insights.
REGULATIONS
Amongst many problems with the VAT regulations, here are two highlighted matters:
Exports of taxable services
As a tax on consumption, it is internationally accepted that supplies are taxed in the
jurisdiction in which they are consumed,
regardless of where they are produced (destination principle). Accordingly, exports of
taxable services shall be taxed at 0% in the
country of origin.
Article 7 of VAT Law 2009 stated among
others that a VAT rate of 0% shall be applied
to the exportation of taxable services.
Nonetheless, articles 2 to 4 of Regulation
of The Minister of Finance (MoF) number
70/PMK.03/2010 which was amended by
Regulation of MoF number 30/PMK.03/2011
limits the rate of 0% to three types of
services only:
• Contract manufacturing services;
• Repair and maintenance services attached
to movable goods and utilised outside the
Customs Area of Indonesia;
• Construction services attached to immovable goods situated outside the Customs
Area of Indonesia.
What about other services which do not fall
into the three categories? Are they VAT-able
and if the answer is yes, which rate would
be applied? The Standard rate of VAT in
Indonesia is 10% of tax basis (total of the
selling price, replacement, import value,
export value, or other values of which is used
to count tax payable). There are two opinions
concerning this matter: services other than
the three services mentioned above are VAT
exempted or VAT-able at 10%.
The Government Regulation (GR) number
1 of 2012 seemed to be in favour of the
second opinion. Article 6 states that VAT
is imposed on delivery of taxable services
within the Customs Area of Indonesia regardless of the jurisdiction in which they are
consumed. This regulation is clearly against
the destination principle adopted in the VAT
Law, which defined VAT as a tax imposed on
the consumption of taxable goods and services within the Customs Area of Indonesia
which is levied at all consecutive strata of the
production and distribution line.
Timing of VAT Refund
Article 9 section (4a) of VAT Law 2009
mentioned that on the excess of input VAT,
a claim for refund could be submitted only
at the end of the accounting year. Taxable
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TaxTalk
Entrepreneurs exempted from this rule are
those who:
• export taxable tangible goods;
• deliver taxable goods and/or render taxable services to the tax withholding agent
for the purpose of VAT;
• deliver taxable goods and/or render taxable
services, the VAT of which is exempted;
• export taxable intangible goods;
• export taxable services; and/or
• are not yet in the production stage.
The limitation of taxpayers’ right to claim
a VAT refund once a year at the end of the
accounting year seems to be unfair and costly
to businesses when you consider the obligation of taxpayers under Article 9 of General
Provisions to pay tax liability before the due
date which shall not be later than fifteen days
from the time the tax is payable or the end of
a taxable period, usually monthly. The timing
of a VAT refund is definitely a barrier to businesses’ liquidity and somehow an incentive to
get involved in tax fraud schemes which are
common in Indonesia.
ADMINISTRATIONS
Two highlighted problems in VAT administration are:
• Paperwork
Article 3A of VAT Law 2009 required taxpayers carrying out the delivery of VAT-able
supplies, except for small-scale entrepreneurs
whose scope of activities are stipulated by the
Minister of Finance (total annual turnover
shall not exceed IDR600 million), to register
with the DGT as a Taxable Entrepreneur.
Being a Taxable Entrepreneur means a
taxpayer is obliged to charge VAT on its sales,
credit such payment of input VAT against
the output VAT, remitting the balance to the
authorities, and file a VAT return monthly.
Only Taxable Entrepreneurs are allowed to
issue a tax invoice.
The administration of tax invoices has its
own difficulties. A Tax invoice has a very
detailed format and a complete tax invoice
has to include all information required by the
Law. Failure to comply with any of requirements will result in an incomplete tax invoice
that cannot be claimed as a credit against
VAT payable.
Despite the e-filing system, taxpayers have
to retain hard copies of input and output
VAT invoices for ten years. These documents
should be furnished to tax administration
during tax audit or verification. Buyers of
taxable supplies may be held accountable
for VAT not properly remitted by the seller
if evidence of a VAT payment cannot be
presented.
Difficulties in Monitoring the
Compliance Process
The nature of the Indonesian Economy with
its black markets, may result in breaks in the
VAT chain by the involvement of Non-Taxable Entrepreneurs in the production and
distribution of taxable supplies. As a consequence, at certain stages, input VAT cannot
be credited against output VAT. Although
the taxpayer is able to expense this irreclaimable VAT for income tax, many taxpayers
choose to use fake tax invoices to decrease
the balance of output VAT and input VAT.
The significance use of fake tax invoices by
ten or more taxpayers in three to four layers
of production and distribution lines resulted
in this scheme being brought to the attention
of law enforcement agencies in 2007. The
amendment of General Provisions of 2007
which came into force on 1 January 2008 has
added Articles 39A which stipulated that
whomsoever deliberately:
• issues and/or uses a tax invoice that is not
based on an actual transaction; or
• issues tax invoices before being registered
as Taxable Entrepreneur;
shall be penalised by imprisonment for a
minimum of two years and a maximum of six
years, and a minimum fine of equal to twice
the amount of tax stated in the tax invoice
and a maximum fine of equal to six times the
amount of tax stated in the tax invoice.
Despite the harsh penalties, VAT crime
cases from 1 January 2008 to 31 December
2012 still formed a large portion (23%) of
all tax cases. It appeared that Indonesia’s
administrative capacity was still relatively
weak to monitor VAT compliance. Therefore,
DGT conducted a re-registration of all Entrepreneur Taxpayers in 2012 and introduced
a new numbering system of tax invoices in
April 2013. Tax invoice numbers are now
generated centrally by DGT; therefore, its
administration can be easily monitored .
Considering the issue of moving back to
a sales tax regime has been ongoing since
2011, it is strongly urged that DGT conduct
thorough research to analyse the feasibility
of the two options: improving the current
VAT system or re-introducing the sales tax
system. The costs and benefits of both tax
regimes should be compared fairly regarding the nature of the Indonesian Economy.
Stakeholders are waiting for DGT’s statement
about its view in the continuing debate and
the national election in April 2014 could be
an optimum time for a change in tax administration.
T
CPD
15 minutes
Shift from Direct Taxes
to Indirect Taxes
Set to Continue
Charles de Wet, PwC Africa
T
he trend for governments globally to
raise more taxes through indirect taxes is set to
continue. The financial crisis has made governments globally consider the composition of their
tax revenues. The International Monetary Fund
(IMF), the Organisation of Economic Cooperation and Development (OECD) and the European
Commission all promote the shift from direct to
indirect taxes to help solve the economic uncertainty, in particular by reducing costs on business
to help make them more competitive.
Value-added tax (VAT) in the OECD countries
accounts for about 20% of total tax revenue, a 70%
greater share than in the mid-eighties, according to the OECD. With excise duties at 11% and
other taxes contributing smaller sums, revenues
from taxes on goods and services are now close to
revenues raised from personal income tax (25%),
corporate income tax (8%) and other direct taxes
such as those on capital gains.
Consumption taxes such as VAT (in some
countries known as Goods and Services Tax or
GST) are increasing in prominence and now exist
in more than 150 countries, with other jurisdictions planning to introduce consumption tax
regimes over the coming months. The number of
34
TaxTalk
countries with only a sales tax (such as the US) is
shrinking. In Africa, 42 of the 51 economies have
a VAT system but only three (South Africa, Mauritius and Tunisia) have implemented the tax with
an electronic filing and payment capability, which
is commonly used.
The members of the European Union (EU) VAT
system and the 127 or more other countries with
a VAT system already are being joined by those
(such as Malta) fairly committed to a VAT system,
and those (like the Gulf Cooperation Council
states) actively considering VAT plans.
A recent report issued by PwC, ‘Shifting the
balance from direct to indirect taxes: bringing
new challenges’, provides a global perspective on
the shift from direct to indirect taxes. The report
also looks at the current indirect tax and VAT
challenges facing businesses globally, as well as
how indirect tax regimes compare across major
territories and regions.
South Africa is no exception to the rule with
businesses facing a number of VAT challenges. For
instance, the number of VAT audits conducted by
the South African Revenue Service (‘SARS’) has
increased over the last few years, and the information requested and questions raised during these
audits have become increasingly complex
and specific.
Now in its 22nd year, the VAT system of
NATIONAL
BUDGET
BREAKFAST
The South African Institute of Tax Practitioners (SAIT), member of The
International Tax Directors’ Forum and The Financial Planning Institute
of Southern Africa (FPI), founding member of the International Financial
Planning Standards Board (FPSB), are leading independent professional
bodies for tax professionals and financial planners in South Africa
respectively. These two professional bodies have joined forces to host the
2013 Annual National Budget Breakfast.
There will be an analysis by the speakers on the National Budget focusing
on how it will impact the following areas:
•
•
•
•
Tax
Economic environment
Socio-economic environment
Political environment
The analysis by the speakers will be followed by a panel discussion, where
delegates will be afforded the opportunity to direct questions to the panel
on the related topics.
20 February 2014
BOOK NOW
For further information contact the SAIT on:
Telephone: (0027) 861 777 274
Email: events@thesait.org.za
Website: www.thesait.org.za
“In South
Africa VAT still
accounts for
more than half
of the overall
indirect tax
revenues”
taxation is firmly entrenched in South Africa
but continues to present a number of challenges
in terms of administration and interpretation.
Jurisdictions such as New Zealand and Australia
have introduced reforms in an attempt to simplify
their systems. More recently, China implemented
new VAT reforms on 1 September 2012 in a bid to
streamline its indirect taxation system and boost
its economy whilst the EU has issued a Green
Paper aimed at reducing the complexity that has
developed over the last 50 years.
Over recent years VAT rates have risen in a
number of countries. South Africa’s VAT rate of
14% has remained unchanged since 1993 and is
far less than many countries around the world. It
is unlikely that we will see a change in the rate in
the near future. It is interesting to note that there
is no cap to the maximum normal VAT rate that
can be applied in the EU and Hungary’s main rate
is now 27%.
In South Africa VAT still accounts for more
than half of the overall indirect tax revenues. Total
VAT collections for the 2012/13 fiscal year were
R215.5 billion and grew by 12.8%. But there are
two clouds on the horizon. The healthcare system
which the Government is set to introduce will
need to be funded: one of the suggestions has been
to increase the take from VAT, possibly through
higher VAT rates. The government has also
proposed the introduction of a carbon tax during
2015: lessening the burden on poorer households
could involve playing around with VAT exemptions to target typical spending patterns. In recent
years SARS have also been focusing on improving
tax administration. The Tax Administration Act,
which took effect on 1 October 2012, modifies
some outdated procedures, providing the foundations for a better future.
Business operates as an unpaid collector for
the tax authorities regarding indirect taxes. The
compliance burden for companies can vary from
country-to-country. VAT takes the most time on
the African continent for businesses to comply
with (an average of 133 hours), according to our
research. How countries compare depends on a
number of factors contributing to a high or low
compliance burden. For instance, multiple VAT
rates, complex obligations, ineffective collections
and late or no refunds can lead to hefty costs for
businesses and a high compliance rate.
Where business is unable to obtain a refund of
VAT, there will be a cost to the business. Our practical experience of this is that the business tends
to stop or change the operations they carry out in
the country where the VAT recovery is potentially
a problem. Where the interpretation of legislation
due to complexity requires court intervention, the
business will incur significant costs. An indication
of the number of cases brought before the Court
of Justice of the European Union provides an
idea of the areas of the EU VAT systems that have
given rise to problems in the period from 1974 to
2013. More efficient use of technology can reduce
the costs of collection and compliance. Electronic
invoicing has now become the global norm. Interest is growing in the concept of electronic auditing
by tax authorities of a business’s financial records
and systems, with countries such as France now
applying these techniques.
More countries are adopting tools that can
interrogate such records on the basis that they
must support the standard audit file for tax
(SAF-T) methodology. Singapore is a case in
point, where businesses are encouraged to adopt
the SAF-T standards.
In South Africa the introduction of e-filing for
VAT is effectively complete. As a result we have
seen some real benchmarks established in the way
that taxpayers have been selected for enquiries.
Interest is also growing in the concept of electronic auditing by tax authorities of a business’s financial records and systems. However, the trials of
wider e-audits have been less successful in South
Africa. The IT14SD which requires taxpayers
to reconcile across different tax types is a prime
example of an initiative which has failed to deliver
the expected benefits.
The network of agreements for the exchange of
information between territories has also grown
substantially since the OECD’s publication of a list
of countries not co-operating in applying its information standards. It is now looking at exploring
further opportunities for exchanging information.
The possible extension of joint audits includes
elements of indirect taxes, with tax authorities in
different countries collaborating in planning and
carrying out an audit, is another interesting development which is already taking place in the EU.
We are likely to see more cooperation between
the tax authorities on indirect tax in the near
future. The key focus areas will include transfer
pricing; compliance and enforcement, including
the exchange of information and risk management; and the building of capacity – that is the
development of a team of civil servants with the
right knowledge, skills and tools to administer a
viable tax system.
With organisations under increased pressure
from regulation and compliance requirements, it
is essential that organisational processes become more efficient and streamlined. PwC has a
number of technology solutions in place to enable
organisations to gain greater efficiency and control
in the tax process.
Unless companies consider the make-up of
their tax bills in future, they won’t be geared up
with the right systems and resources to manage
them effectively. It may require some fundamental
rethinking of the structure of the tax function as
well as broader finance and procurement departments to ensure they identify the costs which need
to be controlled.
T
TaxTalk
37
What ever happened to the
Customs & Excise legislation
re-write project?
CPD
15 minutes
Alison Van Den Berg, Malan Scholes Attorneys
This version of the draft
legislation had been
reviewed by the State
Law Advisors, and was
the result of an extensive
process of consultation
between SARS and
stakeholders
S
outh Africa’s “Customs Modernisation Programme” is not just policy jargon nor is it
a popular “buzz” phrase used by the South African
Revenue Service (“SARS”) to boost its popularity.
Real changes are visible and they are happening
constantly. In August 2013, just for example, SARS
implemented a major component of a customs
management system which converted a number
of paper-based systems into a fully automated and
centralised processing system for all commercial
trade across South African borders. SARS claimed
in its media statement at the time that “the new
Customs management system centralises the
clearing of all import and exports declarations using a single processing engine. The new automated
management system replaces a variety of older
systems and paper-based, manual administrative
processes. By managing Customs declarations and
supporting documents in electronic format, the
processing of cargo movements by land, sea and
air will now be much quicker and more accurate”.
August 2013 also saw the “pre-certification version”
of the draft new customs legislation, made available
to the public (for information purposes only) on the
SARS website. This version of the draft legislation had
been reviewed by the State Law Advisors, and was the
result of an extensive process of consultation between
38
TaxTalk
SARS and stakeholders. Finally, on 18 October 2013,
the final version of this Legislation was published in
the Government Gazette, together with explanatory
memoranda. Although the Bills have now been promulgated, they only take effect and commence on an
unknown future date to be determined by Presidential
Proclamation in the Gazette.
In view of these recent developments, it is worth
re-capping how this new legislation fits into the modernisation programme; how drastically it promises to
change the landscape for stakeholders where SARS is
in the customs legislative “make-over” process; and
what is still to come.
When the draft legislation was first published for
comment, the SARS memorandum in this regard
explained that the Revised Kyoto Convention provides a model framework for customs control and is
regarded as the blueprint for a modern, efficient and
cost-effective customs system. In view of South Africa
having acceded to this Convention in May 2004, it
was determined that a fundamental restructuring of
our customs and excise legislation was required to,
amongst other things, give effect to Kyoto and other
binding international instruments.
South African Customs and excise legislation is
currently contained in the Customs and Excise Act,
1964 (Act No. 91 of 1964), which provides for the
levying of customs and excise duties, and also other
taxes such as fuel levies, air passenger tax and environmental levies. SARS’ stated intention was to work on a
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completely new legislative framework, which
will ultimately consist of three separate pieces of legislation to replace the Customs and Excise Act, 1964,
being the –
I. Customs Control Act (see the Customs Control
Bill 45 of 2013, published on 18 October 2013)
that establishes a customs control system for
all goods imported into or exported from the
Republic and that prescribes the operational
aspects of the system;
II.Customs Duty Act (see the Customs Duty Bill
43 of 2013, published on 18 October 2013) that
provides for the imposition, assessment and
collection of customs duties; and
III.Excise Duty Act (see the Customs and Excise
Amendment Bill 44 of 2013 as an interim arrangement also published on 18 October) that
provides for the imposition, assessment and
collection of excise duties.
SARS had clarified in the past that the re-write
would be a project in two phases, the first phase
being the drafting of the two Customs Bills and
the second the drafting of the Excise Bill. The intention was then that, once the Customs Bills were
enacted into law, the current Customs and Excise
Act, 1964, would be retained for the continued
administration of excise duties until the proposed
Excise Act is put in place, and this explains the
third Bill referred to under (c ) above..
So how do the draft Customs
Bills compare to the existing Act?
The Customs & Excise Act of 1964, consists of 122
sections contained in 12 chapters. The Customs Control Bill, on the other hand, consists of 944 sections,
spanning 41 topic-specific chapters. Extensive use is
made of footnotes to provide background information
and to connect specific provisions with the numerous
cross-cutting provisions contained in other parts of
the Bill. The legal status of the footnotes is also determined in the Bill, namely that they “do not form part
of the Bill, but that they may be taken into account in
the interpretation of the Bill as non-binding opinions
on the information they convey”.
The main stated aims of the Control Bill are to
serve as the legislative platform for the changes to
policy, processes and technology that are to be delivered under the Customs Modernisation programme.
For example, it contains provisions dealing with
fast-tracking clearance and release procedures in respect of certain categories of persons or goods; and the
introduction of advance binding rulings (private, class
and general) on the interpretation or application of a
provision of the Bills in order to create legal certainty.
The Customs Control Bill seeks to provide systems
and procedures for customs control of all goods and
persons entering or leaving the Republic; and of
course “to enable the effective collection of tax on such
goods imposed in terms of the tax levying Acts” –
which refers to Acts imposing taxes on imported and
40
TaxTalk
exported goods and includes the proposed Customs
Duty Act, the Value-added Tax Act, the proposed
Excise Duty Act and the Diamond Export Levy Acts.
What this means in practice, is that when the Control
Bill comes into effect, it will have to be read with certain provisions of the existing act relating to Excise. In
addition, it will have to be read with the new Customs
Duty Bill and the VAT Act, to obtain a full picture of
the legal position in respect of these indirect taxes – it
remains to be seen how all the links work in practice
and if the new acts really do simplify and clarify the
position by detailing various procedure scenarios.
The Customs Duty Bill comprises 229 sections
divided into 13 chapters. There are a number of
significant provisions which effect subtle to dramatic
changes, including provisions to give maximum effect
to the principle of self-assessment with the role of the
customs authority focused on verification of self-assessment rather than on assessing the amount of tax;
provisions increasing the period of liability for duty
from two to three years from the date of assessment;
and provisions relating to binding advance rulings on
the tariff, value and origin determination of goods to
be cleared during a future period.
The new legislation also makes certain changes to
terminology; categorises offences and penalties; adds
to the detail on the power of officers and when warrants are required, and establishes a lien over goods
for SARS in certain circumstances. What is not clear is
when the rules/regulations which arise out of the main
acts will come into play. The existing Act has extensive
rules in place, whereas the draft bills make provision
for Rules to facilitate implementation thereof.
T
Image
Rights
It’s Time for Clarity and Certainty
Betsie Strydom & VICTORIA SINTON, Bowman Gilfillan
T
he tax treatment of image rights
is contentious in many countries, South Africa included. Lionel Messi, the hero of Spanish
football, recently paid €5m to the tax authorities
after he had been charged with tax evasion in
respect of the sale of the commercial rights to use
his image, autograph and name (“image rights”).
The charges arose from the income from the sale
of Messi’s image rights to offshore companies. The
perceived value of image rights was also rumoured
to be an important aspect of the talks surrounding Gareth Bale’s record breaking transfer from
Tottenham Hotspur FC to Real Madrid. In the UK
it has been reported that several football clubs in
the Premier League have settled disputes with HM
Revenue and Customs regarding the taxation of
image rights.
The commercialisation of their image rights by
famous sportsmen is common place: in the UK
sportspersons often dispose of their image rights
either to an agent, to an offshore company or to
the club which the sportsmen are contracted with.
When footballers are contracted to a club, the
more famous footballers will typically enter into
two types of agreements. The first agreement will
be a standard fixed term contract of employment
with the club under which a salary is paid to the
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TaxTalk
footballer to play for the club. The second agreement is an image rights transfer agreement whereby the footballer is required to transfer his image
rights in exchange for payment. For the duration
of the image rights agreement, the footballer will
divest himself of the rights to exploit or use his
image and autograph for personal gain and the
club or agent who has acquired these rights, will
exploit them for commercial gain.
In a Draft Guide on the Taxation of Professional Sports Clubs and Players, SARS stated
that “image licensing agreements” involving the
commercial exploitation of a player’s image form
part of the player’s gross income and will therefore
be included in his or her taxable income. SARS
regard payments for image rights as being similar
“to endorsement fees and appearance fees as all
three form part of a sports player’s remuneration, are of a revenue nature and are accordingly
taxable”. SARS requires PAYE to be deducted from
payments in respect of image rights, irrespective
of whether these payments are made to agents,
to companies owned by the agents or to the
players themselves.
Is there merit to this stance, or are SARS
“behind the times” and should legislation be introduced to deal with the topic? Certainly, in the
UK, as in SA, the protection by players (for convenience we will call them footballers) of their image
rights rely on an unsatisfactory combination
CPD
15 minutes
of privacy law, licensing agreements and passing off protection.
There is doubt whether SARS’ stance is correct, and although the
answer depends on the merits of each matter, it is clear that image
rights are recognised in many countries as an asset that can be
commercially exploited, and as such, as something separate from
the services that a player will render to his employer club.
From a tax perspective, the employment agreement with the
footballer would attract Pay As You Earn (“PAYE”). However, the
second agreement, which involves a once-off payment to the footballer for the disposal of a capital asset, is a contentious issue.
There are two schools of thought about the taxation of image rights. Currently SARS take the view that any payment to
a player is for services performed. This, in their view, includes
public appearances using their image or autograph, for the club
or sponsors. As a consequence, any payment for image rights is
treated by SARS as revenue. If the payments for image rights are
made by the employer, they are obliged to deduct PAYE in respect
of such payments. SARS go one step further: even if the employer/club makes the payment for the image rights, to an agent, or
to a company which acquires the image rights, SARS regard this
as a gross income in terms of paragraph (c)(ii) of the definition
of gross income and requires employee’s tax to be withheld from
these payments as well.
The other view is that image rights are capital in nature and
therefore, any receipt in respect of the disposal of these rights, are
not revenue and should (depending on the facts of each matter,
of course) typically be taxed as a capital gain. The distinction
between capital and revenue is central to the treatment of image
rights. There is no standard test to determine whether accrual or
receipt of image rights payments is of a capital or revenue nature
and the answer will depend on the facts of each case.
In the sports industry there is a difference between salaries paid
to sportsmen and payments for image rights. The latter are analogous to restraint of trade payments. When a sportsman disposes
of his image rights he sterilises an asset that could have been used
by him to generate income. When a person undertakes not to
exercise a trade, profession or occupation in a specified area for a
defined period of time in return for compensation, the payments
received in respect of the restraint of trade are capital in nature.
When a footballer disposes of his image rights, he relinquishes an
essential part of his or her ability to generate additional income.
SARS has promulgated legislation in respect of restraint payments and in our view, it should also publish legislation to deal
with image rights. Why not, for example, recognise that certain
sportsmen have image rights that are capable of commercial
exploitation? If the tax authorities fear abuse or avoidance, they
could place a cap on the percentage of the sportsman’s income that
can be allocated to image rights, with exceptions being made for
players who can prove the commercial value of their image rights.
The contrasting view is to treat all payments to sportsmen
as “remuneration” and subject to PAYE. Although this may be
attractive to the tax authorities, it ignores the commercial reality
that certain players have valuable image rights.
It still remains to be seen how the SARS will choose to treat
image rights payments made to sportsmen and their agents. Payments for the use of image rights are common place in all sporting
industries. It is necessary to clarify whether payments made for
the use of image rights are capital or remuneration in order to
prevent industry wide disputes between clubs, players and SARS.
T
CPD
30 minutes
More Holistic Planning
Around Custom Valuation and Transfer Pricing
Jed michaletos, Deloitte
“C
ompanies often have different
members of staff or external advisors dealing with
transfer pricing and customs duty. Yet, transfer pricing
and customs valuation principles are not just linked
but, in fact, work in opposites and can result in over
pricing and underpricing if dealt with in isolation”,
warns professional services firm Deloitte.
Transfer pricing is governed by Section 31 of the Income Tax Act, as well as SARS Practice Note 7, which
is based on the Organisation for Economic Co-Operation and Development (“OECD”) guidelines.
Customs valuation is governed by sections 65, 66
and 67 of the Customs and Excise Act, which is based
on the Agreement on Implementation of Article VII of
the General Agreement on Tariffs and Trade (GATT)
commonly referred to as the GATT agreement on
customs valuation. Of the 148 World Trade Organization (“WTO”) members, all prescribe to the WTO
Agreement on Customs Valuation. The agreement
establishes that the customs valuation is based on the
transaction value of the imported goods, which is
the price actually paid or payable for the goods when
sold for export, plus certain adjustments. Currently
90% of world trade is valued on the transaction value
basis. The WTO Valuation Agreement mandates the
World Customs Organisation (“WCO”) to administer
the Agreement through its Technical Committee on
Customs Valuation. South Africa is a member of
the WCO.
One of the instances where the transaction value
will be under scrutiny from the South African Revenue Service Customs and Excise (“SARS”) is when
the buyer and seller meet the definition of “related
parties” in terms of the Customs and Excise Act. In
South Africa this definition is very wide and one of
the conditions is an equity share holding of 5% or
more, which is less than the 20% equity share holding
requirement under transfer pricing. says Jed Michaletos, Director, Customs at Taxation Services at Deloitte.
Importers need to declare the relationship with
their supplier on importation; however, we have found
that many companies’ knowledge of the Customs and
Excise Act is poor and as a result, in many instances,
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TaxTalk
this declaration is made incorrectly, i.e. buyer and
seller are related, however, they declare that they are
in fact not related.
It is generally only when the declaration of the relationship is made that SARS will require the importer
to complete a customs valuation questionnaire (form
DA55). The outcome of this is a value determination
from SARS stating whether or not they accept the
transaction value (i.e. price paid or payable) as the value for customs duty purposes. If SARS do not accept
this, then the alternative methods of valuation need to
be consulted and the onus is on the importer to prove
that the prices charged by the supplier are the same as
for identical or similar goods sold to unrelated parties
in South Africa (effectively the arm’s length price
principle). The latter is a costly and time consuming
exercise which can be avoided if the importer is more
proactive with voluntary disclosures to SARS on the
relationships with their suppliers and details of the
pricing and other payments (e.g. royalties, commissions, discounts and rebates etc.).
“Having said that, it is also clear that most companies rely on the transfer pricing rules for income
tax purposes to drive the prices which are then used
as transaction values for customs reporting purposes. Most organisations first and foremost address all
of the transfer pricing issues and rules when setting
inter-company prices, and only after those prices
have been set is any thought or review given to or
of the customs valuation rules, if done at all”,
says Michaletos.
Companies often have different members of staff
(or different external advisors) dealing with transfer
pricing and customs duty. Yet the one area very often
impacts strongly on the other. For this reason companies should consider a more holistic approach to
determining the tax implications of specific transactions. The reality is that there is a significant overlap
between transfer pricing and customs duty and a
failure to take both kinds of tax into account can often
lead to difficulties.
Transfer pricing and customs valuation principles
are linked. In fact they work in opposites. From a
transfer pricing perspective the Revenue authorities
are concerned with over pricing which results in
“profit shifting”, whereas from a customs valuation
perspective, the Customs authorities are concerned
with underpricing which results in underpayment of
customs duty and VAT.
Consider for example the following set of facts:
A South African company (SA Co) is owned by
a US Company (US Co) and acts as the distributor
in South Africa of goods manufactured by US
Co. The group’s transfer pricing policy stipulates
that SA Co should earn an operating margin of
2%. The goods supplied by US Co to SA Co are
therefore priced with the intention of enabling SA
Co to realise this target operating margin.
The policy also provides that, if SA Co’s actual
operating margin deviates by more than 0,2%
from the targeted margin, the pricing of the goods
supplied during the relevant year will be subject
to an adjustment at year-end. This adjustment
will be calculated in such a way as to achieve the
targeted 2% operating margin.
The pricing of the goods supplied during the
course of the year would, in these circumstances,
usually be based on budgeted information. Any
possible adjustment which might be necessary at
year-end would be as a result of deviations from
the budgeted information. In other words, these
adjustments would be done by reference to actual
figures rather than budgeted figures.
• It is therefore possible that, at year-end, either
of the following types of adjustment may be
necessary:
• If SA Co has failed to achieve the targeted
operating margin then it might receive a rebate
in respect of the goods purchased during the
course of that year.
• Alternatively, if SA Co exceeds the targeted
operation margin it might be required to pay an
additional amount for the goods.
Both of these two possible situations have significant customs duty implications. In the event
of SA Co receiving a rebate this will amount to a
downward adjustment of the amount paid by SA
Co for goods. This would effectively mean that
the original customs valuation of the goods has
been overstated and that customs duty and VAT
has, in all likelihood, been overpaid. This means
that SA Co would wish to seek a refund of any
such overpaid customs duty and VAT.
With the alternative scenario - in other words,
where SA Co is required to make an additional
payment in respect of the goods, the price actually
paid or payable has hence increased and as a result
the original transaction value for customs duty
purposes needs to be increased. This means that
there will have been an underpayment of customs
duty and VAT when the goods were imported
into the country. This means that an additional
payment of customs duty and VAT is required.
There are significant practical difficulties with
either obtaining a refund of customs duty and
VAT paid in these circumstances or with paying
the additional amount of customs duty and VAT
required. The problem here is that the Customs
and Excise Act does not currently cater for such
year-end type adjustments. When adjustments are
made to the price paid or payable, i.e. the customs
value declared on importation, SARS requires
that the specific import transactions need to be
corrected by means of vouchers of correction.
SARS does not allow for once-off adjustments
of this nature. This creates a huge administrative
burden on the company. Consider the scenario
where a Company imports hundreds of containers
per month, they would need to pass vouchers of
correction for each entry. Another practical difficulty is that these adjustments are consolidated
amounts based on operating margin. If a company
has thousands of product line items, some subject
to customs duty and others not, the apportionment exercise needed would be a nightmare.
We believe that there is scope for this to be
addressed with SARS, the Customs and Excise
legislative needs to be changed to cater for these
types of adjustments. SARS are currently in the
process of re-writing the Customs and Excise Act
and this poses an ideal opportunity for SARS to
ensure that these changes are made.
The biggest risk with respect to these adjustments is that many companies do not notify SARS
and therefore the customs value on imports are
subsequently not adjusted. This creates exposures
to companies that have made debits or lost opportunities with companies passing credits.
This is just one factual example of the potential
difficulties that can arise in the interaction of
customs duty and transfer pricing. Companies
are therefore strongly advised to consider both
aspects simultaneously when doing their tax planning, concludes Michaletos.
T
TaxTalk
45
CPD
30 minutes
The VAT Challenges of
Cross-border Supplies
Gerhard Badenhorst, ENS africa
I
t is well-known that value-added tax
(“VAT”) is a multi-stage tax, aimed at taxing consumption of goods or services in South Africa. A
fundamental pillar of the VAT system is its credit
mechanism that allows VAT registered businesses
a deduction of the VAT they pay on expenses to
avoid a cascading effect of the tax. Consequently,
the burden of VAT falls on the final consumer.
The mechanism of the VAT system works well
where the VAT registered supplier and recipient
reside in the same country, but poses a challenge
where they are situated in different countries.
Each country will impose their own VAT rules
which could lead to double taxation or non-taxation of the supply.
Globalisation has boosted international trade
and the growing supply of digital products has
made it easier for businesses to be established
in countries other than where their consumers
are based. This has opened the door for establishing businesses in countries which operate a
destination-based VAT system. Such systems
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TaxTalk
tax goods or services in the country where they
are consumed and assume that the supply will be
taxed in the country of destination, but this may
not always be the case. Multinational enterprises
are therefore able to exploit the arbitrage between
the VAT systems of countries, thereby minimising their tax burden and obtaining a competitive
advantage.
The Organisation for Economic Co-operation
and Development (“OECD”) recognised this trend
and has recently published its Action Plan on Base
Erosion and Profit Shifting. The OECD stated that
the situation is critical for all parties concerned:
• Governments collect less revenue which impacts on
economic growth;
• Individual taxpayers bear a greater tax burden;
and
• Local businesses are harmed because they cannot compete with these multinationals.
From a VAT perspective the OECD action plan
proposes a thorough analysis of business models
in specifically the digital economy to ensure the
effective collection of VAT and the introduction of
international taxing rules.
Imported services
South Africa also recognised the significant risks in
respect of the cross-border supply of digital products
by foreign multinational enterprises to South African
consumers. These enterprises are not registered for
VAT in South Africa and do not charge VAT. The
Value-Added Tax Act, 1991 (“the VAT Act”) provides
for the payment of VAT on the importation of services
into South Africa, but exempts imported services
with an invoice value of less than R100. For supplies
exceeding R100, it is virtually impossible to collect
VAT from individual consumers, thereby placing the
foreign enterprise in a competitive advantage over
local suppliers that must charge VAT. Consequently,
a legislation amendment has been proposed from 1
April 2014 to oblige foreign suppliers of digital products to South African consumers in excess of R50 000
per annum to register and charge South African VAT.
Although not without enforcement challenges, it is a
move in the right direction.
It is, however, not only the cross-border supply of
digital products that poses VAT challenges. In the
recent case of Commissioner for SARS v De Beers
(503/2011) [2012] ZASCA 103 the Supreme Court
of Appeal (“SCA”) ruled that services acquired by
the vendor from foreign service suppliers comprised
imported services on which VAT was payable.
For a supply to comprise a taxable imported service,
the service must be:
• supplied by a non-resident supplier; and
• utilised or consumed in South Africa; and
• acquired other than for a purpose of making taxable
supplies.
Whether the service is supplied by a non-resident and
if it is acquired to make taxable supplies is generally a
question of fact. However, it is not always clear where
the services are utilised or consumed, and the absence
of “place of supply” rules from the VAT Act enhances
this problem.
In the De Beers case the SCA considered the
services to be consumed in South Africa because De
Beers was a South African company with its head
office in Johannesburg, which was where the meetings
were held to appoint the foreign suppliers. It was
also where the board met to receive and approve the
recommendations of the foreign suppliers and where
the recommendations were implemented.
The place of consumption of a service rendered by
a foreign supplier is not always easily determinable.
Consider, for example, the following services:
• Legal services supplied by foreign attorneys regarding legal action in a foreign country or compliance
with foreign legislation or regulations;
• Services rendered in respect of a listing on a foreign
stock exchange; or
• Foreign banking and administration services supplied in respect of funds invested offshore.
Although the South African vendor may benefit from
these services in South Africa, it is not the ultimate
benefit that should determine the VAT status of the
supply, but where the service is actually consumed. If
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TaxTalk
a South African patient undergoes surgery in a foreign
country, the cost of the surgery can surely not be taxed
as an imported service simply on the basis that the
patient ultimately enjoys the benefit of the surgery in
South Africa.
Services supplied to non-residents
In line with the destination based principles of the
VAT Act, services which are rendered to non-residents may qualify for VAT at the rate of zero per cent
in terms of section 11(2) (ℓ) of the VAT Act. The
rate of zero per cent may, however, not be applied if
the non-resident or any other person to whom the
services are supplied is present in South Africa when
the services are rendered. The zero rate may also not
be applied if the services are rendered in respect of
movable property which is located in South Africa
when the services are supplied, unless the movable
property is exported from South Africa.
In the recent case of Master Currency v CSARS
(155/2012) [2013] ZASCA 17 the SCA ruled that the
exchange of currency for a non-resident at the airside
of customs at an international airport does not qualify
for VAT at the zero rate because the non-resident is
physically present in the “Republic” as defined in the
VAT Act when the service is rendered. The SCA also
did not accept the argument of the vendor that the
service is rendered in respect of movable property
(banknotes) which is exported from South Africa by
the non-resident. The SCA ruled that the movable
property must be exported by the supplier of the
service for the zero rate to apply.
Master Currency argued in the alternative that its
services qualified for the zero rate in terms of section
11(2)(g)(i) of the VAT Act, which provides for the
zero rating of services supplied directly in connection
with movable property situated in an export country.
Master Currency contended that banknotes embody
personal rights of payment of the face value to the
bearer which rights are situated at their place of issue,
i.e. in the foreign country. The banknotes therefore
evidence movable property situated in the country
where they were issued. The SCA held that banknotes
cannot be regarded as promissory notes embodying
an incorporeal right against the foreign issuing bank,
and dismissed the arguments of the vendor. The High
Court of Australia came to a different conclusion on
a similar issue in Travelex Ltd v Commissioner of
Taxation [2010] HCA 33.
Supply of goods
Where tangible goods are supplied, there is an assumption that the goods will be consumed where they
are physically located when they are supplied. The
VAT Act therefore allows for the application of the
zero rate for goods exported from South Africa. The
supplying vendor must, however, be able to substantiate that he has exported the goods from South Africa.
The supporting evidence which the supplying vendor
must obtain in this regard is prescribed by VAT In-
terpretation Note 30 (“IN 30”) and is strictly
applied.
One of the requirements of IN 30 is that
the exporter must obtain proof of payment
for the supply of the goods within a period
of three months or an extended approved
period. If the proof of payment is not obtained within this period then the exporter
becomes liable for the VAT. Consequently,
if the foreign debtor defaults the exporter
will not only bear the financial burden of
the non-payment but will also be liable for
the VAT even though the goods were duly
exported.
Where the goods are supplied to a foreign
purchaser in South Africa who acquires the
goods to export them from South Africa,
the supplier is required to charge VAT at
the standard rate. However, in line with the
destination principle of the VAT Act, the
foreigner can claim the VAT paid as a refund
via the VAT Refund Administrator when
the goods are exported. This is, however, an
onerous process for businesses and significant delays are often experienced with the
refund payments which also exposes the
foreign business to currency exchange risks.
A regulation published in terms of the
VAT Act, Government Notice 2761 of 1998,
provides the supplying vendor with an
option to apply the rate of zero per cent if the
goods are delivered to a harbour or airport
for exportation by the foreign purchaser. In
these circumstances the supplier assumes
the obligation to obtain the required proof of
export, and also bears the risk of the VAT if
the required proof is not obtained within the
prescribed time periods.
The South African Revenue Service
(SARS) is currently reviewing the regulation,
and is proposing to expand the option for
the supplier to apply the zero rate for goods
exported by road and rail as well, but only
under very limited circumstances.
Importation of goods
VAT is payable on the importation of tangible goods into South Africa by the importer.
The importer may claim the import VAT
as a deduction if he is registered for VAT
and acquires the goods for making taxable
supplies, but SARS requires that the importer
must be the owner of the imported goods.
SARS’ view is that the import VAT does not
qualify as a deduction if the importer does
not own the goods even if they are used to
make taxable supplies. SARS considers the
word “acquire” in the definition of input tax
in the VAT Act to mean acquiring ownership
of the goods.
Where the importer is a non-resident and
not VAT registered, the importer cannot
claim the import VAT and the purchaser may
suffer the additional cost. The non-resident
supplier will include the non-deductible
import VAT in the selling price, which
VAT is not deductible by the purchaser. To
avoid the cascading effect this may cause,
section 54(2A) of the VAT Act allows an
import agent to claim the import VAT as a
deduction, and section 8(20) then requires
the agent to levy VAT on the delivery of the
goods to the South African recipient. The
purchaser may then claim the VAT based on
the agent’s tax invoice.
The VAT implications and the VAT status
of cross-border supplies of goods and services should be carefully considered to avoid
any non-deductible VAT cost and to ensure
compliance with the VAT Act. The introduction of “place of supply” rules into the VAT
Act will certainly assist to provide more clarity regarding the VAT status of cross-border
supplies, particularly cross-border services.
T
TaxTalk
49
The Vat Consequences
of a Pbo Entering into
a Joint Venture with
a Third Party
PROF DANIEL ERASMUS, TRM Services
A CONUNDRUM?
A
Public Benefit OrganiSation
(“PBO”) is a nonprofit company with members
that includes the following objects as set out
in its Memorandum of Incorporation: "… to
develop technology and materials in support of
such objectives...”. The PBO wants to enter into a
Joint Venture arrangement with a company (“the
Company”) that is able to contribute the skills and
expertise "… to develop technology and materials
in support of such objectives...”. But it only wants
to do so if there are no adverse value-added tax
(“VAT”) consequences.
A joint venture is usually a classic partnership
which must have the following essentialia to be a
valid partnership (the South African courts rely in
general on Pothier’s formulation of the essentialia. His formulation was expressed as follows in a
well-known excerpt from Joubert v Tarry and Co
1915 TPD 277):
• Each party must bring something to the partnership, whether it be money, labour or skill;
• The partnership must be carried on for the joint
benefit of the partners;
• The object is to make a profit; and
• The contract of partnership must be a valid
contract.
The PBO in terms of a typical Memorandum of
Incorporation approved in terms of section 30 of
the Income Tax Act 58 of 1962 (“the Income Tax
Act”) is entitled to the payment of an amount due
and payable in terms of a bona fide agreement
between the PBO and another (in this case the
other company partner in the Joint Venture), and
to make payment in respect of any legal obligation
binding on the PBO.
These MOIs do not usually specify what type
of bona fide agreement or legal obligation, and as
such it can be accepted that this could be a partnership agreement, provided that the objectives of
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TaxTalk
the PBO are not compromised.
Therefore, if a partnership is formed between
a PBO and the Company specifically to develop
intellectual property where the Company supplies
the expertise, and the PBO contributes the funding required, where both partners are entitled to
the use of the intellectual property developed, a legitimate partnership would be formed, that would
not transgress the objectives of the PBO.
What are the VAT consequences: If the partnership makes taxable supplies of goods and services
that exceeds R1 million in turnover, then the
partnership is a person that must register for VAT
purposes separately. But it depends on whether
or not that partnership will make supplies that
generate turnover from consideration for the supplies. That in turn is affected by the provisions of
section 10 of the Value-Added Tax Act 89 of 1991
(“the VAT Act”) where one of the parties receiving
supplies in the form of partnership benefits from
the partnership, cannot claim an input tax credit if
there was a charge for those benefits.
Remember the partnership is structured so that
the funds contributed by the PBO will be used to
develop the intellectual property, and the Company will provide the skills to develop the intellectual property, as the respective contributions of the
partners to the partnership.
Both the PBO and the Company will be entitled
to use the intellectual property created in the
partnership. That is the benefit to each partner.
A benefit in specie, and not money or profits in
the form of money. Money is not ‘goods’ for VAT,
so the supply of money falls outside the ambit of
VAT.
With regard to the contributions of the partners
to the partnership: the supply of money is excluded from the definition of goods, so any monies
made available by the PBO to the partnership
as part of its partnership contributions will not
attract VAT as it is receiving no supply of goods or
services in exchange for its partnership contribu-
CPD
15 minutes
tion. It has a right to participate in the fruits
of the partnership, where it is entitled, for no
further consideration, to use the developed
intellectual property, as its share of what the
partnership produces. The moneys contributed by the PBO will be used in the partnership
to pay for any expenses in the partnership for
developing the intellectual property using the
skills of the Company.
In the case of the Company’s contribution,
any goods or services in the form of skills
(which are widely defined) made available by
the Company in the course or furtherance of
its enterprise when making its partnership
contribution, will attract VAT if the company is registered as a VAT vendor, and the
Company receives consideration therefor.
But it is not receiving any consideration.
The Company is contributing expertise as its
contribution to the partnership in exchange
for the right to participate in the fruits of the
partnership in the future, for no further consideration, to use the developed intellectual
property as its share of what the partnership
produces. There is arguably no value attached
to that right to participate as it is new and
undeveloped.
The one problem into the future is around
section 10(4) of the VAT Act, where the
entitlement by the PBO and the Company
to the use of the partnership’s developed
intellectual property may be considered to
be “10(4)(a) a supply… made by a person for
no consideration…; and (b) the supplier and
recipient are connected persons in relation
to each other; and (c) if a consideration for
the supply equal to the open market value
of the supply had been paid by the recipient,
he would not have been entitled under (the
input tax provisions) to make a deduction
of the full amount of tax in respect of that
supply, the consideration in money for the
supply shall be deemed to be the open market value of the supply…”.
However, the partnership does not need to
register for VAT, as it generates no turnover
so the problem ends there.
But assume that it did generate a turnover
exceeding R1 million, and had to register
for VAT, the problem becomes a real one for
the partner receiving a supply as a partnership distribution for no consideration,
where the partner cannot claim input tax
credits. A typical PBO in this position would
be an educational institution exempt from
VAT. Then section 10(4) can become a real
problem. This would mean that the PBO, like
an educational institution, has to reimburse
the registered partnership to compensate it
for the output VAT payable on the connected
person supply to the PBO at the open market
value. As the PBO is not registered for VAT,
there would be no input tax and a 14% VAT
outflow would arise out of the use of the IP.
However, it is unlikely that the intention
of the legislature in respect of the ‘connected
person’ section was to go so far as to include
as consideration a partner’s share of ‘profits
in specie’ where that partner cannot claim
input tax credits, where the distribution to
the partner is free of any consideration at that
point in the transaction. But then, SARS is
always looking for new angles of interpreting
complex provisions, and there is no guarantee that they will not attempt to apply such an
interpretation to these facts.
In light of the contentious nature of
proposed arrangements such as the one
discussed, it is prudent to apply to SARS for
a binding or non-binding ruling in terms of
Chapter 7 of the Tax Administration Act, No,
28 of 2011 before anything is implemented.
T
A Custom(ised)
VAT Analysis
Ross Robertson, Norton Rose Fulbright
A
recent decision of the Supreme
Court of Appeal has attracted a significant amount
of attention. The court dismissed an appeal by a
licensed foreign exchange dealer, Master Currency, against a revised value-added tax (VAT)
assessment for two of its branches in the duty-free
area at OR Tambo International Airport.
Historically, the company had assumed that
no VAT was chargeable as it was operating the
branches in the duty-free area of the airport,
which it considered to be located outside the
Republic. The South African Revenue Service
(SARS) disagreed with the taxpayer’s interpretation of a “duty-free area”, stating that the fees
received by the two branches for a period from
October 2003 to January 2005 were subject to
output VAT at the standard rate of 14%. The
SCA upheld the decision by the tax court that the
services rendered by Master Currency at
the airport were indeed subject to VAT at the
standard rate as opposed to the zero-rate as the
taxpayer contended.
Master Currency’s argument, that the Value-Added Tax Act, 1991 (VAT Act) does not apply
to the supply of goods and services in a duty-free
area, was not based on any particular provision
of the VAT Act. The court referred inter alia to
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TaxTalk
section 7(1)(a) of the VAT Act which, states that
the section applies to the whole of South Africa.
Since Master Currency was unable to show that
it escaped liability from VAT at the standard rate
through any particular zero-rating provisions, its
application of the zero-rate was unfounded and
the standard rate thus applied.
Through the development of the Master
Currency case and interactions with various
other businesses located in duty-free areas, it has
emerged that the industry understanding and
practice was that all supplies made within these
areas fall within the zero-rating provisions of the
VAT Act.
This understanding is at odds with the Appeal
Court’s decision in the Master Currency case.
When the definition of “Republic” as contained
in the VAT Act is referred to, it is difficult to see,
in the absence of any specific provisions to the
contrary, how the zero-rate could apply in respect
of duty-free areas based on the argument that they
are located outside the Republic, which includes
the entire territory of the Republic of South Africa
including territorial seas.
Master Currency was unable to point to a
specific provision in the VAT Act to justify the
zero-rating. The closest reference to a duty and
tax-free shop being found in section 11(1)(v) of
the VAT Act, which states that the supply of goods
by an inbound duty and tax-free shop will be
CPD
30 minutes
“Duty and tax
free shop”
means a special
customs &
excise storage
warehouse
licensed for
the purposes
contemplated in
these rules”
zero-rated. This by definition cannot extend to
outbound duty and tax free shops, which is perhaps the reason for Master Currency’s erroneous
interpretation.
However, an interesting angle on the matter in
question emerges if one enquires further into the
concept of “duty and tax free shops”.
As contemplated in the Customs and Excise Act
(Rule 21.04.01, of the Customs and Excise Act,
1964 Amendment of Rules), “duty and tax free
shops” are defined as special Customs and Excise
storage warehouses licensed for the purpose
contemplated in the Rules. Rule 21.04.01 defines
“duty or tax free” to mean, in relation to duty free
shops, that goods are sold at a price that does not
include any duty or tax leviable in terms of the
Customs Act or any VAT leviable in terms of the
VAT Act.
As noted above, the concept of an “inbound
duty and tax free shop” is defined in section 1 of
the VAT Act as being given the meaning contemplated in the Customs and Excise Act. No specific
mention is made of “outbound duty and tax
free shops”.
If one explores the Customs and Duties Excise
Act, there is no specific definition of “duty and
tax-free”. However, in a Government Notice
dated 5 June 2009, and signed by the then acting
Commissioner for the South African Revenue
Service (SARS), the Customs & Excise Act, 1964
Amendment Rules No. DAR/52 came into effect.
This amendment of rules, under section 120 for
the purposes of section 21 of the Customs and Excise Act of 1964, states that the rules published in
the Government Notice, 874 of 8 December 1995
are amended to the extent set out in the schedule
with effect from 10 June 2009. This means that
all of these rules are binding as interpreted in the
context of the Customs & Excise Act.
In these amended rules, the definitions
expounded on present a basis of reliance that
business operating in duty free areas may seek to
explore in more detail in order to justify their reliance on the zero-rating provisions of the VAT Act.
Firstly “airport” is given the meaning of an
international Customs and Excise airport listed
as a warehouse in item 200.02 of the Schedule to
the rules and approved by the Commissioner as
a place where Customs and Excise warehouses
operating as inbound and outbound duty and tax
free shops may be established.
“Duty and tax free”, in relation to a “duty and
tax free shop”, goods that are sold at a price which
does not include any duty leviable in terms of
the Act or any Value-added tax leviable in terms
of the Value-Added Tax Act, 1991 (Act No. 89 of
1991). “Duty and tax free shop” means a special
Customs & Excise storage warehouse licensed for
the purposes contemplated in these rules.
What is interesting here is that in order to qualify as a duty and tax free shop per the definition,
a licensing process has to be undertaken, and the
vendor needs to obtain the specific approval of the
Commissioner in order to qualify and be licensed
to operate as a “duty and tax free shop”.
This implies that the vendor operating in a
tax or a duty and tax-free area would have to go
through the licensing procedures, administered
by SARS, in order to be classified as a duty and tax
free shop in accordance with the Customs and Excise Act. This licensing allows them to operate in
that specific area, under that special designation.
It is submitted that qualification via this
licensing process validates all the other rules that
are then applicable to duty and tax-free shops.
Returning to the definition of “duty and tax-free”,
one notes that if you are a “duty and tax-free
shop”, the sale of “duty and tax-free” goods means
that those goods are sold at a price that does not
include any duty leviable in terms of the Customs
& Excise Act or any VAT leviable in terms of the
VAT Act.
This explicitly means that any sales made in
carrying on a trade as a duty and tax free shop
must be made with VAT charged at zero percent,
as no VAT is allowed to be levied because the
vendor making the supplies is a licensed duty and
tax-free shop.
In order to formulate a comprehensive argument, one would then have to consider whether
or not the Commissioner would have grounds
to attack the inputs claimed by the respective
vendors on the basis that any sales made by the
vendor are free of VAT (i.e. supplies other than
taxable supplies).
It is submitted that no such grounds exist because the definitions expounded on in these rules
apply only to goods sold. There is no reference
to input purchases made. No link is made in the
rules between the making or the purchasing of
inputs and the making of these taxable supplies. In consequence, it is submitted that, even
though taxable supplies are being made, no VAT
is leviable in terms of the VAT Act; not because
of any exemption in the VAT Act but because the
Customs & Excise Act requires that duty and taxfree shops only sell products that do not include a
VAT element.
We acknowledge that the Commissioner could
argue that a “duty and tax free shop” by its very
nature falls outside the VAT net, with the result
that it is making exempt supplies and may not
claim input tax on its expenditure. However, the
Commissioner, in our view, cannot have it both
ways. Either the person is a registered vendor
with access to the input tax provisions, in which
case our argument would be for the zero rate of
output VAT, or the person is outside the VAT net
and neither able to claim input VAT nor liable to
recover output VAT.
T
TaxTalk
53
The Transformation of the
South Africa Revenue Authority
in the Post-Apartheid Era
SHARON SMULDERS, SAIT
“If we are to reduce
poverty, raise
investment and
create sustainable
jobs, then we have
to act jointly, on
the strength of a
shared strategy
and common goals”
Revenue collection in the pre-Apartheid era was ineffective. Post-apartheid, the South African Revenue Service (SARS) adopted impressive reforms in the efficiency and effectiveness of its revenue collection to become
a world class Revenue Authority. The reforms utilised to achieve this status included building and applying
systems and capacity for enforcement as well as encouraging compliance. The modernisation of SARS and its
systems required provision of good services (through operational efficiencies and automation) and making
compliance easier. Although SARS’s current service levels and operational efficiency have recently been questioned, SARS is still achieving formidable results despite the dire global economic situation. Furthermore, SARS
has strategic and detailed plans in place to ensure that fiscal citizenship becomes a reality in South Africa in
the near future.
INTRODUCTION
The Revenue Authority of South Africa, in
the period before 1994 (the year in which
the apartheid system in South Africa ended),
was frustrated and relatively powerless as
ramshackle tax legislation and ineffective
tax collection allowed persons to divert large
amounts of income tax to tax shelters and tax
havens (Hazelhurst, 2003:64). Tax evasion
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TaxTalk
became a form of protest, cutting into the
collection of revenue resulting in a narrow
tax base and a lack of legitimacy in the eyes
of the public (Hausman, 2010:1-2).
In 1998, with 30% unemployment and an
average life expectancy under 56 years, the
state faced massive service-delivery challenges for which it required revenue. At the same
time, the government wanted to keep taxes
low enough to prevent international investors
from pulling their money out of the country.
These external challenges pointed out internal problems within the collection agency
– a dearth of qualified middle managers,
underrepresentation of black Africans among
employees and managers, and a lack of
standards for service to taxpayers – corrupt
activities were rife (Hausman, 2010:1-2).
The Revenue Authority thus not only faced
a low tax morale problem, with the top per-
sonal income tax rate that had risen to 62%
in 1972 but also a transformation problem
in order for it to be representative of the
population of South Africa and to redress the
past discrimination (African Development
Bank Group, 2010:7). The African National
Congress (ANC), the dominant party in the
post-apartheid coalition government of 1994,
thus pressed for an extensive review of the
tax policies and administration and this lead
to the establishment of the Katz Commission
(Manuel, 2002). According to Lieberman
(2003), the alliance between the strong trade
unions and the ANC served to support
the Revenue Authority but also to advance
policies for resource redistribution through
taxation – that is, the tax system was used for
righting historical wrongs. Despite the apartheid system ending in 1994, the initial steps
towards the transformation in the South
African Revenue Service (‘SARS’) were only
taken in October 1997, the period in which
SARS was granted administrative autonomy
as recommended by the Katz Commission.
The SARS transformation process began
in earnest during June 1998 when it was
officially launched and it meant that changes
in SARS would impact on every aspect of the
organisation (SARS, 1999:1).
REWORKING THE REVENUE
SERVICE: TAX COLLECTION IN
SOUTH AFRICA, 1998 – 2009
Between 1998 and 2009, the South African
Revenue Service dramatically improved
tax compliance. The number of income tax
taxpayers increased from 2.6 million to 4.1
million during this period. Nominal revenue
collection also increased by an average of 7%
to 12% annually (Hausman, 2010:7).
SARS, under the leadership of Pravin
Gordhan, achieved these changes through
internal organisational alterations that
included:
I. Recruitment of a new cadre of managers
from both within and outside SARS.
II. Launching a campaign to provide better
service to taxpayers to encourage compliance.
III.Pursuing more aggressive enforcement
and collection initiatives (Hausman,
2010:4).
Recruitment of staff
White employees (who constituted 65%
of the organisation in 1998) housed the
knowledge of the organisation. Making the
institution more diverse was the challenge
the organisation need to overcome (to trans-
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TaxTalk
form the demographics of the organisation to
give black people an opportunity to enter and
grow within the organisation), however, it
had to ensure that it retained staff with skills
and experience (Hausman, 2010:3).
The solution proposed by Gordhan was
to ask workers to sacrifice job security in
exchange for employment security – in other
words, to promise staff a position, but not
necessarily the position they currently held.
At the same time SARS didn’t want to fire
any employees (although some of them left
during the transformation phase) (Hausman,
2010:3).
The first step in the racial transformation
process was to introduce several hundred
black employees into informal management
positions which operated below the executive
team. Although the managers didn’t have
formal power (only informal influence), it at
least allowed for the black managers to participate in the executive proceedings (Hausman, 2010:3). The plan for racial transformation, recruitment of new managers and a new
service orientation became formal in 2000.
This plan/process was called the Siyakha process, which means “we are building” in Zulu.
Major technology enhancements were deliberately excluded during this phase - process
first, technology later (SARS, 2013a:29).
The Siyakha process worked as follow:
I. Gordhan launched a search for top
managers (from both within and outside
SARS) to staff a process-engineering
unit and for consultants to oversee the
reforms.
II. Together with the above action, Gordhan
launched a formal programme to hire a
new cohort of managers.
The programme, formalised in the Siyakha
People Placement Protocol, was meant to
both facilitate racial transformation and to
find managerial talent. This Protocol was negotiated with the unions and co-signed with
them, which allowed the process to advance.
This process required approximately 20%
of SARS employees to reapply for newly
created positions against applicants from outside SARS. Employees who did not receive
one of the new positions were retained at
SARS, with their pay being frozen and not
reduced. If managers were technically competent but not managerially competent, then
they became technical experts. Efforts were
however applied to soften the blow for the
demoted individuals. During the period from
1999 to 2009, SARS’ employees increased by
approximately 2251. All these changes were
facilitated by a 25% budget increase – from
R1.75 billion to R2.197 billion (Hausman,
2010:3).
This period was also associated with
increases in productivity as well as further
broadening of the tax base. The tax register
grew by 67% during the period from 2001 to
2006. Revenue collection grew cumulatively
by 61% in the same period. Overall compliance and processing volumes had grown
exponentially by 2006. This growth trajectory
highlighted the challenges that SARS would
face into the future, if it continued utilising
outdated and inward facing processes and
legacy systems to service and deal with a
rapidly growing number of taxpayers and
traders, as well as the increasing volumes of
transactions (SARS, 2013a:29).
Taking these challenges into account, the
SARS Modernisation Programme was introduced in 2007. This programme was SARS’s
strategic response to positioning the organisation to effectively and cost-efficiently meet
its mandate. Its broad objectives were to:
• sustain the momentum of the previous
phases and build further capability by
improving and introducing new systems
capability (by automating where possible);
• introduce new and smarter ways of doing
business and thereby improving the taxpayer and trader experience of SARS; and
• ease the burden of complying with SARS
requirements (SARS, 2013a:30).
The Modernisation Programme was planned
to be carried out in phases over a seven year
period. Some of the key achievements of the
Modernisation Programme to date include:
Service Enhancements
Growth in electronic interaction - Electronic
processing of Personal Income Tax (PIT),
Corporate Income Tax (CIT), VAT, PayAs-You-Earn (PAYE) and Provisional Tax
increased by more than 85% over the past 5
years of modernisation. The increase in electronic processing enabled dramatic improvements in turnaround times, customer service
and convenience.
Major improvements in processing turnaround times – A reduction in the processing of PIT returns from an average of -+55
working days in 2006 to an average of just 1.8
working days in 2011, with 96% of returns
processed within 24 hours, compared to less
than 2.6% processed in 24 hours in 2006/7.
Real time tax assessments were also introduced in 2012.
Improved Access
SARS became easily accessible to taxpayers
and traders as considerable progress was
made in the following areas:
• Over 80% of interactions with taxpayers
and traders resulted in their resolution;
• The number of calls answered in SARS
Contact Centre increased from 3.8 million
in 2006/7 to 5 million in 2010/11;
• Introduction of mobile application (smart
phones and tablets) enabled broader reach.
Provision of better services
to taxpayers
External consultants were called in and they
introduced the “back office, front office”
concept to SARS. This concept, together with
taking SARS staff to the taxpayers during
an annual filing season, recognising staff
who provided good service and publicising
the mission of SARS formed the basis for
improving customer service. Administrative
functions were centralised into a few national
offices and branch officers were reoriented
toward customer service in an attempt to
improve compliance. A public-relations
campaign accompanied the roll-out of the
new front-office concept, with an annual
“filing season” outreach operation. The
importance of responsiveness was stressed by
Gordhan who also took a hands on approach
in ensuring that systems and processes were
implemented correctly (Hausman, 2010:3).
A strict policy on corruption was a corollary of the new model to ensure integrity
within SARS. Within six months, all gifts and
acceptance of dinners were banned within
SARS by making use of a blanket ban. Things
were thereafter slowly loosened up (Hausman, 2010:7).
Enforcement and collection
initiatives
In order to build momentum for reform,
SARS utilised high-profile and aggressive tax
collection initiatives such as seizing shares of
an investment company in order to force the
shareholders to pay their taxes due (Innovations for Successful Societies, 2010:2).
Overcoming the obstacles
As highlighted by Hausman (2010) further
factors that ensured that these changes were
successful included:
• Publicity of each of the service changes
along with the rationale for them;
• Opening up and formalising communi-
cation channels and relationships with
all taxpayer constituencies (individuals,
corporates and tax advisors);
• Demonstrating a responsiveness to complaints received;
• Moving towards an audit and risk based
revenue collection model;
• Introducing anti-fraud and anti-corruption measures;
• Improving controls at border posts;
• Increasing use of electronic systems
(SARS, 1999:8).
A further reform (introduced in 2004) was
the establishment of the Large Business Centre (LBC). The establishment of this centre
was in line with international best-practice
and it was designed to introduce a new era in
the interaction between SARS and the country’s largest corporate taxpayers. The services
performed by this centre included end to end
processing activities; risk profiling; auditing
and a newly created relationship management function, aimed at providing a more
customised service to these taxpayers. Despite the many benefits of improved service
and business knowledge of taxpayers within
sectors, the operating model was revisited
as it was resource intensive. In 2010, a new
functional model of the LBC was approved
by the SARS Executive and it included 5 core
functions:
• The Taxpayer Interface function – to
improve service levels and proactively
work with taxpayers towards improved
compliance.
• The Revenue, Risk and Intelligence function – to manage tax revenues from large
business, provide intelligence to other
parts of the LBC and SARS and identify
taxpayer risk to direct assurance work.
• The Assurance function - to highlight and
treat high risk areas of identified non-compliance. This assists taxpayers to address
areas of non-compliance thereby regulating their tax affairs and achieving legal
certainty. The function is also responsible
for the management of refunds to corporate taxpayers.
• The Client Account Management (CAM)
function – ensures that outstanding
returns are monitored, collected and assessed; taxpayer’s accounts are cleaned and
debt due to SARS is collected.
• The Specialist Support function – to
provide technical and legal support to
the other core functions within the LBC
(SARS, 2103c).
From these facts, it is clear that within an
eleven year period SARS managed to transform itself from a caterpillar into a butterfly
as it embarked on a journey that saw it move
from a complex paper-based, labour-intensive organisation to a modern world-class
revenue authority.
TAX COLLECTION IN SOUTH AFRICA
AFTER 2009
The year 2009 was the year in which Gordhan ended his term as Commissioner and the
year the global financial crisis occurred. So
how has the organisation faired since then?
Well, according to the SARS Annual Reports
(1999, 2009, 2013b) despite the unfavourable
economic climate, SARS still managed to
increase its revenue collection by 29% since
2009 (2013 – R813 billion, 1999 – R184bn,
2009 – 629bn). The positive growth in the
key indicators (tax register, revenue collection, returns processed and head count of
SARS staff) from March 2002/2003 till March
2012 is reflected in Figure 1 below.
The cost of collecting the increased revenue has ranged from 0,9% to 1,17% over
the last six years. The costs for 2012/13 were
1,07% (calculated by dividing the cost of
internal operations by the revenue collected).
These costs are in line with international
trends (that are generally 1% of revenue collected), once again indicating that SARS is a
world class revenue authority despite it being
from a developing country (SARS, 2013a:31).
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TaxTalk
The increase in revenue collection by SARS
over the various years was made possible by
the introduction of numerous reforms. These
reforms included inter alia:
• Introduction of a modernisation programme in 2007 resulting in the number
of individual taxpayers increasing from
5.9 million (2009/10) to 15.4 million
(2012/13). This programme included:
• An improved PAYE system requiring all
persons in formal employment to register
with SARS;
• The introduction of substantially faster
e-filing application and mobile solutions;
• Introduction of a temporary voluntary
compliance programme (VDP) in 2010
allowing taxpayers in default to become
tax compliant (18 000 taxpayers used this
programme resulting in R3 billion additional revenue);
• Introduction of a permanent VDP in
October 2012 (1 200 taxpayers used this
programme resulting in R250 million
additional revenue);
• Introduction of a compliance programme
in April 2012 focusing on 7 areas for
improved compliance (wealthy South
Africans and their trusts, large businesses
& transfer pricing, construction industry,
cigarettes, clothing & textiles, tax practitioners & trade intermediaries and small
businesses);
• Introduction of the Tax Administration
Act in October 2012 that modernises and
harmonises the common administrative
elements of various tax laws;
• Continuation of partnership building by
SARS with international and national bodies such as the People’s Republic of China’s
General Administration of Customs,
African Tax Forum, IBSA Revenue Working Group, Companies and Intellectual
Cumulative Growth (%) from Mar 2002
Modernisation
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
Mar 03
Tax Register
Revenue
“Siyakha”
Returns
Processed
Headcount
Mar 04 Mar 05
Mar 06
Mar 07 Mar 08
Mar 09
Mar 10
Mar 11
Mar 12 Mar 13
Mar 14
Figure 1: Cumulative growth in key indicators from March 2002/03
Source: SARS (2013a:31)
800 000
1.4%
700 000
1.3%
600 000
1.2%
500 000
1.1%
400 000
1.0%
300 000
0.9%
200 000
0.8%
100 000
0.7%
2006/7
2007/8
2008/9
Tax revenue
2010/11
2011/12
2012/13
0.6%
Cost to tax revenue ratio
Figure 2: Cost of Revenue collection as a % of Total Revenue from March 2007
Source: SARS (2013a:31)
Thinking ahead
SARS (2013a:21) in its Strategic Plan 2013/14
– 2017/18 has established four enduring core
outcomes for the organisation that will serve
as the foundation for all current and future
strategies.
The four core outcomes of SARS are to:
• Increase customs compliance;
• Increase tax compliance;
• Increase ease and fairness of doing business with SARS; and
• Increase the cost effectiveness, internal
efficiency and institutional respectability of
its operations.
SARS is well on its way to increase custom
compliance as it launched the Customs Modernisation Programme in 2009 to address
the largely paper-based and labour-intensive
Increased Cost
Effectiveness, Internal
Efficiency and
Institutional Respectability
Increased Ease and
Fairness of doing
business with SARS
Increased Tax
Compliance
Core Outcomes
Increased Customs
Compliance
Property Commission and the Department
of Home Affairs and other state agencies.
• The national rollout of the re-engineered
Customs front-end solution in 2012. The
new customs management system resulted
in the conversion of about 26 older legacy
and paper-based systems into a fully automated and centralised processing system
for all commercial trade across South
Africa's borders minimising red tape costs
(SARS, 2013d:11);
• Introduction of a modernised transfer duty
system in 2011 and further improvements
were made in 2012 to improve efficiency
and compliance (SARS, 2013e);
• A zero-tolerance approach to corruption,
crime and maladministration by instituting disciplinary processes or dismissal
of employees where necessary (Oupa
Magashula, 2011).
Improvements in the number of tax returns
and on-time submission as well as turnaround time of returns and increased audit
coverage continued from 2009 till 2013. The
number of taxpayers increased from 9.7
million in 2009/10 to 19.4 in 2012/13. Of all
the income tax returns that were submitted,
99,86% of these were submitted electronically. This is despite the fact that less than 10%
of South African households had internet
access and that only 40.6% of South African
households had at least one member who
had access to or used the Internet either at
home, work, place of study or Internet cafes.
(Statistics South Africa, 2013:36). This large
adoption of electronic submission resulted in
99.58% of returns being assessed within 24
hours of which 93% were assessed within 3
seconds (SARS, 2013a:29).
Based on these statistics, SARS is still
clearly on the right track to maintaining its
world-class status and it has vowed to ensure
that it continues on this journey into the
future.
Registration / Identification / Licencing
Filing / Submission
Declaration
Payment / Performance
Figure 3: SARS’s four strategic outcomes
Source: SARS (2013a:21)
system. The modernisation of this tax picked
up momentum from 2010 and several key
changes were made in 2011 and 2012 resulting in the system being largely automated
(SARS, 2013c:1).
Tax compliance has undoubtedly increased
as is depicted above in the growth in the
individual tax register and returns that were
filed on time. According to Gordhan, this rise
in compliance, coupled with our country’s
economic growth, has seen total revenue also
climb from R114 billion in 1994/95 to over
R730 billion in 2012 – an overall increase of
almost 550% at an average increase of 11.6%
per year. SARS is, however, not resting on its
laurels and in 2012 it launched its Compliance Programme that identifies key areas
where compliance is not at the levels that it
should be and it also highlights a range of
measures to address this over a period of
time (SARS, 2012).
With regard to the third strategic outcome
- the ease and fairness of doing business with
SARS - according to Magashula (2011) the
first thing that SARS needs to do is to render
a world-class service to its taxpayers because
if they can experience ease and convenience
in dealing with their taxes they will be more
likely to be compliant. Taking this into
consideration as well as the Government’s
aim (as set out in its National Development
Plan 2030 (National Planning Commission,
2013:42)) to put more emphasis on the
support that must be provided to small businesses in the form of reducing the regulatory
burden on small businesses, it was discouraging that tax compliance costs were found
to be regressive with respect to business size,
with the compliance burden being heavier
for smaller businesses (Smulders, Stiglingh,
Franzsen & Fletcher, 2012). Smulders and
Naidoo (2013:33) in their study entitled
“Addressing the small business tax compliance burden – Evidence from South Africa”
performed in 2011, found that SARS has,
in most cases, attempted to address the tax
compliance burdens identified in tax compliance cost studies performed in South Africa,
but there were a few areas that still required
attention such as, inter alia, the complexity of
the tax law, the lack of software to assist small
businesses with their record-keeping and the
compliance burden associated with provisional tax. The study did, however, not evaluate the effectiveness of the initiatives already
introduced by SARS and recommended that
this be researched further.
Subsequent to this study, small businesses,
the backbone of the economy have stated that
inefficiencies in the tax service are regarded
as a major regulatory burden. These inefficiencies by SARS in dealing with taxpayers’
needs has led to small business growth being
stunted (Darrel & Corrigan, 2013). Complaints from this sector varied from—an
inefficient call centre, constant changes in
procedures and forms, lost documents and
online returns that do not work—to SARS
draining cash flow, the lifeblood of small
businesses. Delayed refunds, errors and large
TaxTalk
59
fines for minor administrative errors were
also flagged (Terblanche, 2012). Meetings
held by SAIT with various medium to large
corporates in South Africa and their respective tax advisors have also revealed that even
they are experiencing the same frustrations
as the small businesses.
Furthermore, Croome and Brink (2013)
state that despite the introduction of the TAA
(which is regarded as an improvement on the
previous scenario) there is no cost effective
remedy for taxpayers in cases where SARS
does not comply with its obligations nor is
there any recovery procedures for the wasted
costs incurred by taxpayers because of the
inaction or abuse by SARS.
From these findings it appears that SARS
still has to reach the optimal balance between service, education and enforcement.
However, relief for aggrieved taxpayers is
now available from October 2013 due to the
appointment of a Tax Ombudsman which
will provide taxpayers with a low-cost mechanism to address administrative difficulties
that could not be resolved by SARS (Ministry
of Finance, 2013). It is suggested that the effectiveness of this office should be consistently monitored to ensure that there is enhanced
tax compliance.
In order for SARS to achieve its objectives
as set out in the Stategic Plan for the period
2013/14 – 2017/18, it has stipulated detailed
initiatives that will be their priority over the
next few years. These initiatives include:
• Targeted compliance interventions in
the five high-risk areas identified in the
Compliance Programme which are large
business and transfer pricing; high net
worth individuals and the trusts they
use to minimise tax; small businesses;
tax practitioners; and the construction
industry.
• Strengthening risk management for all tax
types through, amongst others, enhanced
use of third party data.
• Enhancing the administrative penalties
process including improving mechanisms
for interacting with taxpayers who are in
default and improving the collection of
administrative penalties through the Agent
Appointment process. It is worth noting
that the administrative penalties process is
having a significant impact on compliance
among individual taxpayers. Since its introduction in 2009 over 560 000 taxpayers
have remedied their non-compliance in
respect of submitting outstanding returns
directly as a result of receiving penalties.
During last year’s Tax Season alone, an
additional 1.4 million outstanding returns
were received which is 25% higher than
outstanding returns submitted by the
2011 deadline. This is a very encouraging
indicator that the administrative penalties
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TaxTalk
that SARS impose for outstanding returns
are having the desired effect of improving
levels of compliance.
• Continue their outreach programmes to
build a culture of fiscal citizenship including registering all South African citizens
and all businesses – including those operated by foreign nationals in South Africa
- in conjunction with the CIPC, Home
Affairs and local government.
• Working with other tax jurisdictions and
international groups to collaborate on
global threats to compliance including
concluding agreements on the exchange of
information to help identify and address
transfer pricing, base erosion and profit
shifting.
• Improving debt management through
the use of credit screening to identify low
value, high volume debt increase ease and
fairness of doing business (SARS, 2013a:46
– 50, SARS, 2013b:29 – 32).
SARS has also indicated that it will endeavour to ensure that the reality of fiscal citizenship is gradually realised through exploring
the following initiatives:
• Improve access and availability of SARS
services to the entire citizenry wherever
they might be;
• Improve contact by minimising the distance between SARS and the recipient of
SARS services;
• Implement the “right from the start”
concepts through ensuring that communication with taxpayers and traders and
potential taxpayers and traders is through
socially acceptable means and form;
• Continue to implement the principles
of a cooperative compliance approach
to reduce compliance costs and increase
certainty regarding tax and customs obligations for large businesses;
• Ensure that all SARS employees continue
to perform at their peak and build the
required skills; and
• Simplify and improve requirements,
processes and systems used to service the
small business segment in order to reduce
the compliance burden and costs to a point
where these are no longer inhibiting factors to their compliance and growth.
In addition to these focus areas, the 2013
Budget announced a review of current tax
policies to ensure that future public spending is supported by an appropriate revenue
base. According to Gordhan (2013) this Tax
Review Committee would be required to
evaluate the South African tax system against
international tax trends, principles and practices, as well as recent international initiatives
to improve tax compliance and deal with
tax-base erosion. In particular, it would have
to look at the overall tax base and tax burden,
including the appropriate tax mix between
direct taxes, indirect taxes, and provincial
and local taxes.
CONCLUSION
South Africa is a young democracy with stark
contrasts of wealth and poverty accompanied
by diverse social norms. According to the
National Development Plan, citizens have
the right to expect government to deliver
certain basic services and to hold leaders
accountable for their actions. Leaders have
responsibilities to their citizens, including
mutual respect, tolerance and abiding by the
laws of the land.
SARS has since the abolition of apartheid
been on a journey that has made use of the
latest advances in technology to make radical
improvements to its ability to ensure the
maximum compliance with tax and customs legislation. By attracting people with
organisational skills out of the private sector
and other government departments and
by reshuffling management and technical
personnel, the agency retained technical
skills while making its management more
diverse and competent. By separating front
and back offices and rewarding individual
initiative, SARS became an organisation with
a reputation for excellent performance and
customer service.
Views have, however, been expressed that
these services appear to have declined post
2009 and there is a sentiment that South
Africa needs more prudent, more effective
regulation, with economic costs proportionate to their perceived social benefits. Removing the barrier to business success – red tape
– is within the control of government and is
regarded as being of utmost importance to
ensure that the goals of the National Development Plan are achieved.
In his Medium Term Budget Policy Speech
– 2012, Minister Gordhan notes:
“We are in this growth and development
project together: business, government,
workers, and citizens. If we are to reduce
poverty, raise investment and create sustainable jobs, then we have to act jointly, on
the strength of a shared strategy and
common goals.”
Thus despite South Africa’s social and
economic challenges, SARS has proved that
no matter what the obstacles are, changes for
the better can be achieved. The citizens of
South Africa have the ability to ensure that
SARS continues to fly like a butterfly so that
it can provide the country and its citizens
with the necessary resources to address these
challenges, but it will take the energetic
involvement and willingness from each of
South Africa’s citizens.
T
LIST OF REFERENCES
• African Development Bank. 2010. Domestic resource mobilization for poverty reduction in East Africa: South Africa Case Study. [Online] Available from: http://www.afdb.org/fileadmin/uploads/afdb/
Documents/Project-and-Operations/South%20Africa%20case%20study%20final.pdf [Downloaded:
2013-10-03]
• Croome, B. & Brink, J. 2013. SARS audits and taxpayer’s rights. [Online] Available from: http://www.
ens.co.za/news/news_article.aspx?iID=1066&iType=4 [Accessed: 2013-10-02]
• Darroll, C. & Corrigan, T. 2013. Tragedy and farce of South Africa’s red-tape explosion. [Online] Available from: http://www.bdlive.co.za/opinion/2013/09/12/tragedy-and-farce-of-south-africas-red-tapeexplosion [Accessed: 2013-10-02]
• Gordhan, P. 2013. 2013 Budget Speech. [Online] Available from: http://www.sars.gov.za/AllDocs/
SARSEntDoclib/Speeches/SARS-BSpeech-012013%20-%20Budget%20Speech%20by%20the%2Minister%20of%20Finance%20-%20February%202013.pdf [Downloaded: 2013-10-03]
• Hausman, D. 2010. Reworking the Revenue Service: Tax collection in South Africa, 1999-2009, Innovations for Successful Societies, Princeton University.
• Hazelhurst, E. 2003. A net gain: new legislation and better collection are building government’s political credibility. Financial Mail, 170(11):64-66.
• Innovations for Successful Societies, 2010. Oral History Program, Series: Civil Service. [Online] Available from: http://www.princeton.edu/successfulsocieties/content/data/oral_history/R4_Pravin_Gordhan_id212/Pravin_Gordhan.pdf [Downloaded: 2013-10-03]
• ITweb, 2013. SARS customs system to reduce red tape. [Online] Available from: http://www.itweb.
co.za/index.php?option=com_content&view=article&id=66814 [Accessed: 2013-10-02]
• Lieberman, E.S. (2003) Race and Regionalism in the Politics of Taxation in Brazil and South Africa
Cambridge University Press: Cambridge, 1st Edition.
TaxTalk
61
Life
Style
64
“If you feel like doing something a
little bit different this New Year’s
Eve, travel down to the magical
town of Nieu-Bethesda in the
Eastern Cape to join the locals for
their annual Festival of Lights”
Summer Pickings
I
f you’re looking to enjoy some fresh, juicy summer fruit,
nothing beats picking it yourself. Slather on some sunscreen, put on a
hat and immerse yourself in harvesting your own fresh produce from
one of these proudly South African farms.
The Western Cape provides a smorgasbord of fresh fruit during
the summer months. All-you-can-eat figs are on offer in Wolseley at
the Hoogwater Farm. Fill up on as many white flesh and Mediteranean figs as your heart desires and take home whatever you can’t fit
into your tummy. The Klondyke Cherry Farm provides a fun day out
for the whole family in Ceres. Overlooked by gigantic scarecrows,
Mooiberg Farm Stall is the perfect place to bask in the sunshine while
picking strawberries to take home with you. De Slangrivier Berry
Farm offers guided farm tours which culminate in a chance to pick a
selection of berries. Wildebraam Berry Estate offers a similar berry
picking experience with the addition of liqueur tasting in Swellendam.
Visitors to the Garden Route can stop by the Redberry Farm where
they can fill a container with strawberries while taking a relaxing
walk through the farm with its picturesque backdrop of the Outeniqua Mountains.
In Gauteng the Cambedoo Farm allows for a farm experience
without even having to take a long drive out of the city. You can pick
your own peaches in the orchard and enjoy a scrumptious lunch at the
Peach Café. Tangaroa offers limitless strawberry eating and a bucket
of strawberries can be taken home. You can also enjoy a picnic on the
farm which is situated near Hartebeespoort. The Thengwa farm near
Nigel is also worth a visit if you’d like some veggies to balance out all
of the fruit flavours. Green peppers, pumpkins and tomatoes are all
available for self-harvesting. Those wishing to take a trip down to the
Free State can enjoy picking ample berries of different varieties at the
Bon-Af Berry Farm or visit the Nassau Cherry Farm where there are
over 1000 established cherry trees to walk among and pick cherries
as you go.
Regardless of where you choose to do your summer fruit picking,
prepare to get your hands, face and feet stained with sweet sticky fruit
juice as you fill up on the best that nature has to offer this season.
Welcome in the New Year with a Moonlight Celebration
If you don’t have any plans for this New Year’s Eve yet, you
may want to consider some of these outdoor celebrations.
Dust off your party shoes and take your pick of one of these
wonderful New Year’s Eve celebrations.
New Year’s Eve Concert at
Kirstenbosch gardens
Ring in the new year with live performances
by Goldfish, Yoav and Tailor under the starry
night sky at Kirstenbosch Botanical Gardens.
If you prefer to avoid the chaotic crowds that
usually accompany New Year’s Eve in Cape
Town this is the perfect choice for you. Usher
in 2014 in sophisticated laid back style while
listening to South African-born international house music duo Goldfish, Israeli-born
acoustic guitarist Yoav and upcoming local
songstress Tailor.
Tickets for the NYE Kirstenbosch concert are
available via Webtickets.co.za
A sunset dinner cruise with
The fifth annual Fire & Ice
Hotel Cape Town street party
Cape Town’s sidewalks are set to sizzle for a
fifth New Year’s Eve in a row with Fire & Ice
hotel’s Street Party taking over New Church
Street. Those wanting to ring in the new year
like VIPs can expect the champagne to keep
flowing all night long while being entertained
by South Africa’s most popular DJs. From the
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TaxTalk
Guide to
Living
vibey street scene to the glamorous rooftop
party, this will be the party to be at this year.
Visit www.proteahotels.com for further details.
A traditional summer soirée at
the Royal Durban Golf Club
Join the Royal Durban Golf Club for a grand
old bash. There will be plenty of fine food,
good beer and the club’s Captain will see in
the new year with a long straight drive down
the first while cracking open some bubbly!
Contact the club directly to make a
reservation: +27 (0)31 309 1373
Stonehaven on Vaal
If you’re craving some quality time in the
outdoors you can join Stonehaven on Vaal
for one of their sunset dinner cruise options
this new year. You can enjoy an indulgent
50-minute river cruise with friends and family or an enchanting two-hour sunset cruise
which includes a five-course dinner buffet.
In addition to the relaxing cruise, visitors can
dine and lounge by the pool, enjoy an appetising spread on the lawn and finally head off
YOLANDÉ BOTHA, Writer
to the river terrace to dance the new year in.
Visit www.stonehaven.co.za for further details.
New Year’s Eve Festival of
Lights in Nieu-Bethesda
If you feel like doing something a little bit
different this New Year’s Eve, travel down
to the magical town of Nieu-Bethesda in
the Eastern Cape to join the locals for their
annual Festival of Lights. Visitors can take
part in lantern craft workshops at the Bethesda Arts Centre beforehand and ring in an
inspired new year at this festival which celebrates light as a symbol of hope and beauty.
Contact the Bethesda Arts Centre for more
information: +27 (0)49 841 1729
Cherry-Picking at the Ficksburg Festival
A
lthough Ficksburg
is somewhat of an obscure gem,
those that are familiar with this
small Free State town will know
that this is the Cherry Town,
otherwise known as the cherry
capital of the world. Ficksburg
and cherries have become
synonymous with one another
mostly thanks to the annual
Ficksburg Cherry Festival which
will be taking place again from
21 November until 23 November
this year.
The Ficksburg Cherry Festival
is the oldest crop festival in
South Africa, having celebrated
its 45th anniversary last year.
Some of the most popular
attractions at this festival include
cherry tours, cherry product
competitions, veteran vehicle
displays, beer fests, equestrian
events, a food and wine fiesta
and the ever-popular “ready,
steady, bake” competition which
allows visitors to observe the
making of cherry mampoer
(a well-known South African
moonshine).
Once your sweet tooth has
been satisfied by all of the fresh
cherries and cherry products on
offer, you might feel like doing
something with a little bit more
culture. Visitors can make their
way to both cherry and asparagus farms or cruise along the
waterways just outside Ficksburg
aboard the country’s only floating cigar bar known as the White
Mischief. Creative souls can
also attend cooking workshops
and those longing for a bit of
nostalgia can take a steam train
from Sandstone Estate to escape
Ficksburg. The steam train, like
the now no longer functioning
Apple Express in the Eastern
Cape, travels through farmlands
in the Ficksburg area towards the
Caledon River on the Lesotho
border. The journey is filled with
sunflowers, fields of corn, sandstone farmhouses and concludes
with an incredible sunset.
Pick a Spot for a Perfect Picnic
A picnic is one of the best and most rustic
ways to enjoy the summer sun. With just
a patch of grass, a great view and a tree to
shade you and your culinary goodies, picnic
perfection can be achieved. South Africa
has a variety of wonderful places where
you can pack a basket and relax with family
and friends. Gourmet picnics are becoming ever-more popular, so if you feel like
enjoying picnic delights that someone else
has prepared for you, read on for some of the
best catered picnics around the country.
Solms Delta, Cape Winelands
Fyndraai Restaurant offers picnic baskets at
Solms Delta which delivers a truly unique
fine-dining experience. Picnic baskets include: basil-pesto-marinated farm vegetables
with chive humus; sage and boegoe-flavoured
feta cheese; olives, baby spinach leaves and
almonds; spicy sliced biltong; fried bacon,
onion and potato mayo salad with vinaigrette
and rocket leaves; local cheese with homemade blatjang, crackers and kraakbrood;
chicken tandoori with cucumber and honey
mustard yoghurt; lamb kofta with mint
creamed cheese; smoked Franschhoek trout
and smoked snoek pâté with caper berries
and fresh lemon; home-baked Cape breads
served with butter, cured meats and condiments; fresh seasonal fruit salad; apple tart
with fresh cream and apple syrup; a bottle
of Solms-Delta Lekkerwijn and a bottle of
Solms-Delta Vogelvrij spring water. A guide
will carry your blanket and basket and help
you pick a tranquil spot on the banks of the
Dwars River which overlooks Solms lake.
For more information contact 021-874-3937
Toadbury Hall, Gauteng
Situated conveniently just 20 minutes away
from Fourways on the banks of the Crocodile River, Toadbury Hall offers an al fresco
picnic experience on the riverbanks with
lush indigenous trees to shade you. While on
your picnic you can take a walk through the
lavender and rose gardens or simply enjoy
relaxing under the trees. Baskets include a
selection of cheeses, cold meats, pâté with
Melba toast and fig compote, lamb kofta with
tzatziki, lemon shortbread and fruit kebabs
among other delicious treats to indulge in.
Baskets include a bottle of house wine and
picnic blankets, cushions and tables can be
set up on request.
For more information contact 079-512-0554
or visit www.toadburyhall.co.za
Horizons Gourmet Picnics,
KwaZulu Natal
This picnic spot is the perfect tribute to
South Africa’s natural beauty and the history
that it encapsulates with its view of the
rolling hills of the Midlands and the Mandela
Monument. The seven-course picnic can be
enjoyed on rugs, low Japanese-style tables
or at café-style tables. This feast includes
delicacies such as Mediterranean vegetables,
bresaola carpaccio, smoked salmon puffs,
tuna mousse and coronation chicken. Kids’
baskets with gingerbread men, a muffin,
fruit, sweets and a cheese filled baguette can
also be purchased.
For more information contact 082-895-1042
or visit www.horizonsgourmet.co.za
TaxTalk
65
TopMountain
10 Biking Destinations
YOLANDÉ BOTHA, Writer
To make the most of the clear blue skies and warm weather that the South
African summer offers, we have put together a list of the most breath-taking and
exhilarating mountain bike destinations for you to explore.
W
Magaliesberg, Gauteng
ith ample scenic trails, South
Africa is a great destination for avid mountain bikers to get their adrenaline fix. Most
mountain biking trails are located in forestry
land, national parks and on farms. During
the hot summer months you will find ample
places to cycle almost anywhere, but here we
highlight a few of the best options for those
who feel like biking during their summer
holidays.
Magaliesberg provides the perfect escape from Johannesburg and Pretoria’s hustle and
bustle. The region is well-known for its valleys, mountains, and indigenous bushveld.
A number of mountain bike trails allow visitors to the region to absorb and explore the abundance of dazzling scenery. The Hekpoort area hosts some of the most popular mountain biking
trails in the Magaliesberg region. A variety of single track routes can be cycled in the area and
there are ample options for novice to master mountain bikers. The Eastco area situated within
a small game reserve provides a challenging track with plenty of inclines as well as rocky and
sandy spots. Those who are brave enough and fit enough to take on the route will be rewarded
with excellent views of the area. The Magaliesberg area is also the home of Gauteng’s most
challenging mountain biking race, the Magalies Monster which is held annually in May. Those
wishing to train for the race can visit the Mountain Sanctuary Park near Rustenburg where
various tracks can be cycled.
The Drakensberg, KwaZulu-Natal
Home to two mountain biking races, the Volvo Classic and the Sani
Pass Transfrontier Mountain Bike Epic, the Drakensberg Mountain
range is one of South Africa’s premier mountain biking destinations. With
unsurpassed scenery, character and beauty, the Drakensberg is the place to be
for mountain biking fanatics of all levels. The establishment of the Drakensberg
Mountain Biking Trail system in the Northern Drakensberg of KwaZulu-Natal
has ensured that 100km of the most spectacular mountain bike riding is now
accessible all year round. The system offers permanently mapped and marked
mountain bike trails with routes for bikers of all ability levels. There are four
marked trails: the 17km Montusi Gorge for intermediate bikers; the 10km Gypsy’s
Bend for beginners; the technical 20km Trilby Trail and finally the scenic Grotto
Trail for mountain biking fanatics.
Table Mountain
National Park,
Western Cape
The steep slopes of the Table Mountain National Park provide the ideal
terrain as well as a beautiful backdrop
for mountain biking. However, taking
on a mountain biking expedition
on Table Mountain itself is only for
extremely cautious mountain bikers.
Although Table Mountain lends itself
to a great deal of mountain biking
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TaxTalk
potential, a continuous trail is not yet
available to cyclists who are hoping
to clock up a good mileage on the
mountain’s slopes. Attempts are being
made to connect some of the existing
mountain legal areas. At the moment,
however, riding on the mountain
requires a lot of repeats and zigzagging
especially given the delicate fynbos
ecosystem. Popular alternatives to the
mountain itself that still fall under the
national park include Silvermine and
Tokai Plantation.
Knysna, Western Cape
Knysna is the perfect town to visit for a mountain biking getaway with its exciting festivities
and spectacular scenery. The ideal time to visit is during
early June when the Pick n Pay Weekend Argus Rotary
Knysna Cycle Tour takes place. During this time visitors
can also check out the Oyster Festival when you’re not
exploring the forest trails. During less festive times Harkerville provides four excellent circular routes for bikers of
different abilities. Situated between Knysna and Plettenberg Bay, the Harkerville forest is an ideal location for
recreational mountain biking with its easy gradients and
the diversity of trails that it offers.
“Popular alternatives
to the mountain itself
that still fall under the
national park include
Silvermine and
Tokai Plantation”
Sabie, Mpumalanga
Sabie is the ideal starting point for both accomplished as well as novice cyclists to
practice the sport in a scenic and secure environment. Sabie offers opportunities for
competitive as well as casual mountain bikers with a wide range of guided mountain bike trails
as well as well-marked self-guided mountain bike trails. All cyclists are encouraged to check
their tyres before making a trip down to Sabie seeing as the trails can get extremely muddy
and slippery in wet conditions and therefore “slick” tyres are not recommended. Beginners will
enjoy the Sabie River Route which is also suitable for children. This easy route follows along
the Sabie River and back. The Waterfall Route is another flat family route. It follows the Sabie
River initially before cutting to the Bridal Veil Falls and coming back past Ceylon and going
through a forestry road to the Lone Creek Falls. Finally the Tweefontein Route can provide
fitness junkies with a good workout seeing as it includes a few short climbs.
Hogsback, Eastern Cape
Hogsback was once the Holy Grail
of South African mountain biking
and although many of the routes have been
compromised due to a lack of maintenance,
the area still provides a memorable forest
mountain biking experience that is suitable
for the whole family as well as advanced
routes that are sure to get the adrenaline
pumping. The most popular Hogsback routes
consist of a combination of gravel roads, singletrack winds, jeep tracks, plantations and
open grassland. Wooden ramps and boardwalk bridges add charm to mostly untouched
piece of earth.
Clearwater trails,
KwaZulu-Natal
Overberg, Western Cape
Avid mountain bikers flock to the
Overberg year-on-year for the
Dirtopia Mountain Bike Festival that takes
place in April every year. The festival is a
family driven event and includes night rides,
trail riding, gravity events (such as downhill,
dual jumping and dirty jumping), a trail
run and children’s activities. During the
rest of the year cyclists can enjoy the 26km
mountain bike trail situated in the heart of
the Kogelberg Nature Reserve or visit the
Flower Valley Farm where there are multiple
trails available to enjoy while spotting the
rare fynbos.
“Avid mountain bikers
flock to the Overberg
year-on-year for the
Dirtopia Mountain
Bike Festival that
takes place in April
every year”
PWC Cycle Park, Gauteng
The PWC Cycle Park is the place to be for mountain bikers in the Gauteng area to
get their fix of adventure. Built by international mountain bike trail builder, Geoff
Vorpagel, the park offers colour-coded trails of varying difficulty. The park is part of a variety
of city and provincial efforts by environmental groups to rehabilitate natural wetland especially
in areas with high urban development pressure. The park currently provides about 15km of
mountain bike trails with another 15km to be added as the development grows. There are a
number of trail options which cater to mountain bikers of all levels.
These four custom-built mountain
bike trails in Port Edward offer something
for all bicycling enthusiasts. All the trail
options are set against the backdrop of the
Indian Ocean and longer trails pass through
the Beaver Creek Coffee Estate and Crags
View Wild Care Centre before looping back
to Clearwater café. The trails consist of
80% hand-built single track, jeep track and
gravel road with the option of remaining on
moderate gradients or to switch to downhill sections that offer more of a challenge.
Natural ramps, switchback, bridges and water
crossings add to the adventure while also
testing balance and agility.
Giba Gorge Mountain Bike Park,
KwaZulu-Natal
Situated in the tranquil town of Hillcrest and
built at the foot of a beautiful nature reserve
and gorge, filled with thick KZN bush, the
Giba Gorge is a popular park that offers
thrilling mountain bike trails, international
standard BMX track and some of the best
permanent dirt jumps in the country. A fully
licensed bar, restaurant, art gallery, fully
equipped conference centre, large entertainment area for parties and functions, camp
sites, bike shop, ablution and shower facilities
are also available.
Whether your need to get your blood
pumping faster while on the back of your
bike leads you to a quick excursion at the
PWC Cycle Park or a weekend mountain biking getaway in Knysna, South Africa clearly
has much to offer avid mountain bikers who
are constantly seeking their next challenge.
TaxTalk
67
Five Heart-Warming South African
Family Holiday Destinations
December is family time. The South African family holiday has grown
to be quite a cultural institution at this time of the year. Here are some
of the best places to enjoy some down-time with your family this year
YOLANDÉ BOTHA, Writer
T
he festive season is traditionally
family holiday time around the country. Over
the next month or two many of us will be
travelling for pleasure – a rare and valuable
occasion in our often rushed lives. Wherever
you find yourself during this festive season
we hope that you fall in love with our country all over again. You could be sitting in an
airport lounge, minding your own business
when someone walks past you with a small
South African flag pinned to the side of their
suitcase; or walking on an unfamiliar street
corner and get a whiff of grilled meat on an
open fire and icy cold beer. Enjoy the small
moments that you’ll treasure for years to
come in one of these wonderful destinations.
Clarens, Free State
Known as the “Jewel of the Free State” Clarens is one of South Africa’s most picturesque
and arty towns. Surrounded by the Rooiberge
situated at the foot of Mount Horeb and with
the mighty Maluti Mountains to the southeast, Clarens is well known for its multi-coloured sandstone formations which is a
geological feature of the area. Upon entering
the village you will be greeted by many old
and new homes built from this sandstone
which gives the town its unique look and feel.
An abundance of trees complement the sandstone architecture that the town is known
for, making Clarens a prime attraction for
photographers, artists and nature lovers. The
name Clarens is steeped in history and is derived from a beautiful village in Switzerland,
situated on the shores of Lake Geneva, where
President Paul Kruger spent his last days as a
voluntary exile.
Only a three hour drive from Johannesburg and Bloemfontein and four hours from
Durban, Clarens is the perfect retreat for city
dwellers who want a quick, convenient and
tranquil escape from the hustle and bustle of
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city life. The town allows for endless hours
of exploring and relaxing with its multiple
art galleries, gift shops antiques, arts and
craft shops. Visitors to Clarens can also take
a daytrip to the Golden Gate Highlands
National Park with its cliffs and sandstone
formations. Clarens is also home to its own
microbrewery, the first of its kind in the Free
State since 2006. The beer is made from some
of the finest malts in the world which ensures
a distinct flavour that will always remind you
of your trip to Clarens.
Clarens is also gaining popularity as an
extreme sports destination and is fast becoming known as the “Adventure Capital” of
the Free State. The town and its surrounding
areas hosts a wide range of outdoor sporting
activities that are suitable for both the wild
and the mild at heart. South Africa’s best
white water rafting spots can be found just
outside Clarens where exciting 3 and 4 rapids
provide a challenge accompanied by crystal
clear water and breath-taking scenery. There
are also various exciting quad bike outings
that the whole family can enjoy and that offer
a great unique way of enjoying the splendour
of Clarens and surrounds. For those wanting
to conquer their fears while getting into
nature, abseiling is the order of the day.
Sun City, North-West Province
Sun International’s flagship resort, Sun City,
has provided a complete holiday experience
to South African families for years. The resort
caters for all ages, hosts over a hundred activities for young and old, is home to a famous
casino and is sure to thrill all visitors with its
variety of accommodation options aimed at
suiting all tastes and budgets. Families looking for a special holiday experience can stay
at the opulent 5-star Palace of the Lost City
while the 3-star family-orientated Cabanas
hotel provides the perfect breakaway for
active families. One thing is sure – Sun City
has no shortage of entertainment for parents
and children alike.
Golfing dads are sure to enjoy a break
at Sun City and will be eager to steal a few
hours of alone time to take on one of the
two world-class golf courses available. While
the grown-up games are in session, children
can enjoy the magical Valley of the Waves
waterpark. There are also a range of babysitting services and a kids’ club available while
Camp Kwena also allows parents to have a
chance to play. There is also a small zoo, a
gaming arcade and the Pilansberg National
Park is only a stone’s throw away.
Some of the most popular activities at
Sun City also include a visit to the Kwena
Crocodile farm where visitors can learn
about and feed these ancient creatures; the
Sun City Shebeen where visitors can enjoy
food and drinks in the traditional township
way; the Waterworld Picnic Lawn where
families can enjoy some relaxing fun in the
sun; the Zulu Hut Experience which includes
a handwashing ceremony and traditional
story telling; Predator World where visitors
can be exposed to a variety of wild animals;
a helicopter ride to the Thaba Ye Letsatsing
Mountain in the Sun accompanied by breakfast and beautiful views of Sun City; a hot air
balloon safari or an elephant-back safari into
the bushes once reigned over by the Royal
Bafokeng tribe.
The Garden Route,
South-Western Cape
The Garden Route is one of the most scenic
stretches in South Africa with its dramatic
river-cut gorges, its beautiful beaches, tangled forests and rocky headlands. The route
stretches between Stilbaai and Mossel Bay in
the west, to Stormsriver in the east and also
includes a stretch of coastal paradise along
the N2. Some of the towns that form part of
the Garden Route include Wilderness, Sedgefield, Plettenberg Bay and Knysna. The Little
Karoo and Route 62, although not forming
part of the Garden Route, are often treated as
the same destination by visitors to the area.
The Garden Route first became popular as a
beach family holiday destination. But there is
much more to do in this remarkably beautiful area than lazing around on the beach.
From Stormsriver to Heidelberg, the
Garden Route runs alongside a coastline that
features lakes, great indigenous forests, rivers,
golden beaches and mountains. The route
is followed by hikers and also invites long
leisurely drives while the lakes and rivers are
perfect boating, swimming and fishing spots.
The region provides a delightful range of
contrasts. George, known as the gateway to
the Garden Route, rests at the foot of the
Outeniqua Mountains and boasts fertile, lush
greenery. In contrast to this Oudtshoorn,
the capital of the Little Karoo, is located in
a semi-arid valley and is home to a large
number of ostriches which are farmed on a
grand scale here.
The southern coast of the Garden Route
where the Tsitsikamma Forest is located is a
hub of inspiration for writers and artists who
give the Garden Route a unique and trendy
feel. In addition to savouring the cultural
delights on offer, visitors can also enjoy a
myriad of adventure activities such as scuba
diving, fishing and abseiling. The forests are
also known for their lively birdlife.
The Cape Winelands, Western
Cape
Only about an hour’s drive from the Cape
Town city centre, the Winelands offer
friendly hospitality, picturesque scenery and
of course excellent wines. Most wine estates
have daily wine tastings as well as cellar tours
which can be booked by appointment. There
are many popular, and charming estates to
visit in the region and children can enjoy the
outdoors with activities such as fruit picking
on offer as well as a myriad of animal farms,
while mum and dad put their wine palates to
the test.
The Constantia Valley is thought to be the
birthplace of the South African wine industry
and is the home of the well-known, legendary
Vin de Constance. Constantia is the site of
some of the oldest wine estates in the country
thanks to the efforts of the first governor of
the Cape, Simon van der Stel, who decided to
cultivate and develop the land in 1685. The
original Groot Constantia was divided into
smaller wine estates over the years which are
still some of the most award-winning wine
farms in the country. The Constantia Valley
is only 20 minutes away from the Cape Town
city centre making it a convenient place to
go wine tasting in between enjoying the
assortment of other great tourist attractions
that Cape Town has to offer.
The Stelllenbosch wine route, the oldest
formal wine route in South African established in 1971, boasts more than 200 grape
and wine producers. While enjoying wines
from the various surrounding farms, a meander through the historic town of Stellenbosch
can be added to the itinerary. The Helderberg
wine route is adjacent to the Stellenbosch
wine route. The route is situated in Somerset
West and includes more than 20 estates. The
area is best known for its port and red wines.
The Franschhoek Valley arguably offers the
most beautiful wine route. As you travel up
the mountain and into the small town, you
are greeted by a spectacular and delightful
view. As the name denotes, many of the
farms were cultivated by the French Huguenots centuries ago. Famed for its food as well
as its wine, Franschhoek is home to over 40
wine estates and more than 30 restaurants.
The Franchhoek Cap Classique Route is
also popular and includes nine sparkling
wine cellars. The Franschhoek village also
offers great art galleries, boutique hotels and
antique shops.
Durban, KwaZulu-Natal
Durban is the holiday destination of choice
for many South Africans who are seeking a
family beach holiday. The ever-popular coastal city has a lot to offer visitors in addition
to its sparkling blue beaches and warm
water. Of course the city is best known for its
beaches, especially the Golden Mile which
stretches from Vetch’s Pier in the South to
the Suncoast Casino. It is an endless expanse
of spectacular beaches, top restaurants and
a mish-mash of other entertainment for the
whole family. The beautiful and temperate
Indian Ocean beckons, so if the weather
is good the only thing visitors to Durban
need are some bats, balls, towels, boards and
sunscreen to enjoy days of fun under the
Durban sun!
uShaka Marine World, Africa’s largest
marine theme park and also the 5th largest
aquarium in the world, is also a popular
pitstop for families who are visiting the city.
From its daring rides and aquatic pools, the
recreation of a massive shipwreck provides
hours of thrills and fun. Once you’ve discovered the creatures of the sea, you can head
to the Umgeni River Bird Park to familiarise
yourself with some of our feathered friends
as well. The park is home to over 3000 indigenous and exotic bird species and is only a 10
minute drive from the Durban beachfront.
There are many endangered species to be
found in the park and it is surrounded by waterfalls and lush tropical plant life. Similarly,
the Botanical Gardens offers the best picnic
spot in Durban. It is also the home of South
Africa’s oldest Jacaranda as well as over 467
species of trees.
If you want to get the full view of the city,
make your way to the Moses Mabhida Stadium where you can view the entire Durban
skyline from the extraordinary arch known
as the Arch of Triumph which encases the
stadium that was built for the 2010 FIFA
World Cup. If the hustle and bustle of the
city gets overwhelming, a trip to the Valley of
1000 Hills is sure to restore your tranquillity.
This largely untouched part of the country
is formed by the vale created by the Umgeni
River. Its splendour and serenity
are unmatched.
Wherever you choose to spend your family
holiday this year, we are sure that it will be a
memorable one filled with some great new
family stories and with an endless list of
reminders of why we are blessed to be living
in what we believe to be the most beautiful
country in the world.
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TaxTalk
69
Business
Centre
LIZ JONES, Editor
The gadgets featured in this issue are not for the
techno-phobes among us! In today’s hi-tech world,
a well equipped professional will require these
gadgets to keep up to speed. There’s still time to add
them to your Christmas list.
Gadgets
MICRosoft Explorer Touch Mouse
Zaggkeys Flex Keyboard
The Microsoft Explorer Touch
Mouse is a wireless mouse, with
a slim profile, ideal for laptop
bags. The metallic touch strip vibrates to simulate the clicks of a
The ZAGGkeys FLEX is a slim Bluetooth-enabled keyboard
specially designed for iOS and Android tablets and smartphones.
When removed, the versatile protective keyboard cover folds into
a stand that should support most devices. The keyboard is slightly
smaller than a full size keyboard, the rigid Chiclet keys feel
spacious and help facilitate rapid touch typing. An internal
lithium polymer battery offers several months of normal use
between charging.
scroll wheel and is easy to clean.
The device also has an unobtrusive Nano Transceiver that can
be stored under the mouse or
can be plugged into a USB Port.
Bose OE2 Audio Headphones
The Bose OE2 audio headphone set is highly recommended for those
discerning listeners. The design of the headband and the inclusion of
memory foam ear cushions combine to produce a very comfortable
listening experience. The earphones can be folded flat, and comes
with a carrying case included. You can also purchase the OE2i model
which comes with an inline microphone and a remote control which
can be used with an iPhone.
Lok-it Secure Flash Drive
The Lok-it is an encrypted flash drive which offers hardware
authentication which makes it unreadable to hackers or any spy
ware programmes. The owner has a secret pass key which must
be keyed in before the Lok-It can be plugged into a USB slot.
When you unplug the Lok-it, the device will automatically lock.
The Lok-it will work on any operating system and can be used on
other mobile devices with USB functionality.
Zaggsparq 2.0 Portable Battery
The Zaggsparq 2.0 Portable Battery is ideal for charging smartphones and tablets. The device can charge two USB-based devices
at the same time. The Zaggsparq carries up to 4 full re-charges
for smartphones and almost 60% of an iPad. The Zaggsparq plugs
directly into a standard wall socket and indicators offer the ability
to instantly check the power level.
TaxTalk
71
Steamlining Your
Business Travel Costs
With ever increasing corporate
budget constraints, travel is often one
of the first things that is sacrificed.
Read on to learn how to cut back on
business travel costs.
YOLANDÉ BOTHA, Writer
T
he late US statesman Adlai E Stevenson
wisely said:”There was a time when a fool and
his money were soon parted, but now it happens
to everybody.” That sentiment has been true of
business across the world since late 2008.
While South Africa has escaped the global recession relatively unscathed compared to nations
such as Ireland and Greece, the country is nevertheless feeling the effects of rocketing food and
fuel costs, both of which are forcing businesses to
reassess every cent of expenditure.
Travel tends to be one of the first items to be
sacrificed to the budget gods, but it is frequently
an intrinsic element to a business’ core function,
which means companies need to think smarter
about their travel procurement, rather than
losing potential revenue that such travel might
bring about.
Travel is an area that often eats more money
than it should, because there are myriad mitigators that companies should be adopting as they
embark on planning a new financial year, including changing booking patterns and investigating
which travel loyalty programmes offer genuine
savings. This holds true for corporations as well
as SMMEs.
Danny Bryer, Director of Sales, Marketing and
Revenue for the Protea Hospitality Group, says
analysing business booking channels shows that:
• Bookings are increasingly being made much
closer to the time of travel.
• Companies need to investigate travel loyalty
programmes that offer tangible rewards.
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TaxTalk
• Many companies are not taking advantage
of group bargaining and they are not consolidating their normal corporate travel and
conferencing spend.
• Companies are not analysing distribution channel costs when making bookings.
So what does that mean for companies that are
facing increasing costs? The good news is that
there’s a lot that will mitigate increases if they
look at the individual factors that impact their
buying strategies.
“The first is looking at consolidating company
travel, which will probably invoke a ‘been there,
done that’ response, but if managers go back
and review, they’re likely to find that the various
departments don’t often sit down to discuss not
only executive travel needs, but also the timing
and location of events, promotions, launches and
meetings,” he says.
“As far as possible that sort of travel needs to
be incorporated into the individual executive calendar and form part of the overall travel negotiations, as opposed to being treated as ad hoc items”.
It means a vast difference in spend, explains
Bryer. Booking later will generally mean paying more, whereas bookings made earlier result
in saving. In the case of the Protea Hospitality
Group, a booking made 30 days or more in advance will reward you with a saving of up to 20%.
“And if you have your ducks in a row at the
beginning of the year and you have most of those
events already planned in your travel calendar,
talk to airlines and hotel groups about it all collectively, because logic dictates that a larger overall
room or seat booking gives you more leverage
on rates”.
Bryer says the value of loyalty cards should
not be underestimated either.
“Some travel companies’ rewards programmes make redemption difficult, or they
have very narrow definitions and only one
card to suit many different types of people.
“Businesses can save substantially if they
issue the right loyalty cards to their executives. The Protea Hospitality Group, for
example, has Prokard and it’s a programme
that really does save money; up to 10% on
accommodation and up to 50% on meals; the
latter just upon presentation of the card.
“Prokard Rands are earned and can also be
used to pay for laundry, room service or any
other services in a hotel and it makes a big
difference because those small ad hoc items
can often inflate a bill considerably.
Prokard members are also first in line for
free room upgrades should those rooms
be available”.
The other factor that impacts heavily on
buying is travel timing. An obvious example
would be that everyone wants to meet in
gorgeous seaside towns or cities in summer,
which is reflected in the price threshold of
short lead booking rates. Booking that same
location in spring is going to save a substantial amount.
Another example is looking at what day
of the week your executives travel domestically. Hotel and flight rates are generally
much softer on a Sunday night, so fly your
executives late on a Sunday rather than early
Monday morning.
“The final cost-saving measure for corporates is evaluating the supply chain. Are you
booking your travel a certain way because
that’s the way you’ve always done it?
“Different supply channels carry different
costs for both corporates and hoteliers. If you
have a good understanding of how the supply
chain works – especially in an age of rapidly
changing technology – you can use it to your
advantage and secure a more beneficial nett
rate,” says Bryer.
While SMMEs won’t necessarily have the
same leverage of a company booking thousands of room nights, all the other principles
of belonging to a loyalty programme apply,
he says, including booking early, creating
a travel calendar and checking whether
travel agents, online travel agents or booking
directly with a hotel group or airline will be
most cost effective.
“The bottom line is that no company can
afford to sit back nowadays and not review
spending or methods to save money such
as rewards programmes. Every Rand spent
is one the company can no longer add to
the good side of the balance sheet, and just
a few changes to the way companies plan
their travel can ultimately make the world of
difference to the bottom line”.
T
TaxTalk
73
Top People in Tax
Ernest Mazansky
E
rnest Mazansky
is a director of Werksmans Tax
(Pty) Ltd, a wholly-owned subsidiary of Werksmans Attorneys,
and heads the firm’s Tax Practice.
He specialises in corporate
tax planning; restructuring
of corporate entities; share
incentive schemes; inward and
outward investment; offshore
structures and financing; VAT;
estate planning; wills and trusts;
and exchange control. Ernest is
Top People in Tax
a past chairman of the Taxation Committee of the South
African Institute of Chartered
Accountants and is a member of
the Institute’s Exchange Control
Committee. He is highly recommended as a tax lawyer in the
World Tax 2014 rankings and
named as a leading specialist in
international tax, trusts & estates
by Best Lawyers International.
He is also ranked as a leading
lawyer in tax by Chambers Global “The World’s Leading Lawyers
for Business” and in corporate tax
by the International Who’s Who
Legal. He is also a recommended
tax specialist by the Legal500
Professor Lilla Stack
Professor Stack is a Chartered Accountant and a Professor at Rhodes
University in the Dept of Accounting. Professor Stack spent 18 years
at UNISA, ultimately attaining the post of Registrar of Finance and
Operations before taking early retirement in 1998. She then joined
Rhodes as a Professor. She was the recipient of the SAICA Accounting
Educator award and also Honorary Membership of the Southern Af-
and PLC Which Lawyer.
Ernest is the South African
correspondent of the Bulletin for
International Taxation published
by the International Bureau of
Fiscal Documentation (IBFD)
and a co-author of the chapter
on trusts in Silke on International Tax. He is also the author of
the South African chapter of The
Delicate Balance – Tax Discretion
and the Rule of Law, published
by the IBFD. Ernest completed
BCom and BAcc degrees and
a Higher Diploma in Tax Law
at the University of the Witwatersrand. He is also a registered
CA (SA).
rican Accounting Association. Professor Stack is one of the founding
members of the SATEA (South African Tax Educators Association).
The aim of SATEA is to enhance and build on the research capacity of
all tax academics through training workshops.
Professor Stack was awarded a “Lifetime Service Award for the
enhancement of research in taxation and empowering of tax researchers and academia” by SATEA in 2012. Professor Stack is currently
lecturing Taxation at Rhodes University.
Professor Peter Surtees
Peter Surtees is a director of Norton Rose Fulbright Tax Services, based in the firm’s Cape Town
office. He specialises in corporate tax, banking and
finance and mergers and acquisitions, wills, estate
planning and trusts, and VAT. He also advises on
exchange control issues.
Peter obtained his BCom from Rhodes University in 1961 and qualified as a Chartered Accountant
(SA) in 1965. He obtained the MCom in Taxation
from Rhodes in 1985. Peter was a partner in a firm
of chartered accountants until joining the staff of
the Department of Accounting at Rhodes Universi-
Ernie Lai King
Ernie Lai King is an executive at ENSafrica and has
29 years experience as a specialist tax practitioner.
He specialises in mergers and acquisitions, dispute
resolution, structured finance and international tax.
He was appointed as a member of the Income
Tax Special Court of Appeal in 1993, and is past
Chairman of the South African Chamber of Business Tax Committee.
Ernie engages with the Commissioner’s Office
of the SA Revenue Services and National Treasure
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TaxTalk
ty in 1980, where he rose to the position of Head of
Department. He took early retirement and moved
to Cape Town at the end of 1997, where he was
appointed to the newly formed tax division of the
firm’s Cape Town office.
He is Professor Emeritus of Rhodes University
and Professor Extraordinary in the Department of
Taxation at the University of Pretoria. He is a member of the editorial panel of Integritax, the highly
regarded tax publication of the South African Institute of Chartered Accountants. He writes widely
on tax-related topics nationally and internationally
and presents the MCom (Taxation) course at UCT.
Since 2007 he has been a member of the Tax Court.
on general tax matters, tax policy and new tax
legislation prior to their promulgation into law.
Prior the introduction of Capital Gains Tax (CGT)
into South Africa, he was invited to participate in
nationwide seminars on CGT conducted by the
Office of the Commissioner of the South African
Revenue Service (SARS) with specific implication
of the impact of CGT on trusts.
Furthermore, he appears before the South African Parliamentary Joint Standing Committee on
Finance to comment on tax reform and is regularly
quoted in the media.
Oh Behave!
How to Survive the Christmas Office
Party with Your Dignity Intact
Brush up on your EQ before you go to this year’s
party, because senior management will definitely be
sending Father Christmas a list of who’s naughty and
who’s nice.
YOLANDÉ BOTHA, Writer
T
he term office party is an oxymoron in itself – the blurring
of the lines between business and pleasure can get tricky and sometimes it can get a little bit messy. The key word in “Christmas Office
Party” is “Office”. Regardless of the fact that you will be socialising
with your colleagues, it still remains a work function and you remain
an ambassador of your company. To help you survive the etiquette
minefield that the office party presents and to be able to show-up to
work after the New Year without a trace of shame, we have put together some tips that every good office elf should have under their hat.
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TaxTalk
1
Read the invitation carefully: The invitation lets you know what kind of party
it is so that you don’t show up in a ballgown to a braai. It also gives essential details
like date, location and time so you will have
no excuse to show up late. Importantly the
invitation also notifies you whether or not
you can bring a guest which is essential in
order to avoid the awkward situation where
you’re the only one who showed up with your
spouse in tow.
2
Prepare ahead: Think of some hot conversation topics before you arrive at the party.
Ask colleagues’ about their loves ones and congratulate those who have won awards.
You want to stay away from anything that has the potential to get controversial such as
money, politics and religion. One of the best options is to ask others what their plans for the
Christmas holiday are. Try not to be too cold and businesslike in your engagements at the party, it’s a celebration of the festive season so it is the time to be warm and congenial. Act like you
are happy to be at the party! Talk to as many people as you can while attending the party and
don’t mention anything about a promotion or a raise. Smile, mix and mingle. It’s the perfect
opportunity to show off your soft skills which are very valuable to most employers.
3
Drink, sing and dance in moderation:
Keep in mind that you are at an office
party and that accordingly everything
should be done in moderation. Keep your
merriness PG-13 rated.
5
Respect your colleagues’ privacy: Ask
before you take pictures or record videos of the holiday party. The Christmas
party may not be filled with happy memories
for everyone and they might not like permanent reminders of the fact. Another helpful
hint is to do the “two fridge test” before
taking pictures or posting them on social
networks such as Facebook: imagine putting
up the picture on your fridge at home and
think about whether it would be appropriate
when children walk by. Secondly think about
the posting the picture on the work fridge
and consider whether it would be appropriate
when the boss walks by.
7
8Dress to impress: While you do not
want to show up looking blinged up like
a Christmas tree, you do want to find
the perfect moderate option – not too much
and not too little. Getting into Christmas
spirit with a pair of red shoes or a festive tie
will be acceptable in most offices. Aim for
a festive, but yet still professional look. Nobody, including the CFO, wants to see your
hairy chest, overexposed cleavage, new tattoo
or the top 12cm of your thigh.
“You want to stay
away from anything
that has the potential
to get controversial
such as money,
politics and religion”
4
Keep these tips in mind so that you
can truly have yourself a merry little
Christmas without having to worry
about saving face when you return to work. If
you want to have a sleigh full of toys, there’s
no better time to impress Corporate Father
Christmas than at the Christmas office party
so be sure to behave.
6
Remember to be thankful and do not
contemplate whether to attend: Consider attendance to be mandatory. Your
employer is putting together a celebration to
recognise employees so try to avoid snubbing
the invitation at all costs. After the party remember to write a thoughtful thank you note
to your employer and to whoever organised
the celebration.
8
Be alcohol savvy: It’s really quite
simple, drink little or nothing at all.
This is not the night to morph into a
staggering Rudolph the Red-Nosed Reindeer.
You are being watched at the office party by
your bosses and colleagues so you need your
wits about you. If you do end up having more
to drink than you expected, be responsible
and get a taxi home to make sure that you get
home safely. Restricting your alcohol intake
will also ensure that you don’t partake in
office gossip which will always come back to
haunt you.
TaxTalk
77
SAIT News
TAX STUDENTS EDITION 2014
SAIT to Host the Tax Amazing Race for Students
YOLANDÉ BOTHA, Writer
T
he SAIT will be hosting its second
annual Tax Student Conference in February
next year. The event, which was previously
held at Sun City in the North-West province, will be hosted in four different regions
around the country (Eastern Cape, Gauteng,
Western Cape and KwaZulu-Natal). The
theme of the upcoming conference will be
“Make Your Mark in Tax” and students will
be treated to a morning of presentations by
top firms and will then have the opportunity
to literally make their mark on the tax map at
the Tax Amazing Race in the afternoon.
This exciting event will see third year
students who are currently busy with the tax
module within the programme of Chartered
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TaxTalk
Accountancy being given the opportunity to
apply their academic knowledge on South
African Income Tax, VAT and Pay-As-YouEarn (PAYE) in a practical and interactive
manner outside the classroom.
Students will participate in teams in a
race against time. Not only will the race
be great fun, but it will also contribute to
the development of pervasive skills such as
time-management, team work, communication, problem solving and leadership.
Various activities will be performed at
different locations at each of the venues. Auditing and accounting firms will sponsor and
man these destinations on the day of the race.
Teams will receive clues that will lead them
to the various destinations of the race. It will
be expected from students to apply their tax
knowledge in order to decrypt the clues and
to complete activities successfully. Activities
are designed in such a manner that physical
and practical problems need to be solved in a
creative manner by applying tax knowledge.
The race will be open for participation to
honours students who are following a module in taxation and third-year students will
be able to provide support and assistance.
The event will provide students with ample
opportunity to put their tax skills to the test
and to network with firms that are looking to
develop young talent. It promises to be a day
of learning and adventure and as Yanic Smit,
marketing manager of the SAIT commented,
“We are really looking forward to the fun,
games and getting students to deepen their
tax knowledge”.
T
Leave Pay and Bonus Processing can be a Breeze
Phil Meyer, Sage Pastel Payroll & HR
The end of the year is in sight and companies
face the administrative burden of making the
complex calculations related to determining the correct leave pay due to individual
employees.
The process is governed by the Basic Conditions of Employment Act (BCEA) which
sets out the legal structure of all employment
contracts and the rights of employees to ensure they are fairly treated in terms of annual
leave and severance or notice pay.
Many of the calculations for leave pay are
quite complex and arriving at the correct
allocations manually or on spreadsheets is a
time consuming exercise.
“All of these calculations have to be correct
or the company will breach the provisions
of the BCEA,” says Phil Meyer, technology
director at payroll and HR software specialist
Sage Pastel Payroll & HR.
The BCEA aims to ensure that leave pay is
fully representative of individual employees’
actual earnings and Meyer says the calculations have to take into account variable
income types and must be based on the average earnings of each employee over the 13
weeks preceding the date upon which leave
becomes effective.
“There are many elements that affect the
calculations such as overtime, commissions,
allowances and other payments. The bottom
line is that they lead to fluctuating income so
each employee’s income has to be calculated
individually. It can be a nightmare to execute
this manually or on spreadsheets”.
Automated payroll and HR software
retains details of all of the variable income
paid to each employee so that the calculation
for the average income over the 13 weeks
preceding the leave is not only accurate but is
available immediately with a few key strokes.
Circumstances may lead to some employees benefiting from higher variable earnings
during the three months prior to the leave
date. For example, accounting staff may
take leave when company financial year-end
audits are completed, thereby benefiting
from the overtime payments they may have
received during the preceding 13 weeks.
Similarly, people employed in the construction industry which usually shuts down
in mid-December, are also likely to have
worked overtime to ensure contracts are
completed before shut-down and therefore
their leave pay calculations will be affected.
“In consultation with management, payroll
TLBT
&CL
Volume 4 Issue 3
September 2013
BUSINESS
TAX
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COMPANY
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QUARTERLY
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31s of R1
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Milton Seligson SC
foreion pr
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Des Kruger Michael
14 Rudnicki
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administrators can establish parameters that
the software will automatically follow so that
calculations of average earnings are always
consistent with the requirements of the
BCEA and fair to all concerned”, said Meyer.
Users of automated payroll and HR software also benefit from the fact that the software developers monitor amendments to the
BCEA and provide updated versions whenever new legal requirements are promulgated. “Automated payroll and HR software
therefore always operates in full compliance
with the Act, ensuring also that the BCEA
leave payments are not subject to basic finger
trouble, interpretation or even fraud”.
In addition, software solutions offer
functionality that enables the user to give the
entire company an increase, based on either
a set value or a specific percentage as well as
process a production bonus or commission
using only one screen. This not only saves
time, it allows global changes to be made
to any transaction within the payroll or HR
system for all, or a selection of employees.
Automated payroll systems turn leave and
bonus processing into a quick, accurate and
simple task that eliminates administration
headaches before the December holidays.
Business Tax & Company Law
Quarterly
Edited by three of South Africa’s
leading corporate tax consultants:
Milton Seligson SC
Des Kruger
Michael Rudnicki.
This quarterly journal provides
invaluable, practical and highly
accessible opinions on relevant issues
pertaining to tax in the business
environment and to company law.
•
•
•
SIBER INK is a niche publisher of tax, law and accounting materials for the professional market in South Africa.
To view our other titles, visit www.siberink.co.za • To order, email: orders@siberink.co.za
SAIT News
A Night of African Glamour at the Transfer Pricing Gala Dinner
The Tax Executive Suite’s Transfer Pricing Gala Dinner offered an opportunity for tax
heavy-weights to engage in discussion and debate over good food and fine wine.
YOLANDÉ BOTHA, Writer
I
n a world dominated by the demands of corporate capital, base erosion
and profit shifting means that tax revenues
can effortlessly flow from one country to the
next, and often tax ends up being paid in the
jurisdiction with the lowest tax rates. This
issue of how much tax is paid and where,
underpinned the message at the Transfer
Pricing Gala Dinner held at The Venue in
Melrose Arch on the eve of the opening of
the 2nd Annual African Transfer Pricing
Summit on the 2 September this year. The
stylish event was hosted by the Tax Executive
Suite and brought together top tax executives
from major South African companies as well
as representatives from revenue authorities
from all over Africa including Tanzania and
Ghana. The keynote for the evening was
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TaxTalk
delivered by the shadow Minister of Finance,
Tim Harris.
The evening saw talks by various key tax
figures including Joseph Andrus from the
Organisation for Economic Co-operation
and Development (OECD). Andrus gave
an outline of the 8 core principles that lie at
the core of the OECD’s approach to transfer
pricing which includes the presentation of
broad consensus among countries on transfer
pricing policy; the elimination of double
taxation and providing a workable definition
for the arms-length principle.
Tim Harris from the Democratic Alliance
(DA) provided perspective on the implication of South Africa’s current approach to
domestic taxation which he described as
“administratively defensive” on the country’s
growth. According to Harris it is crucial that
the cost of being tax compliant in South Africa eventually becomes cheaper than what it
would cost a company to engage in base erosion and profit shifting practices. “This would
ensure that more manufacturing is driven
to South Africa which would lead to more
labour intensive economic growth. South
Africa has what it takes to turn our current
employment and economic growth situation
around. The effective implementation of the
National Development Plan as well as sound
transfer pricing principles, can lead to the
establishment of a solid manufacturing base
in the country”, Harris said.
The evening event, which culminated with
Harris’ insightful address, was a memorable
event bringing together key members of the
tax community and provided an important
opportunity for those working in transfer
pricing to network and to share ideas and
challenges.
T
SAIT Hosts Annual
Africa Transfer
Pricing Summit
for Second Year
The 2nd Annual Africa Transfer Pricing Summit
was the platform for lively debates and important
discussions around this increasingly important
tax topic.
YOLANDÉ BOTHA, Writer
T
he 2nd Annual Africa Transfer Pricing Summit hosted by
the South African Institute of Tax Practitioners in association with
the Institute for International Research in Johannesburg this past September was an opportunity for tax experts from corporate firms and
revenue authorities from around the continent to come together in an
effort to find new solutions to old problems. The three day event drew
together revenue authorities from Ghana to Tanzania and saw presentations by Joseph Andrus from the OECD and Mariette Cruywagen
Louw speaking about the tax duties of large international firms from
her experience of working at Maersk.
Transfer pricing is garnering ever greater attention on the African
continent. Indeed, it is one of the hottest topics in international tax,
especially since revenue authorities in many jurisdictions are increasing their vigilance in this area and several jurisdictions have recently
introduced new legislation. For example, South Africa’s Finance
Minister, Pravin Gordhan, said during his budget speech on the 27
February, 2013:
"Around the world, taxpayers and their governments are challenging large multinational companies that pay little or no tax in the countries in which they operate. Meeting in Moscow earlier this month,
finance ministers of the G20 countries were united in supporting an
overhaul of international company tax”.
The aim of the 2013 event was specifically to bring together company tax and transfer pricing managers, corporate tax advisors, transfer
pricing specialists from revenue authorities, as well as lawyers and
international institutions, including the UN, ATAF and the OECD, to
discuss all the relevant issues in transfer pricing.
Some of the key topics that were covered at the summit included:
• Base erosion and profit shifting
• South Africa's new draft interpretation note, and what it means for
thin capitalisation
• The challenge of comparables and doing comparability adjustments
• The transfer pricing of intangibles: how intangibles are (and should
be) defined, how to benchmark them, doing functional analyses to
determine economic ownership and recent developments in intangibles at the OECD
• The transfer pricing of financial transactions: how to price and
benchmark guarantees and loans
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TaxTalk
• The TP aspects of business restructuring
• The role of safe harbours and APAs
Joseph Andrus provided insightful commentary on the OECD
transfer pricing guidelines and provided illuminating discussion on
the OECD’s revised discussion draft on intangibles which included
a revised definition of what constitutes an intangible in tax terms:
“The word intangible is intended to address something which is not a
physical asset or a financial asset, which is capable of being owned or
controlled for use in commercial activities, and whose use or transfer
would be compensated had it occurred in a transaction between independent parties in comparable circumstances”.
Speaking from the perspective of the African Tax Administration
Forum (ATAF), Lincoln Marais from the ATAF secretariat, spoke
about the progress and challenges surrounding transfer pricing in
Africa and how it relates to the exchange of information in Africa.
He stressed that technical workshops and dialogues are a key method
through which the organisation is trying to facilitate a more cohesive
understanding of and approach to base erosion and profit shifting
throughout the African continent.
The conference provided valuable new insights into the nature of
transfer pricing on the African continent and shed light on the fact
that there is still a lot of dissonance amongst tax professionals on how
the OECD guidelines should be implemented which will hopefully
be resolved in the future as further discussions such as those at the
conference take place.
T
TaxTalk
83
Calendar/November
Sunday
Monday
Tuesday
Wednesday
Tax Administration Act
Cape Town, Western Cape
09:00am - 13:00pm
Tax Administration Act
George, Western Cape
09:00am - 13:00pm
Tax Administration Act
Port Elizabeth, Eastern Cape
09:00am - 13:00pm
PAYE Audit Seminar
Nelspruit, Mpumalanga
09:00am - 13:00pm
27
28
29
30
03
04
05
06
Indirect Tax Summit
Johannesburg, Gauteng
08:00am - 17:00pm
Employee Share Schemes
Pretoria, Gauteng
09:00am - 13:00pm
Employee Share Schemes
Durban, KZN
09:00am - 13:00pm
10
11
12
13
2013 Year-end Tax
Update Seminar
Bloemfontein, Free State
09:00am - 13:00pm
2013 Year-end Tax
Update Seminar
Johannesburg, Gauteng
09:00am - 13:00pm
Special General
Meeting of Members
Employee Share Schemes
Cape Town, Western Cape
09:00am - 13:00pm
17
24
84
TaxTalk
18
19
2013 Year-end Tax
Update Seminar
Pretoria, Gauteng
09:00am - 13:00pm
2013 Year-end Tax
Update Seminar
Potchefstroom, Northwest
09:00am - 13:00pm
25
26
20
27
Calendar/November
Thursday
Friday
Corporate Transactions &
Capital Gains Tax
Cape Town, Western Cape
09:00am - 13:30pm
Tax Administration Act
Pretoria, Gauteng
09:00am - 13:00pm
Saturday
Notes
Tax Administration Act
Johannesburg, Gauteng
09:00am - 13:00pm
Employee Share Schemes
Pretoria, Gauteng
09:00am - 13:00pm
31
01
02
07
08
09
15
16
Employee Share Schemes
Johannesburg, Gauteng
09:00am - 13:00pm
14
2013 Year-end Tax
Update Seminar
Polokwane, Limpopo
09:00am - 13:00pm
21
22
Tax Professional Knowledge
Competency Assessment
Papers 1 & 2
Durban, KZN
Port Elizabeth, Eastern Cape
Cape Town, Western Cape
Johannesburg, Gauteng
08.00am - 13:00pm
2013 Year-end Tax
Update Seminar
Boksburg, Gauteng
09:00am - 13:00pm
23
2013 Year-end Tax
Update Seminar
Durban, KZN
09:00am - 13:00pm
28
29
30
TaxTalk
85
Common Mistakes that Lead to Employees’
Tax Exposure and Adverse Risk Profiling
Hendrik van Deventer, Van Deventer & Associates
W
hen external auditors conduct
a payroll audit (as part of the audit), it is usually
in the form of verifying that the calculation(s) are
correct. It is not common practice for external
auditors to scrutinise and question the actual
data that makes up the payroll data. Or, perhaps
even worse, in cases where they do scrutinise and
question, non-compliance is often not remedied
in instances where the exposure is not ‘material’.
At this point, we stress that for tax purposes
there is no such thing as ‘materiality’ and that any
non-compliance should be remedied making use
of the various mechanisms available to taxpayers.
In recent times, the South African Revenue
Service (“SARS”) have been paying a lot more attention to employees’ tax and pursuing penalties
(imposed in terms of the Tax Administration Act,
No 28 of 2011 (“TAA”) and any other Tax Act)
with a diligence not previously witnessed. Armed
with the TAA, it is expected that there will be an
increased activity (SARS was roughly 60% up on
its audit target in the last financial year) and SARS
is bound to be expanding their audit scope and
depth of diligence.
Then why the fuss around employees’ tax and so
what if the employer gets it wrong? Simply pay the
Pay-As-You-Earn (“PAYE”) if SARS conducts
an audit and raises an assessment and life goes
on, right?
Well, not really.
There are a number of taxes/contributions that
are based on remuneration and if you are understating remuneration, you are also underpaying/
under contributing:
• PAYE (In which case up to 200% understatement penalty may be imposed); and
• Unemployment Insurance Fund (In instances
where the maximum contribution is not already
made); and
• Skills Development Levies; and
• Occupational Injury and Diseases.
TaxTalk
87
“Simply pay the Pay-As-You-Earn (“PAYE”) if SARS conducts an
audit and raises an assessment and life goes on, right?
Well, not really”
The purpose of this article is to raise awareness
around some of the areas that employers often get
wrong. (This is by no means an exhaustive list.)
Common Mistakes made by
Employers
Some of the areas often exposed are:
• Workforce misclassification; and
• Failure to make timely payments to SARS; and
• Taxable benefits; and
• Executive remuneration (including an aspect of
procedural non-compliance).
Below is a brief discussion on each.
1. Workforce Classification
A statutory withholding obligation is placed on
employers and representative employers where
they are paying or liable to pay remuneration.
Workers are generally classified as (Employer may
have all of the classifications below):
• Employees (permanent and temporary); or
Labour Brokers; or
• Independent contractors; or
• Personal Service Providers
Getting the classification of your workforce
correct is extremely important. It is important
because the classification determines how the
compensation is reported to SARS and whether
employee’s tax must be withheld.
This could be a costly but avoidable mistake as
SARS may impose penalties where employees’ tax
should have been withheld.
2. Failure to make timely payments
to SARS
Employers are required to pay over employee’s tax
on or before the seventh day of the month following the month in which the employee’s tax was
withheld. Where an employer fails to make timely
payment of such, the employer may be subject to a
late payment penalty.
Employers are often caught out with the delay in
funds reflecting in another account when making
use of Electronic Fund Transfers. (Payment is only
made once the recipient has use of the funds).
In this regard it is imperative that employers allow
for an extra day to avoid the unnecessary incurrence of penalties.
3. Taxable Benefits
Taxable benefits provided to employees are regarded as remuneration and therefore an employ-
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TaxTalk
er must withhold employee’s tax from them. The
Act provides clarity to employers on how to
value these taxable benefits for purposes of
employee’s tax.
It therefore goes without saying that if the appropriate value is not assigned to a taxable benefit;
the incorrect amount of employee’s tax will be
withheld. In this regard, employers are reminded
that SARS may re-determine the values in certain
instances.
4. Executive remuneration
High net-worth individuals are high on SARS’
radar at the present moment. Often, as a result of
an employers’ remuneration and benefits strategy,
executives are entitled to participate in the company’s share scheme(s).
Any gain made in respect of the vesting of
equity instruments are subject to employee’s tax
in the event where all restrictions are lifted as it is
regarded as remuneration.
Although it is our experience that employers
generally do withhold employee’s tax in such instances, we have experienced that it is often without the possession of a tax deduction directive.
The Act prescribes that an employer must apply
for a tax deduction directive to SARS in
this regard.
This is a procedural requirement that should be
adhered to.
Conclusion and recommendation
Staff costs make up the bulk of any company’s
expense. It should therefore be evident how important it becomes to effectively manage the risk
with this substantial cost and to ensure compliance with tax legislation.
With the penalties and interest SARS may
impose, employers could face serious cash flow
challenges if they are confronted with a large tax
bill as a result of employees’ tax non-compliance.
It is highly recommended that employers make
use of a service provider to conduct an employees’
tax risk assessment to assess their compliance
status in this area.
It is recommended that you always contact a
registered tax practitioner to assist and advise you
on the tax implication and your obligation, of any
transaction.
This article is based on the article, Top 10 Payroll
Mistakes Companies make, first published in
accounting today.
T