SAICA submission process
Process in putting the SAICA submission together:
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SAICA membership body for Chartered Accountants
Comments sourced from NTC members
NTC members representation from – big four
accounting/auditing firms, legal firms, academia,
small & medium practitioners, and commerce &
industry
Specific comments
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Provisional tax changes
Retirement funds: lump sums
Dividend tax issues
Controlled foreign companies
VAT issues
Need for a rebuttal opportunity
Provisional tax: SAICA submission – page 30 “par 19 &
20 of the 4th Schedule”
Who is affected (provisional taxpayers):
All companies, trusts and individuals that receive passive income
(interest, dividend, or rental income) in excess of R20 000 per
annum.
What was the position before the 2008 amendment:
Second provisional payment: “basic amount” or may use an amount
less than the “basic amount” but if this sum is less than 90% of
taxable income as finally assessed, penalty of 20%.
“Basic amount”: taxable income reflected in the most recent
assessment from SARS.
If estimate is greater than the “basic amount”, may use the “basic
amount” without incurring any penalties – safe harbour.
Provisional tax: SAICA submission – page 30 “par 19 &
20 of the 4th Schedule”
What is the position post the 2008 amendment:
RLAA 2008 removed the “basic amount”
Paragraph 20: should the second provisional tax paid
fall short of 80% of the amount as finally assessed, the
taxpayer will be subject to 20% additional tax on such
shortfall.
SAICA: 3 written submissions and held a number of
meetings with SARS
SARS transitional arrangement
Provisional tax: SAICA submission – page 30 “par 19 &
20 of the 4th Schedule”
• Issue
1.Automatic penalty for missing a target that is
uncertain (reliant on future uncertainties) –
certain data only becomes available post
year-end
2.Additional workload / system strain / costs
associated
3.February year-end pressure
Provisional tax: SAICA submission – page 30 “par 19 &
20 of the 4th Schedule”
• Solution
Primary: Retention of the “basic amount”
address problems associated with the “basic
amount”. SARS previous practice. Legislate for
automatic escalation i.e. inflation adjustment for
each year where return remains un-assessed.
Alternative: Replace penalty with interest charge
instead. International comparison supports this
option.
Provisional tax: SAICA submission – page 30 “par 19 &
20 of the 4th Schedule”
2009 amendment:
Par 19: Commissioner may now by notice Gazette
prescribe the basis on which an estimate of taxable
income in respect of a designated class of taxpayer must
be made.
Par 20: Where the taxpayer followed the prescribed
basis which must take into account loss to the state the
Commissioner must remit additional taxes.
Provisional tax: SAICA submission – page 30 “par 19 &
20 of the 4th Schedule”
Problem statements / proposed solutions:
• Provision is extremely wide
• “Designated class of taxpayer” is not defined – must be
defined / our proposal to distinguish at LBC
• SARS can change the basis on which an estimate is to
be determined - issue with communication – what is the
basis / has to be “basic amount”
• Effective date? Must be 1 March 2009
• Par 20: where the taxpayer followed the prescribed basis
must take account any “loss to the state” – clarification
Provisional tax: SAICA submission – page 30 “par 19 &
20 of the 4th Schedule”
No relief for larger entities
• Data only available post year end
• Audit adjustments
• Stock count adjustments / debtors/ creditors
• Actuarial adjustments (insurance industry)
Proposed solution
• Retention of the “basic amount”
• Replace penalty with interest charge instead
No change: encourage entities to overpay
SARS argument: Par 20 allows SARS to waive the penalty
in certain instances – administration
RETIREMENT FUNDS: LUMP SUM BENEFITS –
2ND SCHEDULE
SAICA submission – page 1
• Current economic climate taxpayers lose their
employment.
• Forced to take their retirement lump sum “savings” in cash
• Due to the cumulative nature of the tables and the fact that
the R300 000 “exclusion” now forms part of the retirement
table the COMBINED withdrawal and retirement tax are
more than an only retirement situation.
• “Old legislation” – taxpayers did not lose R120 000
retirement exemption if they withdrew benefits.
RETIREMENT FUNDS: LUMP SUM BENEFITS –
2ND SCHEDULE
WITHDRAWAL LUMP SUM BENEFITS:
RETIREMENT FUNDS: LUMP SUM BENEFITS –
2ND SCHEDULE
RETIREMENT LUMP SUM BENEFITS:
RETIREMENT FUNDS: LUMP SUM BENEFITS –
2ND SCHEDULE - EXAMPLE
The problem is best illustrated by way of an example:
• Taxpayer receives R600 000 pre-retirement withdrawal
benefits and paid tax according to Table XII on the R600 000
of R103 950. If the same taxpayer then receives an additional
lump sum of R100 000 upon retirement the taxpayer will pay
tax of R27 000 on the R100 000 by way of application of Table
XIII.
• Therefore on the R700 000 received in total the taxpayer paid
total tax of R130 950. If the person would have retired and
received R700 000 the tax would only have been R81 000.
This is mainly due to the first R300 000 not being taxable on
retirement.
RETIREMENT FUNDS: LUMP SUM BENEFITS –
2ND SCHEDULE
PROPOSAL:
• Retain R300 000 exemption upon retirement – should
not be influenced by previous lump sum withdrawal
benefits received!
DIVIDEND TAX: CAPITALISATION ISSUE OF
SHARES – Section 64R
SAICA submission – page 11 &12
• Capitalisation issue – subject to dividend tax if it results %
increase in shareholding
• Problem: Most capitalisation issues have an “cash option”
• Even if just one shareholder opts for the cash, then the
capitalisation issue will be subject to dividend tax!
• Potential cash flow problems for companies
• Further, it might discourage foreign investors as they in the
past relied on capitalisation issues not being subject to tax
(RSA capital importing country)!
DIVIDEND TAX: TRANSFER PRICING – Section
64(O)(b)
SAICA submission – page 13
• The application of the transfer pricing provisions in S 31(2)
results in dividend tax.
• This is irrespective of the benefit flowing to a subsidiary or
a holding company!
• The principle should be that only shareholders (for
example holding company) should be subject to this
deemed dividend tax provision.
• See proposal in illustration on next slide
DIVIDEND TAX: TRANSFER PRICING – Section
64(O)(b)
Proposal:
Holding
Company
Yes: Dividend
tax
Company
No: not
Dividend tax
Subsidiary
Company
CONTROLED FOREIGN COMPANIES (“CFC”):
– Section 9D
SAICA submission – page 23
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Foreign Business Establishment definition tightened
“…is carried on continuous or regular at that location”
This does not take worldwide recession into account
CFC’s in offshore jurisdictions are struggling for survival
– had their operations cut back by SA parent
• Trades may reduce substantially – still considered to be
continuously?
• “Continuous” needs to be defined and element of
discretion should be afforded to Commissioner.
VAT: Registration process – Sections 1, 6 and
23 of VAT Act
SAICA submission – page 33
• Implementation of biometric information required for VAT
registrations
• Some challenges
• Foreign Vendors – not physically in SA – Act should
make provision.
• For SA vendors – after implementation of biometric
information requirements – current stringent
requirements should be relaxed – is currently a big
obstacle for business.
Need for rebuttal opportunity
SAICA submission – page 36 “general”
2008
• full day workshop with SARS/ NT post the public
hearings by PCoF
• ensured written technical comments are understood
2009
• rebuttal opportunity post the release of SARS/ NT
response document before SCoF
• SCoF or directly with SARS/NT
Thank you