South African tax environment in shake up

South Africa’s tax administration is in for a major shake up following the enactment of the Tax Administration Act 28 of 2011 this week.

Some of the key things coming is the establishment of Tax Ombuds which will provide taxpayers with a low cost mechanism to address administrative issues that could not be resolved through African Revenue Service (SARS) normal channels. The law also comes to give SARS powers to search business premises without a warrant. SARS said this is applicable in narrowly defined situations where the general requirement for a warrant would defeat the object of the search. It allows SARS to act when tax is at serious risk and time is of the essence.

“Most taxpayers are compliant and the Act should ensure better service and a lower compliance cost for them. However, duty bound to actively pursue tax evaders in order to maintain compliant taxpayers’ confidence in the integrity of the tax system,” the statement said.

According to SARS the new law will be let loose in October. The preparations for the implementation of the Act were at an advanced stage and it anticipated that it will come into operation within the next three months.

“This Act affects every kind of tax administered by SARS with the exception of customs and excise and is the biggest change we have seen in tax administration for 20 years,” said Ettiene Retief from the South African Institute of Professional Accountants (SAIPA).

“Literally, everyone who is involved in the administration of tax—corporate tax departments, tax practitioners and even officials of SARS itself—needs to re-educate him- or herself about its implications.”

He said the new law consolidates most of the administrative elements relating to tax into a single piece of legislation. This should simplify the task of administering tax from the viewpoint of both taxpayers and tax collectors as the processes relating to each type of tax are no longer scattered across various pieces of enabling legislation.

From now onwards, SARS will have greater scope when it comes to protecting the interests of the fiscus, said Retief. For example, said Retief, SARS will now be able to raise a “jeopardy assessment” even before a tax year is complete if it has reason to believe that the collection of due tax could be under threat. Similarly, taxpayers who intend to be outside of the country for extended periods of time will now have to inform the tax authorities so that they can take action if they feel that due tax monies are under threat.

“On the one hand, it’s good that SARS has stronger provisions to collect the taxes the country needs, but I do have a concern that if it applies its new powers aggressively the taxpayer could be facing sleepless nights,” said Retief. “We have already seen SARS applying the previous regulations very aggressively in certain instances, and I am a little worried about how it will use its new powers. I hope it will take a wise approach as overly aggressive action could deteriorate tax morality.”

The new law comes as SARS was jacking up its operational base. In launching the 2012 tax season, SARS Commissioner Oupa Magashule also launched remarkable initiatives to broaden the tax net. These include an efiling services that allows individual tax payers to get their assessment almost instantly. Magashule, said at May 31 SARS i4.4 million IRP5 certificates had been received-a 32% increase over the previous year.

 

“Over the past month, we have been validating these certificates and using them to pre-populate the income tax returns for individual taxpayers. By yesterday, there were about 10.7 million pre-populated tax returns awaiting completion and submission by taxpayers,” said Magashule.

 

The Commissioner said this was 1.2 million or 12.5% more than were ready at the start of Tax Season last year.

 

“If you are wondering why we have nearly 11 million pre-populated returns, but are only expecting about 5 million returns to be submitted, that is because most don’t have to because they are under the R120 000 return submission threshold.

“But they still have a right to submit a return if they want to,” he said.

 

 

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