The Group Executive: Legislative Research and Development of the South African Revenue Service gave an informal briefing on the Tax Administration Bill to the Committee. The Bill dealt exclusively with tax administration and was intended to address the shortcomings of current tax legislation and to provide for a modern tax administration framework. The briefing included an overview to the background to the Bill, the intended impact, the consultative process followed in drafting the Bill and the salient points under each Chapter of the proposed legislation. The briefing concluded with an overview of the balancing of the powers of SARS contained in the Bill to the rights of taxpayers.
Members asked questions about the closure of SARS offices; the efforts to educate taxpayers; the discretionary powers of tax officials; the existence of a code of conduct for tax officials; the independence of the Tax Ombud; the international experience applied in drafting the Bill; the estimation of tax payable; the level of service provided to taxpayers; the disregarding of correspondence if no reference number was provided; the linkage with third party entities; the cost of unjustified audits; the standard of forms and statements; the delegation of ministerial powers; lifestyle audits; the confidentiality of personal financial information and the provisions concerning the searching of premised without a warrant.
Briefing by the South African Revenue Service (SARS)
Mr Franz Tomasek, Group Executive: Legislative Research and Development, SARS presented the informal briefing on the Tax Administration Bill to the Committee (see attached document).
The Bill was intended to provide a modern framework for the administration of revenue collection and to address certain disparities in the existing legislation. The Bill was a preliminary step towards the intended rewriting of the Income Tax Act. The background to the Bill included the importance of effective revenue collection; the mandate of SARS; the rationale for tax administration legislation and international best practice in tax administration.
The intended impact of the Bill was the reduction of the compliance burden on taxpayers and the administrative burden on SARS. The intention was to strengthen the enforcement powers over tax evaders and to improve the service levels for compliant tax payers. The Bill was designed with due regard for the constitutional rights of taxpayers, balanced with the obligations of SARS. In drafting the Bill, the international best practice was considered and an extensive consultation process was undertaken. In general, the Bill was favourably received but the consultative process had highlighted additional issues requiring attention. The original draft legislation was amended, where appropriate, to take account of the input received.
An overview of the design of the Bill, the main chapters and the interpretation of the proposed legislation were provided. The salient points of each chapter were summarised. Chapter 1 contained certain new defined concepts. Chapter 2 dealt with general administration, powers and duties and the establishment of the Tax Ombud. Chapter 3 dealt with taxpayer registration. Chapter 4 contained the provisions concerning tax returns. Chapter 5 covered information gathering; audit selection; criminal investigations; search and seizure without warrant; the rights and obligations of taxpayers and legal professional privilege. Chapter 6 contained the provisions concerning confidentiality. Advance rulings were dealt with in Chapter 7. Chapter 8 dealt with tax assessments. Chapter 9 made provision for dispute resolution. Chapter 10 covered tax liability and payment of tax. Recovery of tax was dealt with in Chapter 11. Chapter 12 made provision for the payment of interest. Chapter 13 dealt with tax refunds. Chapter 14 made provision for the writing off or waiver of tax debt. Chapter 15 dealt with administrative penalties and Chapter 16 covered understatement penalties. Chapter 17 dealt with criminal offences. Unprofessional conduct of tax practitioners was dealt with in Chapter 18. Chapter 19 included general provisions and Chapter 20 covered the transitional provisions. The Schedule to the Bill was summarised.
The briefing was concluded with a summary of the balance between the powers of SARS and the rights of taxpayers.
The Chairperson reminded Members that the briefing by SARS was informal. The normal process to refer a Bill to the Select Committee was lengthy. He complained that there was no SARS office in Springbok, the largest town in the province of the
Mr B Mashile (ANC,
Mr Mashile noted that the provisions in the Bill concerning the Tax Ombud did not ensure that the Ombud would be entirely independent. The Tax Ombud was appointed by the Minister of Finance and was effectively a part of SARS. He suggested that the Bill made adequate provision to ensure the independence of the Ombud.
Mr M Makhubela (COPE,
Mr R Lees (DA, KwaZulu Natal) noted the objective to improve the level of service to compliant taxpayers. However, in his experience, the level of service offered by the SARS call centre left much to be desired. The concept of best practice was a value judgment. He asked what was meant by “Senior SARS official”. He referred to the statement made on slide 27 that “SARS may disregard correspondence without [the] allocated [tax] reference number”. He felt that it was dangerous practice to ignore correspondence and that there should be an obligation on SARS to engage with taxpayers. He deplored the absence of a tax office in the town of
Mr Mashile observed that there were certain powers of the Minister that could not be delegated. He wondered if these particular powers could be delegated to the Deputy Minister. He asked if the Bill made provision for lifestyle audits or if such audits were dealt with in other legislation. He was concerned over the particulars of the finances of public officials being made public, for example, details of Julius Malema’s finances were recently published by the press.
Mr Tomasek was not in a position to respond to Members’ questions about the closure of SARS offices as this issue fell outside his area of responsibility. He was aware that SARS was developing the concept of mobile offices to serve remote areas but could not provide details. Persons earning less than R120,000 p.a. were not required to submit tax returns unless they wished to claim medical deductions. SARS used the third party information provided by the employer to assess this category of taxpayers. SARS intended to introduce the legislation in a series of country-wide seminars and workshops once the Bill was finalised. SARS had developed a taxpayer education programme and would be happy to arrange a briefing to the Committee on the subject if required. The Bill included guidelines for the exercising of discretionary powers by SARS officials. SARS had a code of conduct in place. The code applied to all SARS personnel.
Mr Tomasek explained that
Mr Tomasek explained that a “Senior SARS official” was defined in Clause 64 as an official who was delegated special tasks by the Commissioner. He pointed out that SARS was not compelled to act if a tax reference number was not provided in correspondence. The correspondence might be ignored if it was impossible to identify the taxpayer concerned. The extent of third party linkages would depend on the ability of the institution to provide information to SARS. The proposed Protection of Personal Information Bill would have to be taken into consideration as well. In general, taxpayers had welcomed the pre-filling in of tax return forms. The comments with regard to the cost of audits were noted but he was not aware of any provision to compensate taxpayers for clean audits. He undertook to refer the complaints concerning the statements to the responsible official. SARS had attempted to design forms and statements that complied with commercial standards. SARS had a team dedicated to the design of forms.
Mr Tomasek explained that the section in the Bill dealing with criminal offences applied to persons who had signed off false statements. The person concerned should be held liable for tax evasion but the Bill made provision for some protection if the person was truly unaware that someone else in the organisation had committed fraud. SARS preferred to base estimates on facts but the necessary factual information or supporting documentation were not always available. SARS was required to justify the estimate. Certain ministerial powers could be delegated to the Director-General of the National Treasury but the power to issue regulations (for example) could not be delegated by the Minister.
Mr Tomasek said that a lifestyle audit was a comparison of the reported income and the lifestyle of the individual concerned. For example, a person declared an annual income of R60,000 but had a private plane and owned a wine farm. Lifestyle audits were one of the techniques used by SARS to determine the validity of the information provided in tax returns. Tax Court judgments were reported anonymously. However, the name of the defendant of complainant became known if the matter was referred to the Court of Appeal, the
Mr Makhubela asked for clarity on the provisions concerning the searching of private homes without a warrant if the home was used as business premises as well.
Mr Tomasek explained that SARS could only search that part of the home that was used for business purposes, for example a study could be searched but not a bedroom. SARS cannot prevent someone from shredding information kept in a safe at home if no part of the house was used for conducting the business.
The Chairperson thanked SARS for the briefing. The Committee would compile a report on the briefing but was unable to vote on the matter as a quorum of Members was not present at the brifing. It might be necessary for the Committee to undertake a study tour to investigate the tax systems of other countries.
The meeting was adjourned.
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