Draft Tax Administration Amendment Bill [B40-2013]: Public Hearings

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Finance Standing Committee

22 October 2012
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The South African Institute of Chartered Accountants (SAICA), PricewaterhouseCoopers (PwC), the South African Institute of Professional Accountants (SAIPA) the South African Institute of Tax (SAIT), and the Association of Chartered Certified Accountants (ACCA) presented submissions at the Committee's public hearings on the Draft Tax Administration Amendment Bill. The South African Institute of Chartered Accountants (SAICA) affirmed its support for the regulation of tax practitioners. It gave an overview of the current law, the proposals, and services involved in tax. SAICA pointed out that a tax clearance certificate was needed to do any kind of business and South Africa's tax legislation was far from easy to understand. SAICA members were finding that they increasingly had to lodge objections or appeals. SAICA members were adequately qualified and trained to engage in such disputes. SARS would have the power to recognise controlling bodies, with one of which any tax practitioner would have to be registered. The regulation of tax practitioners would be in two phases. The first would be the recognition and definition of the controlling bodies. The second phase would be the establishment of an independent regulatory board for tax practitioners. Less than 50% of tax practitioners belonged to professional bodies. There should be a transitional provision to allow for the registration process. SAICA did not see the need to establish a regulator. Surely controlling bodies would be sufficient. SAICA recommended that the legislation must specify that the qualifications, experience, and competence should be in the tax field. Moreover, SARS staff should meet the same minimum requirements. SAICA was concerned that a tax practitioner could register only as an individual and not as a firm. SAICA welcomed National Treasury and SARS' intention to exclude retirement lump sum and provisional benefits from the tax regime. There was great difficulty in obtaining registration for Value Added Tax (VAT). SAICA asked the Committee's support in amending the legislation so that a tax clearance certificate must be provided quickly.

PricewaterhouseCoopers (PwC) welcomed the registration of tax practitioners and supported SARS' initiative. However, there was no provision in the legislation for SARS to cancel a registration. The Legal Practice Bill was not yet enacted and it was not appropriate to rely upon it in the proposed amendments. The reference to the South African Legal Practice Council (SALPC) should be removed until the proposed Legal Practice Act became effective. Between now and the proposed effective date of 01 April, there would not be enough time for the formal process of recognition to unfold and for all of these tax practitioners to register with the various controlling bodies. The effective date should be postponed to 01 to 13 July or later. SARS' discretion to remit provisional tax penalties should be extended. Legal Professional Privilege must be debated as part of regulation. PwC explained the rationale for privilege, and why tax advice privilege should extend to registered tax practitioners. There would be strict requirements before privilege was applied. Arguments for privilege outweighed arguments against. There was international precedent. PwC was concerned that proposed principal legislation, specifically Clause 1 on combined border posts, was embodied in an amendment Bill. This made referencing very difficult.

ANC Members asked if SAICA and PwC foresaw a problem with lack of service while tax practitioners' controlling bodies were still undergoing the process of recognition. Even an effective date of July was soon, if the recognition process was an issue. Did SAICA and PwC wish to discourage stand-alone practitioners, as a kind of gate-keeping exercise? Tax clearance certificates were more of a compliance issue that was done annually. So when did the 21 days rule apply?

An IFP Member saw a tax practitioner as someone who did the work of a lawyer, but in a specialised field. He did not understand why SARS would have the power to lodge a complaint against a tax practitioner. It was only the client who should be able to do so. He continued to have great concern at the automatic imposition of penalties. There were entire classes of people who worked on commission. Their future earnings were not predictable. SAICA had asked SARS to make amendments to this Bill. However, it was the Committee's Bill. He proposed that SAICA and PwC suggest draft amendments and submit them to the Committee, so that its Members could abide by their constitutional mandate of applying their minds independently.

DA Members thought that more time was needed before the effective date for registration of tax practitioners with recognised controlling bodies. There was currently a short fall of some 17 000 tax practitioners. The requirement for continuing professional education (CPE) to include a tax component was, according to the Explanatory Memorandum, included in the regulations. This was the correct place. Who currently would be eligible for recognition as a controlling body? Too what extent were people being pushed outside the law because compliance on VAT registration was too difficult? Perhaps SARS could answer why there was need for a regulator as well as a controlling body. It was preferable to allow SARS flexibility in imposing penalties, as before. The Explanatory Memorandum indicated that a tax practitioner might not be re-registered if he or she had been removed from a professional body or convicted fro a crime involving dishonesty in the preceding five years. The DA Members were not comfortable with PwC's suggestion that SARS should have the ability to cancel registrations. It was sufficient that the Minister had the power to approve a controlling body. There was general support for the amendment for excluding retirement lump sum benefits, but were there any unintended consequences? Was it a case of the registered tax practitioners versus the legal profession?

A COPE Member had reservations about professional privilege. Why not employ more lawyers?

The South African Institute of Professional Accountants (SAIPA) confirmed its support for the regulation of tax practitioners and looked forward to an even playing field, but it was necessary to be sure that the proposed legislation could support it. It expected further consultation on defining standards in the legislation for continuing professional development (CPD). The Bill was not clear about transitional arrangements. The responsibility for submitting tax returns now seemed to be shifted from the tax payer to the tax practitioner. This was a dangerous situation. The legislation provided no active control mechanisms to ensure that only registered tax practitioners as distinct from registered practitioners were providing tax advice. This was like unenforced speed limits on the road. The amendment to Section 240 failed to provide for de-registration, suspension or removal, whereas comparable legislation did. There also needed to be a clear guideline on how a person could be re-instated. How did the retired judge fit into the process?
 
The South African Institute of Tax Practitioners (SAIT) emphasised that the amendment for provisional tax was merely to expedite 'a computer not being able to implement the law rather than a fundamental issue that should have been amended'. SAIT proposed that the monetary threshold should escalate by 8% per annum. The preferable alternative was that the basis be a turnover of R30 million. Someone with an income of R1 million per annum was not necessarily a sophisticated tax payer, yet was put in the same category as Anglo-American. There was need to change the convoluted definition of a SARS official. Providing for an automatic provisional tax penalty had limited SARS' discretion. SAIT recommended that the regulation of the tax profession should include SARS officials as well, similar to the position in the legal profession in which practising attorneys as well as state prosecutors were equally regulated. The requirement to appoint retired judges was an imposition and a major concern. SAIT contended, in line with international views, that not to confer and recognise legal professional privilege in respect of all duly registered tax practitioners was iniquitous.

The Association of Chartered Certified Accountants (ACCA) substantiated its ability to perform the functions of a controlling body, and said that tax practitioners should indeed be regulated. Legal professional privilege should be considered. ACCA questioned the mandatory recognition of statutory bodies as controlling bodies, given that statutory bodies, like ACCA, were created in response to a particular public interest need. For example, the Auditing Professions Act 2005 (APA) limited the powers of the Independent Regulatory Board for Auditors (IRBA) to the regulation of auditors. Furthermore, the remit of IRBA could only be amended with the approval of Parliament. The proposal in the Bill therefore appeared to be a significant policy departure. ACCA agreed with the principle that only sustainable professional bodies should be allowed to obtain 'controlling body status. However, the provision that an applicant must have 'at least 1 000 members when applying for recognition or reasonable prospects of having 1 000 members within a year of applying' was inadequate, arbitrary, and inappropriate. ACCA members might lose their ability to render tax advice if this provision was retained. ACCA believed that sustainability should be determined objectively.

The IFP Member had heard the voice of common sense, and would welcome from the professional associations a set of proposed amendments. In this Bill the missing person was the tax payer. Who represented the taxpayers? Surely it was not SARS? It had to be asked if it was the profession, or PwC, which represented them. However, many people could not afford PwC's services. ANC Members noted much complaint in SAIPA's presentation, but a lack of suggestions. What was the appropriate effective date for the registration with recognised controlling bodies ? SAIPA's proposal on the provision for appointing of retired judges was not clear. Who must train the SARS officials? An ANC Member saw nothing wrong with Clause 3. There was no ambiguity. To change 'may' to ‘must’ on the notion that the Minister or senior SARS officials must apply their minds, would create a problem, as discretion would be removed. The Chairperson said that the Committee spoke for those less fortunate. South Africa could pride itself on the transparent manner of its legislative process in shaping laws that had a positive impact on the people and the South African economy.

 

Meeting report

Introduction
The Chairperson welcomed back Mr D van Rooyen (ANC), Dr Z Luyenge (ANC), and Mr N Koornhof, who had been unable to attend meetings recently because of other assignments.

The Chairperson welcomed the South African Institute of Chartered Accountants (SAICA), the South African Institute of Professional Accountants (SAIPA), PricewaterhouseCoopers (PwC), the South African Institute of Tax (SAIT), and the Association of Chartered Certified Accountants (ACCA) who were present to make submissions at the Committee's public hearings on the Tax Administration Amendment Bill.

In attendance, as observers, were Mr Franz Tomasek, SARS Group Executive: Legislative Research and Development, and Adv Frank Jenkins, Senior Parliamentary Legal Adviser.

South African Institute of Chartered Accountants (SAICA) submission
Mr Piet Nel, SAICA Project Director: Tax, talked about the regulation of tax practitioners, issues raised with National Treasury and the South African Revenue Service (SARS) on provisional tax, and issues related to tax clearance, tax legislation, appeals, and SARS penalties. He noted that National Treasury had already responded, in its document released on 11 September and which principally dealt with the Tax Laws Amendment Bill (TLAB), to some of the Issues that SAICA had raised.

Regulation of tax practitioners (Clauses 23, 52, and 55-59)
The current law, which took effect from 01 October 2012, namely the Tax Administration Act, defined a controlling body as the body whether established voluntarily or under law with the power to take disciplinary action against a person who in carrying on a profession contravened the applicable rules or code of that profession. The current law also required that all persons who dealt with SARS, that is, tax practitioners, must be registered with SARS. The current law basically allowed a person to do tax work for no consideration. SAICA had commented on that in the past. There were many people doing tax work for no consideration but who were not registered with SARS as tax practitioners. This was an important point.

The current law also allowed for SARS to lodge a complaint with the controlling body, such as SAICA, if a member did not conduct tax services within the applicable rules.

Mr Nel then gave an overview of the services involved in tax (see document, slide 2). He pointed out that people in South Africa needed a tax clearance certificate to do any kind of business in South Africa. Moreover, South Africa's tax legislation was far from easy to understand.

As to requiring all tax practitioners to be registered, SAICA found that many people were registered merely to assist tax payers in meeting their filing requirements, but did little or no high level tax work. However, in an increasing number of instances, SAICA members were finding that they had to lodge objections or appeals. SAICA members were adequately qualified and trained to engage in such disputes.

SARS was now proposing the introduction of a recognised controlling body. SARS would have the power to recognise such controlling bodies, with one of which any tax practitioner would have to be registered. He made specific comments (see document, slide 3, and written submission, pages 62-63).

Similar to the present legislation, the amendments provided for specific instances where SARS could register a complaint with a controlling body. He referred to the Bill's Explanatory Memorandum (see relevant documents). The regulation of tax practitioners would be in two phases. The first would be the recognition and definition of the controlling bodies. The second phase would be the establishment of an independent regulatory board for tax practitioners.

Recognition of controlling bodies
He gave SAICA's comments (see page 62 and 63 of written submission). He mentioned that certain listed bodies would automatically be recognised. Certain other bodies that met particular requirements might also be recognised. SAICA's concern, which prompted its submission, was that the effective date was scheduled to be 01 April. SAICA believed that there might be a risk. Less than 50% of tax practitioners belonged to professional bodies. If the Bill became law and was promulgated, and there was not a process and a transitional period that there might be people who were not registered with these bodies and could not do the work which they currently were doing and might well be suitably qualified to do so. He explained the difference between 'the regulator' and 'the controlling body'. Such persons might well meet the minimum requirements but not belong to an existing body. There should be a transitional provision for bodies to register and still engage.

He distinguished between a regulator and a controlling body. The second phase would see this regulator being established. There was currently one regulator relevant to the field – the independent regulatory board for auditors, but this did not have a tax focus. SAICA did not see the need to establish a regulator. Surely controlling bodies would be sufficient.

He explained the requirements of the current Tax Administration Act for minimum qualifications and continued professional education. SAICA recommended that the legislation must specify that the qualifications, experience, and competence should be in the tax field.

Moreover, SARS staff should meet the same minimum requirements. In resolving disputes, SARS staff who dealt on a day-to-day basis with the public were not always fully competent in understanding the legislation. He gave a detailed example.

Mr Colin Wolfsohn, SAICA Tax Committee member, affirmed SAICA's support for the regulation of tax practitioners. The number of persons who had registered with SARS as tax practitioners had grown exponentially over the years, but that less than 50% were registered with a professional body was the biggest problem. However, he was concerned that a tax practitioner could register only as an individual and not as a firm. This was a serious concern, and had resulted in firms registering messengers as tax practitioners in order to obtain preferential service at SARS. SAICA affirmed its support for minimum qualifications, experience, and competence.


Provisional tax (Clauses 14-18)
Mr Nel said that SAICA welcomed National Treasury and SARS' intention to exclude retirement lump sum and provisional benefits from the tax regime. However, SAICA was now complaining about the penalties or the additional tax that would be levied where an estimate was in error by more than 20%. This amendment would make the levying of the penalties mandatory. SAICA recommended retaining the current system under which SARS had discretion (see page 62 and 63 of written submission). Mr Wolfsohn explained further.

Sundry issues
Mr Nel said that there was great difficulty in getting members registered for Value Added Tax (VAT).

Mr Wolfsohn discussed tax clearance certificates. Until the Tax Administration Act there was never any mention of a tax clearance certificate in any tax legislation. However, now the requirement to provide a tax clearance certificate was being used by commercial firms as an excuse not to pay clients. The Act granted SARS 21 business days to issue a tax clearance certificate. This effectively meant one month. In extreme cases the country was losing business. He asked the Committee's support in amending the legislation so that a tax clearance certificate must be provided quickly.

PricewaterhouseCoopers (PwC) submission
Prof Osman Mollagee, PwC Partner: Tax technical, said that PwC welcomed the registration of tax practitioners and supported SARS' initiative.

Registration of tax practitioners: requirement to register (Clause 57)
Section 240 of the Tax Administration Act required that tax practitioners must register with a recognised controlling body. It also prescribed when a person might not register. There were a couple of points of detail that were absence. There was no provision in the legislation for SARS to cancel a registration. Secondly, if someone were de-registered, there was nothing to prevent him from re-registering immediately. These detail needed to be addressed in the amendments.

PwC submitted that SARS should be empowered to cancel a registration. Immediate re-registration should be restricted.

Registration of tax practitioners: recognised controlling bodies (Clause 58)
In phase one of SARS proposal, there would be recognised controlling bodies. A tax practitioner would have to be registered with one of them. However, the Legal Practice Bill was not yet enacted and would only be effective on a date to be fixed by President. So it was not appropriate to rely upon it in the proposed amendments.

This Bill contemplated a 'transitional South African Legal Practice Council (SALPC)' initially as a recognised controlling body. However, the actual SALPC could be operational only up to three years later.

PwC submitted that reference to the SALPC should be removed until the proposed Legal Practice Act became effective.

Registration of tax practitioners: effective date
PwC was concerned that currently if one operated as a tax practitioner but was not registered, that was a criminal offence. Between now and the proposed effective date of 01 April, there would not be enough time for the formal process of recognition to unfold and for all of these tax practitioners to register with the various controlling bodies.

PwC therefore submitted that the effective date should be postponed to 01 to 13 July or later.

Provisional tax penalties: Provisional Tax Penalty (Clause 15)
Prof Mollagee explained (see document, slide 3).

PwC submitted that SARS' discretion to remit penalties should be extended.

Legal Professional Privilege
PwC submitted that legal privilege must be debated as part of regulation (see document, slide 4).

Prof Mollagee compared the previous SARS position with the current suggestion (see document, slide 4).

The current suggestion was that privilege discussion should be deferred until Phase II of regulation proposals. However, Phase II might never happen (if Phase I was successful).


Prof Mollagee explained the rational for privilege, and why tax advice privilege should extend to registered tax practitioners (see document, slide 5).

Additional concern on Clause 1
Additionally, Prof Mollagee commented that there would be strict requirements before privilege applied. Arguments for privilege outweighed arguments against. There was international precedent.

PwC was concerned that proposed principal legislation was embodied in an amendment Bill. Specifically Clause 1 on international agreements on combined border control posts. It was inappropriate to include proposed principal legislation in amendment bills, as it made referencing very difficult.

PwC submitted that the proposal in Clause 1 should be inserted into the Customs and Excise Act.

Discussion
Ms Z Dlamini-Dubazana (ANC) thanked SAICA and PwC. She asked if SAICA and PwC foresaw a problem where the tax payers failed to obtain service if their tax practitioners, or rather their controlling bodies, were still undergoing the process of recognition.

Even an effective date of July was soon, if the recognition process was an issue.

She asked for clarity on PwC's submission on provisional tax penalties.

Dr M Oriani-Ambrosini (IFP) apologised that he had not studied the Bill before coming to the meeting, so he responded to the submissions as presented.

He saw a tax practitioner as someone who did the work of a lawyer, but in a specialised field. These practitioners represented clients' interests in dealing with a particular branch of government. Moreover, there were severe sanctions for breaking tax laws. With this in mind, he did not understand why SARS would have the power to lodge a complaint against a tax practitioner. It was only the client who should be able to do so.

Two years ago, in the consideration of the then Tax Administration Bill, he had expressed great concern at the automatic imposition of penalties, in case a tax payer got it wrong in reading his or her tax future. There were entire classes of people who worked on commission. Their future earnings were not predictable. His concern remained with the proposed amendments.

SAICA had asked SARS to make amendments to this Bill. However, it was the Committee's Bill. He proposed that SAICA and PwC suggest draft amendments and submit them to the Committee, so that its Members could abide by their constitutional mandate of applying their minds independently.

Mr T Harris (DA) asked for SAICA's view on the proposed effective date for registration of tax practitioners with recognised controlling bodies. There was currently a short fall of some 17 000 tax practitioners. One would probably need more time.

He understood that the requirement for continuing professional education (CPE) to include a tax component was, according to the Explanatory Memorandum, included in the regulations. This was the correct place.

Who currently would be eligible for recognition as a controlling body?

If VAT registration was too easy, there was the risk of cheating, but if it was made too difficult there was there risk that people would be pushed into the informal sector. Too what extent were people being pushed outside the law because compliance was too difficult? What was the alternative?

SAICA had posed an interesting question as to why there was need for a regulator as well as a controlling body. Perhaps SARS could answer?

It was preferable to allow SARS flexibility in imposing penalties, as before.

The Explanatory Memorandum indicated that a tax practitioner might not be re-registered if he or she had been removed from a professional body or convicted fro a crime involving dishonesty in the preceding five years. This appeared to satisfy concerns.

He was uncomfortable with the suggestion that SARS should have the ability to cancel registrations. It was sufficient that the Minister had the power to approve a controlling body. He sought detail on international precedent for professional privilege.
 
Mr D Ross (DA) said that all Members supported the amendment for excluding retirement lump sum benefits, but in terms of protecting retirement funds, asked if there were any unintended consequences in terms of regulation that might be discarded.

He asked Prof Mollagee if it was a case of the registered tax practitioners versus the legal profession. He wanted to promote the ability of the tax payers to source knowledgeable advice to the maximum extent possible.

Mr N Koornhof (COPE) would support many of the fair proposals from SAICA and PwC. However, he had reservations about privilege. Why not employ more lawyers? There was a misunderstanding of privilege. He asked PwC to give more detailed proposals substantiated by a sound legal opinion.

Mr D van Rooyen (ANC) welcomed the presentations. He asked if individual practitioners should not be considered, but only firms. Did SAICA and PwC wish to discourage stand-alone practitioners, as a kind of gate-keeping exercise?

He understood that tax clearance certificates were more of a compliance issue that was done annually. So when did the 21 days rule apply?

Responses
Mr Wolfsohn was concerned at the short time available, even if the effective date was July. SAICA met with SARS quarterly on operational issues. The Minister had remarked in his budget speech on the number of tax practitioners who were not totally tax compliant in terms of returns or monies owing. These were both members and non-members of professional bodies. The biggest concern was those tax practitioner who were not members of any professional body. In response to the time constraint, SAICA was quite willing to work with SARS and National Treasury. SAICA had been considering introducing a second tier of membership (members who were not chartered accountants) to assist SARS by making sure that these people would be regulated.

Prof Mollagee clarified that PwC suggestion of 01 July was really focused on bodies like SAICA, and individuals who were already members of SAICA. In that respect, April was too short, but July was more practicable. As to the time required for practitioners who were not members of any professional body, it was very hard to say how much time was required.

Mr Wolfsohn replied to Dr Oriani-Ambrosini that Section 105 of the old Act allowed SARS to report the unprofessional conduct of a tax practitioner to his or her professional body. In 25 years, he was aware of two such cases. SAICA thought that SARS did not report enough. SAICA did not tolerate any misbehaviour on the part of its members. Very often the tax payer was not even aware of a criminal activity of the tax practitioner.

Prof Mollagee wondered why a tax practitioner should get into a trouble if his tax payer client broke the rules. It was ultimately the tax payer who was responsible and had to sign his or her tax return. On the other hand, when tax practitioners claimed that tax law was now so complicated that tax payers could not manage without their assistance, it followed that they had a greater responsibility. How was SARS supposed to deal with tax practitioners who aggressively sold tax avoidance schemes. There needed to be some sanction against such abusive tax practitioners.

Mr Wolfsohn confirmed that SAICA would be quite willing to assist the Committee in the redrafting of tax legislation.

For the past four years, the biggest issue that SAICA had in meetings with SARS and with stakeholders was VAT registration. SAICA was fully aware of the extent of VAT fraud and fraudulent registrations, and had encouraged SARS to publish this. The problem was that 'a few bad eggs' were hitting the whole economy, and making it very hard for genuine businesses to obtain VAT registrations. Even Wal-Mart had been turned down initially, as it could not prove its expected turnover. He explained in detail. Since March 2012 when SARS introduced the modernisation of its VAT system, it had made great progress in its ability to follow up and audit VAT refunds.

Mr Wolfsohn said that the Committee should, in view of salary increases, consider raising that R1 million level, because it applied not only to individuals but also to companies. This level could be raised on an annual basis.

Prof Mollagee clarified that PwC opposed the proposed automatic penalty. No one opposed the concept of a penalty, if a tax payer deliberately underestimated their provisional tax for the sake of saving their cash flow, he or she should be penalised. However, the issue was whether or not SARS should apply its mind.

Secondly, if one underestimated one's taxable income but ended up paying the right amount of tax or too much, then there should not be a penalty at all.

Thirdly, if the proposal for a compulsory penalty went ahead, how could there not be provision for some process of remission of the penalty?

Mr Nel gave an example of where a provisional payment had gone wrong, and explained why SAICA was asking for some protection for practitioners. He gave the example of a gold-mining company.

Mr Wolfsohn clarified further. The majority of accounting and auditing firms handling provisional tax for clients began their work towards the end of December or the beginning of January. The returns had to be submitted by the end of February. Confirmed figures would be available until the end of December, and it was necessary to extrapolate the figures for January and February. This was the practical difficulty of making that estimate.

Mr Wolfsohn clarified to Mr Van Rooyen that currently only an individual could be registered as a tax practitioner, and there was no facility to register a firm. SAICA was not advocating that individuals could not be registered. He explained the difficulty.

Previously SARS had provided tax clearance certificates in five business days. The Tax Administration Act now allowed SARS to take 21 business days. A tax clearance certificate was an annual event, and was valid for one year. However, when it came to the time to apply for a new one, it was necessary to wait 21 days for the new certificate to be provided. This made it very hard for firms wanting to apply for tenders.

Prof Mollagee took the point on whether SARS should or should not have the authority to de-register. His point was that there was provision to enter the system but not to be removed. There needed to be such provision, even if SARS was not given that authority.

He would respond in writing on international precedent. He gave examples of limited privilege in the USA, the UK, Australia, New Zealand, and Germany.

PwC, as far as it audit and assurance practice was concerned, employed mostly accountants, but the staff component in its tax practice was about 50% lawyers. The accountants always thought that they knew better.

PwC's understanding of the meaning of privilege, was that PwC wanted a client to be able to consult a practitioner with the assurance that he or she could tell that practitioner everything.

The question arose if a lawyer in an accounting firm acted in his or her capacity as a consulting lawyer or as an employee.

Now there would be one category of regulated tax practitioner. PwC wanted the privilege to be accorded to practitioners in that category.

Mr Nel replied to Mr Harris that SAICA had not had the benefit of sight of provisions for CPE that would be included in the regulations.

Mr Nel replied to Mr Ross that the provision for excluding the retirement lump sums had no unintended consequences. It was not an incentive for a person to take an early withdrawal from lump sums.
 
South African Institute of Professional Accountants (SAIPA) submission
Mr Ettiene Retief, SAIPA National Tax Committee Chairperson, confirmed SAIPA's support for the regulation of tax practitioners, as the reputation of tax practitioners had been tarnished over the years by the conduct of those who claimed to be practitioners who were not members of professional bodies. He looked forward to an even playing field, but it was necessary to be sure that the proposed legislation could support it. He expected further consultation on defining standards in the legislation for continuing professional development (CPD). As the proposed legislation's current intentions for CPD was vague,, it was difficult to comment. SAIPA had a concern that the professional bodies envisaged as controlling bodies did not exist just for tax practitioners. If too harsh a disciplinary process was followed, a member might be expelled not only as a tax practitioner but as an accountant, accounting officer or auditor. Thus their livelihood would be cut off, just for a tax element. The Bill was not clear about transitional arrangements.


There were quite a number of professional bodies. The major ones were SAIT, ACCA,SAIPA and SAICA. At least three out of the four were underpinned as either accounting or auditing professional bodies. SAIPA was concerned 'at that separation that was lacking there'.

SAIPA was concerned that the legislation provided that the Minister could appoint retired judges to decide on behalf of professional bodies on disciplinary processes, but it was not clear whether the process was going to be done within the professional body. There was a lack of clarity on how this structure would integrate. He emphasised that SAIPA had strict disciplinary codes, and had to comply with prescriptive international codes.

The responsibility for submitting tax returns now seemed to be shifted from the tax payer to the tax practitioner. This was a dangerous situation. It was necessary to be clear on where the law drew that line of liability, otherwise tax practitioners exposed to a very dangerous working environment.

The legislation provided no active control mechanisms to ensure that only registered tax practitioners as distinct from registered practitioners were providing tax advice. This was like unenforced speed limits on the road.

SAIPA was concerned that the Bill was not clear about transitional arrangements. There were a number of people who were not currently members of a professional body. The professional bodies would first have to be recognised and set up as controlling bodies with the necessary level of CPD, and currently the necessary level was not known. The professional bodies would have to ensure that they had the requisite professional code, which they had, but were not sure if it was in line with that intended by the proposed legislation. There were a number of other processes missing, such as appeal procedures. Currently 55% of registered tax practitioners were not in membership of a professional body which would be recognised as a controlling body. 01 April was a tight deadline to meet for the effective date.

The proposed legislation made it a criminal offence not to register as a tax practitioner within 21 business days, both with SARS and with the controlling body, of the first occasion of providing services or completing or assisting with the completion of tax returns. That had already past. Practitioners were already registered. Effectively this criminal provision meant nothing. The proposed legislation lacked provision for a re-registration of practitioners under the new law and continuity for maintaining registration.

The amendment to Section 240 failed to provide for de-registration, suspension or removal, whereas comparable legislation did. There also needed to be a clear guideline on how a person could be re-instated. How did the retired judge fit into the process? The decision appeared to be final with no right of appeal. Would it be necessary to test the law by taking it to the high court?

The proposed Section 240A prescribed that the recognised control body must have effective minimum experience requirements, CPD requirements, a code of ethics and conduct, and a disciplinary code and procedures. However, the detailed criteria for these were not known. So it was hard for SAIPA to comment.
 
South African Institute of Tax Practitioners (SAIT) submission
Amendment 15 - Tax Administration Amendment Bill - Para 20 Fourth Schedule - Provisional Tax Penalties
Mr Paul Gering, SAIT Director and Member of the International Tax Directors' Forum, emphasised that the amendment for provisional tax was merely to expedite 'a computer not being able to implement the law rather than a fundamental issue that should have been amended'. There was the provision to seek relief. SAIT's concern was that if the amount was significantly wrong, one had to go through the full objection and appeal process and incur unnecessary costs, whereas if it had been looked at, and discretion was still applicable (the use of the verb 'may') that process would not be there.


Threshold
The other issue was the million rand threshold of taxable income. He proposed that the monetary threshold should escalate by 8% per annum. The alternative, which he preferred, was that the basis be a turnover of R30 million, which was a category known already in the VAT legislation, as being a business that was of far more substance dong monthly returns and therefore in a stronger position to have a far more accurate understanding of its taxable income, than [a person with] a million rand taxable income. Someone with an income of R1 million per annum was not necessarily a sophisticated tax payer, yet was put in the same category as Anglo-American. The monetary threshold should be increased by 8% per annum. There needed to be a differentiation.

Amendment 22 - Research and Development
The effective date regarding new rules was changed from 1 April 2012 to 1 October 2012. There was need for confirmation that the necessary Committee and forms were finalised.

The effective date should be extended, as the appropriate structures were not in place.

Amendment 23 – Section 1: Definition of SARS official –
“(c) a person contracted or engaged by SARS for purposes of the administration of a tax Act and who carries out the provisions of a tax Act under the control, direction or supervision of the Commissioner;”

There was need to change the convoluted definition of a SARS official. How many non-employees were actually working at SARS?

Amendment 32 – Section 46
The need to be able to object to and appeal against decisions should not be limited to the two instances listed in Section 104 (see slide 9).

Amendment 39 – Section 95
Estimated assessments could not be subject to an objection or an appeal, unless the tax payer submitted a return. What if that estimated assessment had absolutely no basis? What return must one submit to object or appeal? It did not make sense (see slide 10).

Clause 48 – Section 223 (3)
There should be the ability to have a remission against additional tax for matters other than merely reportable arrangements where there was advice taken. It should not just be that the advice put the tax payer in a different category of the penalty. The automation of the penalty had limited SARS' discretion. There was no ability for SARS' officials to consider mitigating factors (see slide 11).
 
Registration of tax practitioners and reporting of unprofessional conduct
Mr Alton Netshivhungululu, SAIT Deputy CEO, who had previously worked for 33 years with SARS, explained SAIT's position (see slides 12- 14).

He noted that professional ‘controlling’ bodies would improve their acceptance and retention policies, as a non-compliant tax practitioner would pose a significant risk to the body's reputation as well as to fellow members.

A significant aspect not covered was the regulation of SARS officials. SAIT recommended that the regulation of the tax profession should include SARS officials as well, similar to the position in the legal profession in which practising attorneys as well as state prosecutors were equally regulated. However, to achieve the desired outcome of improving tax compliance of tax practitioners, SAIT set out its proposed enhancements to Clauses 57, 58, and 59 in the current draft legislation (see slides 15-27).

He asked why retired judges should be appointed in terms of Clause 58's proposed insertion of Section 240A(3). See slide 26). Was it because the controlling body was not really capable? SAIT believed that the controlling body should be allowed to discipline its members. If SARS believed that the controlling body did not have the skill, then perhaps the Minister could appoint an overarching body. The requirement to appoint retired judges was an imposition and a major concern.

Amendment 59 – Section 241 – Complaint to controlling body – but what about SARS officials?
Mr Gering explained and proposed changes (see slides 28-32).

Items to be considered: Section 130
An order for costs should be applicable to tax board. for both tax court and tax board, the order of costs should cover the costs of the taxpayer from the inception of the audit by SARS, including, in particular, the items conceded by SARS along the way.

Recovery of costs from SARS: where no tax court hearing
SAIT considered it unfortunate that the draft Tax Administration Amendment Bill 2012 did not address the manner in which taxpayers / individuals should be entitled to recover costs from SARS, where SARS, for example, abused its powers under the law, or where taxpayers incurred costs as a result of the inefficiencies of SARS. SAIT was aware that taxpayers had, on numerous occasions, had to submit documents to SARS and, unfortunately, documents were lost by SARS and taxpayers had to supply further copies thereof, sometimes copies of the same documents having to be submitted on two or three or, in some cases, six occasions. The recent introduction of the IT14SD brought about similar challenges and resulting wasted costs to taxpayers where the information submitted was either lost or disregarded.

SAIT recommended that taxpayers should be entitled to recoup both actual costs and wasted costs of, for example, the printing of copies under the tariff referred to in the Promotion of Access to Information Act (No. 2 of 2000) (PAIA). In addition, taxpayers should also be entitled to recover the wasted time and effort and professional costs incurred in attending to SARS repeated calls for the same information, despite the fact that that information had been submitted and had been lost by SARS (see slides 35-37)

Section 221: substantial understatement
SAIT commented on the underestimated penalty that mitigating factors should be considered (Slide 38).

Legal professional privilege (LPP)
SAIT was concerned that the draft Tax Administration Amendment Bill 2012 proposed to introduce the registration of tax practitioners with a controlling body, but no provision was made for codifying LPP in relation to “registered tax practitioners”.

SAIT contended, in line with international views, that not to confer and recognise legal professional privilege in respect of all duly registered tax practitioners was iniquitous. SAIT's view was supported by research done by Professor Lynette Olivier and published in SA Law Journal in 2009.

SAIT recommended: It would be fair if the public and clients of 'registered tax practitioners' obtained legal professional privilege. It was also equitable that advice or assistance procured from an attorney, advocate or a tax practitioner was treated equally. The training which the tax professional had undergone should not result in a distinction being drawn from one individual to another, with resulting legal consequences facing the taxpayer. In addition, it also increased the cost to the taxpayer to become compliant, as he/she would need to consult a legal practitioner in addition to the tax practitioner.

Association of Chartered Certified Accountants ACCA submission
Mr Nicolaas van Wyk, ACCA Technical Support Executive, explained ACCA's suitability as a controlling body. He endorsed the foregoing submissions. Tax practitioners should indeed be regulated. Legal professional privilege should be considered. It was all about the taxpayer and whether a controlling body would be able to protect him or her.

ACCA was the global body for professional accountants. It had 77 partnerships with regulators. Many of them outsourced their monitoring functions to ACCA. It assisted in development of the accounting profession in Africa. ACCA had achieved quite significant success. It had students worldwide.

In South Africa ACCA members were recognised as statutory report providers in terms of the following statutes: Close Corporations Act 1984, Companies Act 2008, Sectional Titles Act 1986, South African Schools Act 1996, Non Profit Organisations Act 1997, and the National Credit Act 2005. It was also recognised, indirectly, in the Income Tax Act, as many members were registered as tax practitioners. Several large organisations had been accredited as ACCA Employers and a significant proportion of ACCA members in this country, occupied senior positions in commerce, industry and the public sector.

Comment 1: Statutory bodies as controlling bodies
This was the core of ACCA's submission. ACCA noted that the Bill mandated recognition of statutory bodies as controlling bodies. It questioned the appropriateness of this given that statutory bodies, like ACCA, were created in response to a particular public interest need. In the case of the Independent Regulatory Board for Auditors (IRBA) , for example, it was ACCA's understanding that the Auditing Professions Act 2005 (APA) limited the powers of IRBA to the regulation of auditors. Furthermore, the remit of IRBA could only be amended with the approval of Parliament. The proposal in the Bill therefore appeared to be a significant policy departure from that envisaged by Parliament when the APA was enacted. ACCA would welcome clarity on this matter.

Comment 2: Sustainability as a controlling body
ACCA agreed with the principle that only sustainable professional bodies should be allowed to obtain 'controlling body status. However, the current provision that an applicant must have 'at least 1 000 members when applying for recognition or reasonable prospects of having 1 000 members within a year of applying' was inadequate, arbitrary, and inappropriate to determine the true sustainability of a potential controlling body. He feared that ACCA members might lose their ability to render tax advice if this provision was retained. The 1 000 members requirement would also prevent competition (refer to proposed insertion of Section 240A(1)(c)).

ACCA believed that sustainability should be determined objectively by considering five criteria (page 3).

ACCA substantiated its ability to perform the functions of a controlling body (see submission, pages 3-6).

Mr Van Wyk pointed out that ACCA had a continuous system of monitoring and assessing its members. ACCA had a unique approach in the form of its own regulatory board with three Board members and seven lay members to ensure an independent view. To become a tax practitioner in membership of ACCA, thee years articles were required, followed by two post-articles years of experience. ACCA membership was equivalent to an honours degree (see presentation).

Discussion
Dr Oriani-Ambrosini thought that everything he had heard was the voice of common sense. Before hearing the response of SARS, possibly next week, it would be helpful to receive from the presenters a set of proposed amendments. The Finance Standing Committee was still 'in transition into becoming what it should be'. He noted that this Bill was still with the Executive and had not yet been tabled.

The Chairperson said that the Committee was not 'in transition'; it was a Standing Committee.

Dr Oriani-Ambrosini said that In this Bill the missing person was the tax payer. Was there no association of tax payers beyond the association for ratepayers. Who represented the taxpayers? Surely it was not SARS? It had to be asked if it was the profession, or PwC, which represented them. However, many people could not afford PwC's services. Who represented the small guys – 'people like you and I, Mr Chairman', or those less fortunate.

The Chairperson said that the Committee spoke for those less fortunate.

Mr E Mthethwa (ANC) noted a great deal of complaint in SAIPA's presentation, but a lack of suggestions. What was the appropriate effective date for the registration with recognised controlling bodies? (slide 1)

SAIPA had also complained about the proposed provision that the Minister should appoint the retired judges. However, SAIPA's proposal was not clear.

Most of the presenters had complained about the SARS officials being insufficiently capacitated in dealing with these matters. Who must train them?

Ms Dlamini-Dubazana asked SAIPA for clarity. She saw nothing wrong with Clause 3. There was no ambiguity. She understood the use of the verb 'may' to indicate that the Minister or the senior officials at SARS must apply their minds. To use the verb 'must' would create a problem, as discretion would be removed.

Mr Retief conceded that he and his colleagues would not profess to be legislative drafters. They could give their inputs, but they were not expected in the language of the law. They would look at it from the viewpoint of how the legislation would possibly be interpreted.

There was a provision that allowed that the Minister might appoint a judge. However, the provision ended there. Did this imply that the whole disciplinary process was to take place outside the disciplinary body? Would the judge oversee the disciplinary body? Or did the provision apply when the Minister thought that the controlling body was not capable of exercising discipline? If a controlling body could not do so, then it was not fit to be a controlling body. Perhaps a better expression than 'ambiguity' was to say that there was a lack of clarity on disciplinary processes. Most of these bodies already had strong professional codes and disciplinary processes. It was important that the changes did not undermine the system already in place. Why a retired judge? What the purpose of this provision was seemed to be missing.

He thought that SAIPA and the other professional associations were not so much complaining as voicing their concerns. Prescribing measures without being clear as to how they should be applied made implementation very difficult.

SAIPA's only real complaint was that there was a general shift of blame onto the tax practitioner. Taxpayers, like naughty children, would always deny that they were to blame, and would attribute blame to somebody else. SARS and the taxpayer could take action against the tax practitioner, but not vice versa. This was one-sided and unfair. Ultimately the responsibility for an individual's tax affairs should remain with the taxpayer.

Mr Netshivhungulu said that SAIT had given specific suggestions and recommendations, as in the written submission, and would continue to do so.

SAIT felt that if a controlling body met all the requirements objectively, there should not be any issue of discretion. It should automatically qualify.

Currently there were other officials in SARS who belonged to other controlling bodies because of their profession. The tax profession comprised various disciplines – lawyers and accountants, but others too, 'that are not regulated in SARS, by virtue of the fact that they did not belong to other controlling bodies. The tax profession was a major industry, and, from the viewpoint of universities, was becoming a major profession.

It would be up to SARS to decide whether it wanted to train staff internally. However, SAIT, and other outside bodies would be willing to help, as the aim was to improve the compliance levels of the country.

Mr Gering's point was that just as tax practitioners must be trained, so must SARS officials be trained; and, just as the controlling body must train its members, so too must SARS as the employer and controlling body of SARS employees have the responsibility to train those employees.

For many years SARS had had the power to discipline members who were already members of a controlling body, like SAICA, but this provision had not been implemented. This indicated that the provision was not needed for those who were already in membership of controlling bodies. There was a fear of tax practitioners who previously worked for SARS and were now in private enterprise but were not in membership of controlling bodies. If there was a fear of them today, where was the fear yesterday, when they were employed at SARS?

Mr Van Wyk said that the appointment of retired judges was a practical issue. He explained the process and duration of a disciplinary enquiry. Where in this process would a retired judge fit in?

SARS employees were subject to internal processes, but this did not mean that they should not be subject to a professional code of conduct by virtue of membership of a professional association.

The Chairperson thanked all those who had made submissions and said that South Africa could pride itself on the transparent manner of its legislative process in shaping laws that had a positive impact on the people, and the South African economy in particular. He adjourned the meeting.

Apologies: Ms J Tshabalala (ANC), who was abroad, and Adv S Swart (ACDP).

 

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