CIPC & SARS on collaboration to address company compliance burden

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Trade and Industry

20 September 2016
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Companies and Intellectual Property Commission (CIPC) and the South African Revenue Service (SARS) both spoke about the need for greater cooperation to address company compliance and reduce the burden of compliance on companies. SARS strategy was to collaborate with other government entities as well as with providers of third party data that could be used for risk management, data quality and to improve service to citizens. An interface had been designed and implemented between SARS and CIPC to enable the real-time sharing of data between the two entities. SARS spoke of the change to the tax clearance certificate (TCC) production obviating the need to queue and physically fetch the TCC from a SARS office.

CIPC spoke about three collaborations to remove the burden of compliance. One was to place CIPC self-service terminals in SARS offices to act as a one-stop shop. The second collaboration was the 'one filing of an annual return'. The same data could be moved between SARS and CIPC, and instead of doing separate applications. The third collaboration was the interface between SARS and CIPC for the company deregistration process.
 
The Committee inquired about trusts and their legal requirements; whether the amendment to the Financial Intelligence Centre Act would allow for exposure of sensitive information; deregistration; community benefit organisations and tax exemption; the cost of compliance; the length of time it took to be VAT registered; and the timeline for the sharing of data with all DTI entities. CIPC said it would consult with SARS about this time line and reply in writing.

Meeting report

South African Revenue Service (SARS) briefing on CIPC/SARS Collaboration
Mr Mark Kingon, Group Executive Relationship Management: SARS, commented on a concern raised about  obtaining a tax clearance certificate (TCC) and the registration of a business, saying one could not get a tax clearance certificate prior to a business being registered.

SARS strategy was to collaborate with other government entities as well with other providers of third party data which could be used for risk management, data quality and to improve service to citizens.

CIPC requirements from SARS were outlined. The Annual Financial Statements (AFS) and demographic data of companies were now included in the interface between SARS and CIPC. This interface between SARS and CIPC was designed and implemented to enable the real-time sharing of data between the two entities (see document for details).

Mr Kingon detailed how the deregistration of companies worked between the two entities. A deregistration by CIPC of a company indebted to SARS or who had other outstanding legal obligations, was problematic as the reinstatement of a company after deregistration required a judicial process.

Mr Fabian Murray, Group Executive Tax Compliance: SARS, said the challenge to the tax clearance certificate in the past was the cumbersome process because tax payers would have had to come into the SARS branch twice, once for the TCC application and then the certificate had to be fetched physically. With the new process in place, it has eased the burden on taxpayers and the authenticity associated with the TCC has been substantially enhanced. The fact that it was real time was also significant. The system in place today ensured that it was real time and that it interfaced with National Treasury so it was a very powerful system.

Discussion
Adv A Alberts (FF+) asked what 'DHA individuals' stood for.

Mr Kingon replied that 'DHA' stood for Department of Home Affairs, and 'DHA individuals' were the population register.

The Chairperson said that she thought at one point there was an aversion to trusts – this could have been the National Treasury - and there was not going to be any trusts anymore except for example set up for children when a parent died. There were very few trusts around today. She asked how the tax worked with trusts.

Adv Alberts asked what the current law was with regard to trusts, and as one got information from the Master of the Court, was what was going on inside the trust checked. The current law stated that when a trust was just a duplicate of the individual, then the trust should be disregarded. He asked for more information about this part of the law.

Mr Kingon replied that National Treasury had been engaged on trusts and there were various position papers that were in process with regard to trusts. There was nothing preventing a house being registered in a trust and it was very important that this was noted. Today a trust had the benefit that it could best certain of its income to other entities or individuals. The taxing could be moved through to other entities. And this was something that was being looked at, but today trusts were being utilised. There was the so-called will trust. It was not something that SARS had much to do with. If it had been registered with the High Court, SARS then registered it for tax. Trusts were required to submit a tax return. Unfortunately there was huge non-compliance in this area, and this was one of the areas that SARS was addressing internally. On the issue of a trust really being the person, there were various views out there and he was not the best person/expert on trusts. It was not something that SARS came across on a daily basis.

Adv Alberts said the amendment on the Financial Intelligence Centre Act was now with the President and this would allow exposure of information with regard to prominent persons or public prominent persons. He asked if this would assist in finding out what was going on in people's banking accounts, especially people who were supposed to set an example for the country.

Mr Kingon replied that SARS got regular data twice a year and currently the financial institutions were submitting data. SARS got data on all debits and credits into bank accounts as well as the interest flows into all bank accounts. This was part of the information that Mr Murray and his team utilised in determining risk in the submission of tax returns. That data was already with SARS. It just happened every six months. The FIC (Financial Intelligence Centre) worked slightly differently in that if there was a slightly suspicious activity report, that would be reported to them as and when it happened. He assured the Committee that SARS was getting data twice a year from all the banks. This to ensure that everyone was making an accurate declaration in terms of his or her tax returns.

The Chairperson asked when the relationship between SARS and CIPC reached a stage where SARS said, for example, 'Hang on you cannot deregister that right now as these people owed us a fortune’ to a point . where even though technically the company should have been deregistered then, it put a moratorium on this and flagged it not to be deregistered; and no one could over ride this until such time as SARS returned with proof that they had dealt with this matter.

Adv Rory Voller, Deputy Commissioner: CIPC: replied that CIPC basically flags the entity but does not deregister it. A moratorium is placed on deregistration until SARS informs CIPC that they were now tax compliant and their affairs had been put in order. But that was not ideal. There were two ideals that needed to be attached to that: the one was there had to be an electronic interface that worked in an automated fashion and that was going to put together as one of the projects going forward. The other thing was – and this was being done from the DTI side - there were amendments that were going to be proposed to the Companies Act. One of the amendments was, if there was outstanding monies to a regulatory authority such as SARS - then it would not go through a deregistration process until that had undergone scrutiny and until the compliance factor had been put in place. This was what CIPC had proposed as an amendment to the Companies Act.

Mr Voller agreed with Mr Kingon in terms of the reduction of the burden on companies. The collaboration between CIPC and SARS was built on two factors: one was the reduction of the burden so that the people would not have to stand in queues any longer or make applications to various entities, but the other issue was making sure that CIPC tightened up on compliance. So with this much scrutiny – and as we know SARS had many good search engines and business engines that did a lot of compliance and scrutiny – if CIPC could piggy back on those - which it had been doing - then certainly it had data sets which were correct, and certainly had verification and validation that were correct. CIPC did have a lot of eyes looking at the same set of data, so that it could ensure that there was a lot of integrity in the data held by CIPC.

Mr N Koornhof (ANC) asked about those companies that CIPC had deregistered companies where tax was still owed. Would this be fixed in the future or had it been fixed already?

Mr Kingon replied that deregistration was an electronic manual process. This meant that there was a data set provided to SARS electronically; there was no re-capturing of it, which SARS then compared electronically and it was fed back electronically. However, it just did not yet happen in an automated fashion like registration. This required a hand to be involved – in fact he was involved in that. Adv Voller's team sent the data, which SARS then analysed and sent back. SARS was of the view that this should be automated fully so that if there was non-compliance on the CIPC side, SARS should know about it electronically.

The Chairperson said when the overview was done and companies and trusts were spoken of, community benefit organisations were mentioned and they had tax exemption. She asked where one got such information.

Mr Kingon replied that SARS called them Public Benefit Organisations. Within the non-profit sector, one could have an association of persons, it was a legal entity because it was established by a constitution, but it had no registration authority, like a company or a trust had. What was very important was that these entities were associations of persons. In terms of SARS process, it was dealt with on an application basis.

The Chairperson said that the issue of cost of compliance came up with co-operatives. She asked about the cost of compliance, what was being spoken about, particularly when a company was genuinely going under or was in business distress.

Mr Kingon replied that SARS had tried to reduce the cost of compliance and this interface had reduced the need. The cost to register a company had come down hugely over the last three years. The process had been simplified and therefore the cost had been reduced. One does not have to consult a tax practitioner to do these processes. It was possible today to do a small business on one's own, and the compliance was simplified hugely. In terms of business rescue he had nothing to say at this point.

Mr G Hill-Lewis (DA) asked if an idea could be given of the length of time it took to become VAT registered and then the requirement around the R50 000 that needed to be in one's bank account before one was issued with a SARS VAT number.

Mr Kingon replied that the R50 000 was not a requirement in any law but the R50 000 came down to voluntary registration. A business needed to have R50 000 turnover for the year already, or that there was a prospect that by the end of the year there would be R50 000. Through  EFT (electronic funds transfer) some people fictitiously show that a business has a R50 000 turnover. That is fraud and misrepresentation. The issue here is that people are abusing this to get onto the VAT register, and to get to a point where they can start claiming input invoices which could be legitimate. However, the trouble was that there were many of the invoices that were not legitimate. They created invoices fictitiously so one found different companies using the same invoice with just the names changed. These were the things that needed to be stopped.

Mr Kingon said it was difficult to commit to a certain period for VAT registration due to this challenge as this was one of the areas where there was fraud. The biggest challenge was when there was no history of this client. SARS had a process and generally speaking it was resolved in 21 days. In some cases SARS did send out staff to see if, for example, the company existed at the address they claimed to be trading at. There were many cases where one landed up at an empty piece of property. So SARS did apply a lot of checks and balances. Where there was a lot of doubt it might take longer than 21 days. It was their duty to prevent refunds flowing out of the fiscus illegitimately. So 21 days was the rule, but there were some that were quicker, and there were some that were longer as well.

The Chairperson said that she was alerted to something that had come up with the National Regulator for Compulsory Specifications (NRCS)  When it wanted to check up on goods that came in because quite clearly there was some element of contravention, and it looked for the company to deal with this, it found that it did not exist. She asked Mr Voller how CIPC would deal with this situation.

Mr Voller replied that the company data would be given to the entity concerned.

The Chairperson asked what would happen if the company could not be found.

Mr Kingon said that there was a need to understand the broader secrecy provisions as well. SARS took the approach that to the extent that it could help, it would help, and the doors were always open to engage on matters like this. But SARS secrecy provisions should be borne in mind.

The Chairperson said this would be borne in mind and it would be raised with the NRCS as well. She thanked Adv Voller for indicating that he would be happy to take this further himself. This Committee would also take this forward.

Companies and Intellectual Property Commission (CIPC) briefing on CIPC/SARS Collaboration
Adv Rory Voller, CIPC Deputy Commissioner, said that much of the material that had been mentioned in SARS presentation was exactly what the Committee had been asking. A historical context to the relationship between SARS and CIPC had been given, and a context to the collaboration going forward, and to a certain extent it also gave a future view of what CIPC wanted to do between the two entities. There has been a good relationship to date - so much so that there were very regular meetings and there was a need to pick up on this once again and entrench it as part of what it did on a weekly basis. He wanted to pick up on points seen as tangibles that were felt could take the collaboration forward, what should obviously be project planned and moved forward with the two entities getting together.

The one was what was started a while ago and the Committee would be familiar with: CIPC had something called self-service terminals. The whole plan of CIPC was to roll out these self-service terminals through the length and breadth of the country.

CIPC also had a one-stop shop mind-set where it wanted to reduce the burden to business. In its view when a new business started off, there were three things they looked for in terms of compliance. First they wanted to get registered. CIPC’s perspective was that this was something it wanted to speed up and improve and it was doing it over a period of time. The next thing was to look for a bank account. As of now CIPC was doing a lot of work with banks and it had all four banks on board.

The last aspect was that they would want to be tax compliant and that was where the relationship with SARS came in. As Mr Kingon had said, they had had this high-speed alliance since 2014. This showed the effectiveness of movement of data between the entities so that it did not get lost. And basically that loop had been closed. What the entity wanted to do was - and coming to the point of the reduction of the burden and also still providing an enquiry service - was that it had started discussing placing their self-service terminals in SARS offices. So a person would be able to go into a SARS office and register for a company. The movement would happen between the data and if they wanted to apply for other tax products - SARS had many tax products - they would be able to be in a SARS office and be able to do an enquiry there and then. The biggest burden for small businesses was the back and forth process to different offices having to perform various tasks like enquiring about what was needed to be compliant.

The second one – and this service had been mentioned by our Minister – the need to look at the issue of 'file once’. So when one looked at the annual tax compliance obligations for companies linked to the annual return of companies, one had to look at how to make this a singular process. So about 18 months ago CIPC started looking at the data model and data sets and if there was a cross over between data sets. People should not have to do things twice. The data should move between entities seamlessly and thus reduce the burden. This second collaboration has been started as far as the data sets were concerned for the 'one filing of an annual return'. The same document would move to both entities. So entrepreneurs would be encouraged to file either at SARS or CIPC, and then the data could just be moved between the two entities instead of doing separate applications.

The third collaboration has been mentioned about the interface of the company deregistration process. As the country stood now, CIPC extracted the information, put it on a CD or hard drive, and then sent it off to SARS. This was considered very inefficient. This process needed to be automated and electronic services had to be looked at as far as that was concerned; and see how best to deal with deregistration of companies in a more efficient way between the two entities.

There were other things CIPC was doing at present that SARS was not happy with such as companies going into business rescue and SARS not being informed. This was similar to the lack of communication about deregistration. So CIPC had to therefore inform SARS of business rescue companies, so that they could flag them and deal with compliance regarding outstanding cheques.

Coming to some of the other collaborations that CIPC did with SARS that included other entities, there now was the Central Suppliers Database. It was collaboration between CIPC, SARS under the auspices of National Treasury. This was running quite well. From 1 April it was mandatory for companies who wanted to tender with government, to register with the Central Suppliers Database. CIPC supplied its entire database with every single dataset that it had and then SARS handled the issue of tax compliance. This was another project that was working quite well in terms of the reduction of the burden. It was still new and CIPC needed to build on it moving forward. There were some complaints about the information in the datasets, but as it moved along, this would be cleared up between the various entities.

The one issue that was also assisting CIPC and also SARS greatly was updating information. So when it came to the verification and the cleaning up of data, this collaboration worked very well in the sense that it was run between the various databases, the anomalies were picked up and then cleaned so as National Government, there was one set of data, and one set to look at in order to do compliance exercises and verification so as to ease the burden on these companies.

Discussion
Ms P Mantashe (ANC) said she just wanted to check whether this collaboration was in place or whether they were still trying to establish it.

The Chairperson said that this had been answered.

Mr Hill-Lewis asked what the timeline was for the sharing of data with all entities, such that there would only need to be one filing.

Adv Voller replied that there was one issue regarding this and Mr Kingon had also picked this up. The issue of secrecy in the legislation posed a problem for some of the data that was actually wanted at CIPC. There was an attempt to get around it somewhat; when there was a movement of financial data, they went back to the companies and asked them a question of consent: 'would you consent to the sharing of data?’. This would do away with the legislative problem because when they did it, it was between 70% and 75%. What needed to be done now was to operationalise this to ensure that the annual financial statements that were now agreed on to be shared actually moved between the entities. Not one has moved yet. However, that was just because a process had not been put in place in the back end, so when it came to process of time lines, there was a need to get together as project teams to determine what the timelines were. The interfaces were there already there, so it would not take too long. So they would get together and then inform the Committee in writing as to what the timelines were.

The Chairperson asked Mr Kingon if he had heard the response at all.

Mr Kingon said that he did not want to leave here saying in a couple of months there definitely was going to be something. The interface was there; it was a very robust interface already. These were pdf documents, meaning portable document format, so it should not be difficult for SARS to send it through that pipe. He would have to come back to the Committee in terms of what that commitment was. He did not have an agreement to say it would definitely be by a particular time as this needed to be looked at. However, the necessary work had been done to ensure it did happen. In other words, the most important thing was getting permission from the taxpayer that the data could be shared.

Mr Hill-Lewis said he would like CIPC to commit to a time line in writing once it had been assessed what a reasonable time was. This Committee had found that without deadlines things tended to drag on and on, so the Committee would like to hold CIPC to that.

The Chairperson addressed CIPC and said that once they had assessed the timeline, the Committee would like an estimate in writing.

Mr Koornhof said that he could be ruled out of order if he was, but everyone present had been through a FICA process. This was really hampering people who could not travel to certain institutions to do this. So this was becoming a problem. He had requested that National Treasury be asked if it was not possible to go through the FICA process just once.

Adv Voller replied that from a CIPC perspective, it FICAed one's identity; so it had a very robust interface with the Department of Home Affairs on two levels. One was that one could go into its self-service terminals and biometrically do it. The other one was if one applied online. It was then done via a data set. They gave the data, which was cross-checked and referenced and basically saw that one was who one said one was. The one aspect of FICA that CIPC did not know was the addresses of company directors because when one registered a company one did not have to supply proof of one's address.

The other aspect was with CIPC collaboration with banks. It had such a good relationship with the banks that it gave them real time access to company data. It gave the actual electronic data to the banks in real time with links to CIPC so that it saw the registration certificate. Their branches could go online and verify it in real time. The biggest issue that it had was that even though it had supplied the bank with the data, many of them had not rolled it out nationally. It had been discussed with Banking Association of South Africa (BASA) and top of the agenda was the rolling out of electronic services to all banks. This had been promised over time and was getting better, but it had not been done to all the branches nationally. It should not take long at all. Basically a company could be FICAed when the registration document was given to them. But as to the individual directors, from a company registration point of view, there were difficulties with their addresses.

Mr Kingon replied that he really thought the FIC should be engaged with, as ways to reduce the administration was a key issue. SARS had exactly the same challenge in terms of refunds as it wanted to know if it was dealing with the right client, and this was not easy.

The Chairperson said that this question could go to its sister, the Standing Committee on Finance, where perhaps it could be more effectively addressed, as it was part of their mandate. The earliest to expect a response would be next year and perhaps that could be during the budget process. If their response came sooner it could be emailed to the Committee in February should CIPC be ready. However, account should be taken of what had been raised about the National Regulator for Compulsory Specifications (NRCS) and other entities in the DTI stable, that could also have this crossover with SARS.

Committee business
The Chairperson said that a delegation from the Parliament Africa All Party Parliamentary Group of the House of Commons, United Kingdom, would be coming to engage with the Committee.

Committee Members would be taking home the third draft of the Colloquium Committee Report to make proposals, recommendations and conclusions during the constituency break.

Minutes of the 6 and 14 September 2016 were considered and adopted with amendment:

Mr A Williams (ANC) recalled that in the 14 September 2016 meeting the Committee resolved to get the performance contracts for all CEOs for all DTI entities, and this was not in the resolutions of the minutes.

The Chairperson added that all DTI entities should submit action plans in future to address their audit findings.

Point 6.4 would now read 'Chief Executive Officers of the DTI entities, would be requested in future to submit their respective performance contracts

Meeting was adjourned.

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