Small Business Tax Amnesty & Amendment of Taxation Laws Amendment of Taxation Laws Bills [B14-2006]: finalisation

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Finance Standing Committee

13 June 2006
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Meeting report

 

 

FINANCE PORTFOLIO COMMITTEE
14 June 2006
TAXATION LAWS A/B: FINALISATION

Acting Chairperson
: Mr K Moloto (ANC)

Documents handed out:

Second Small Business Tax Amnesty and Amendment of Taxation Laws Bill [B15-2006]
Small Business Tax Amnesty and Amendment of Taxation Laws Bill [B14-2006]
National Treasury and SARS presentation on the Two Bills
National Treasury and SARS responses
Table of equivalent Clauses

SUMMARY
The National Treasury and the South African Revenue Service
made a few changes to the Small Business Tax Amnesty and Amendment of Taxation Laws Bills after consultations from interested parties and also based on some of the input from the Committee. The same people could apply for the amnesty, but the business turnover limit was raised from R5 million to R10 million for the 2006 assessment year.

The core requirement that there had to be full disclosure remained, but now it had to be of all business taxable income for the 2006 assessment year, not 2005. Another change was that the levy maximum was reduced to 5%. It would operate on a sliding scale just as with income tax. The amnesty did not apply to fraudulent Value Added Tax schemes where Value Added Tax refunds were claimed based on the submission of fictitious purchase invoices or based on fictitious zero-rated exports for sales that actually occurred locally. Taxpayers would also receive an outstanding debt amnesty if they had not yet paid but had submitted a return or information indicating payment due or the South African Revenue Service had indicated that payment was due via an assessment.

MINUTES

Mr F Tomasek, the Assistant General Manager for Legislation for the South African Revenue Service (SARS), said that they had made a few changes to the Small Business Tax Amnesty and Amendment of Taxation Laws Bills after consultations from interested parties and some of the input from the Committee. The same people could apply for the amnesty, but the business turnover limit was raised from R5 million to R10 million for the 2006 assessment year.

The core requirement that there had to be full disclosure remained, but now it had to be of all business taxable income for the 2006 assessment year, not 2005 given the possibility of the applicants keeping poor records. The applicant also had to include an income tax return for the 2006 assessment year and provide an asset/liability balance sheet at cost for the close of the 2006 assessment year.

The amnesty retained the ‘reasonable estimate’ concept in lieu of actual disclosure and the voiding of these estimates if they were not materially correct. Moving the year forward to 2006 would reduce the need for reasonable estimates as well as the reasonable estimate procedure.

Another change was that the levy maximum was reduced to 5%. It would operate on a sliding scale just as with income tax and pre-2006 losses could not be carried against 2006 taxable income. There was a 0% rate for an income of R0 – R35 000; 2% for R35 001 – R100 000; 3% for R100 001 – R250 000; 4% for 250 001 – R500 000 and 5% for R500 001 and more.

Prof K Engels, from Treasury said that the basic amnesty would generally be denied if SARS had issued a notice to the applicant before the amnesty submission of an audit, investigation or other enforcement action. The term ‘enforcement action’ would be clarified by the Commissioner via Gazette. The applicant could ignore the notice if SARS withdrew it or finalised the audit or investigation before submitting the amnesty application.

The amnesty covered improperly undeclared or unpaid business income including incidental investment income. This included income tax and Secondary Tax on Company (STC) amounts arising before the 2006 assessment year and Value Added Tax (VAT), Pay As You Earn and Royalty Withholding. The amnesty also covered additional tax, penalties and interest, as well as criminal prosecution for failure to disclose.

Mr Tomasek said that taxpayers could not carry-over tax benefits from a pre-2006 year. Therefore, loss carry-overs, STC and VAT input credits could not be utilised if they stemmed from a pre-2005 year receiving amnesty relief. The amnesty process remained non-discretionary; they would reviewed by a separate SARS unit; a notice of approval or denial of amnesty by SARS was required and any decisions were subject to objection or appeal.

Prof Engels noted that the amnesty did not apply to fraudulent VAT schemes where VAT refunds were claimed based on the submission of fictitious purchase invoices or based on fictitious zero-rated exports for sales that actually occurred locally. The Financial Intelligence Act would not prevent advisors from providing advice but they had to disclose applicants involved in other offences such as money laundering and drug dealing for instance.

Amnesty could become void if the applicant subsequently failed to pay the full levy within twelve months (there was even the possibility of getting an extension for the payment), the taxpayer failed to make full disclosure and made materially incorrect estimates.

Mr Tomasek said that taxpayers would also receive an outstanding debt amnesty if they had not yet paid but had submitted a return or information indicating payment due or SARS had indicated that payment was due via an assessment. This debt amnesty covered all penalties, additional tax and interest. The process for this would also include the passing of regulations by the Minister for public comment and parliamentary scrutiny.

The success of the amnesty would be reported to Parliament, including the number of applications received; the number of applications approved or denied; the number of new taxpayers and the amount of levies payable. SARS would also record how many of the new taxpayers remained in the system in 2008 and 2009.

With municipalities, Prof Engels said that a SARS interpretation note was going to be released to cover issues such as service fees versus fines, and grants versus service charges. The regulations under section 74 of the Municipal Financial Management Act would be utilised to defer penalties and interest by six months for municipalities that failed initially to properly impose the standard rate under the new regime. Zero-rated property rates would not include service charges based on property values. The pre-effective date status of water boards was also going to be clarified.

The OP 26 oil and gas leases and subleases that operated along the South African coast had been eligible for tax incentives since 1977. The conversion to ‘new order’ rights and wholly new applications technically fell outside of these incentives. The amendment of the Bill would carry-over these incentives until the sooner of 1 May 2009 or revised legislation (expected in October).


Discussion
Mr Ditebe (ANC) asked if SARS had a plan in place to inform small businesses about the whole amnesty process and how it was going to work.

Mr Tomasek replied that there were plans in place to work with banks and other financial associations to get their message out. SARS was also willing to work with the members of the Committee in their own constituencies.

Mr M Johnson (ANC) added that many other developmental organisations could assist SARS in sending the message about the amnesty. Were they going to include them?

Mr Tomasek said that this was a good idea and he would discuss this with the people involved.

The Acting Chairperson then read out the Motions of Desirability and the Committee agreed to pass the Bills.


The meeting was adjourned.

 

 

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