DRAFT
TAXATION LAWS SECOND AMENDMENT BILL
The LOA appreciates the opportunity to comment on
the two Bills but there has been a very short time period to review and comment
on the Bills, and it was not sufficient time to do this thoroughly.
At this stage, the LOA has the following comments on
the above Bill:
Paragraphs
2(4) (d) and (e) of the Fourth Schedule allow employers the option of
making certain deductions from remuneration before levying PAYE on the ‘balance
of remuneration’. Paragraph 2(4) (d) allows employers to deduct contributions
to medical scheme made by employees 65 and over. Paragraph 2(4) (e)
allows employers to deduct the tax-free amounts in respect of medical aids
(currently R570 for the first two members and R345 for all dependants
thereafter) from remuneration, before levying PAYE.
The
change seeks to remove this option open to employees, effectively allowing
employees to enforce this deduction. Although this may be possible with
actual employees, these changes cannot easily be implemented with the current
systems making payment to annuitants. Not only does this require system
changes to ensure that sufficient proof is recorded of the medical aid
contributions, it also requires an investigation into the number of
members/dependants such annuitants may have on a medical aid. Current
systems do not cater for these changes.
In
addition, it is noted that this change is intended to be effective from 1 March
2008, which does not allow for any system development. It is submitted
that it is imperative that the implementation date should, at the very least,
be effective from 1 March 2009 in order to allow time for the system changes.
Paragraph
14 of the Fourth Schedule provides for annual reconciliations to be sent to
SARS for the tax certificates and PAYE payments made. It requires that
employers submit the reconciliations within 60 days after 1 March each
year.
The
change now seeks to impose a 10% penalty on the total amount of employees’
tax for the tax year, if the submission is not made in time.
Previously there was no penalty imposed for late submission. While it is
agreed that LOA members should at all times aim for administrative efficiency,
it is not always feasible to provide reconciliations within 60 days.
This
may be possible for small employers who deal with common law employees, but the
complexities of administering systems that deal with common law employees,
commission earners such as intermediaries, annuitants and recipients of lump
sums must be taken into consideration when imposing penalties for what is, in
effect, an administrative requirement. It is recommended that large
employers be given the opportunity to refine systems and negotiate the
implementation of such a change.
In
addition, the proposed changes provide that the Commissioner may remit the
penalty if he/she is satisfied that the circumstances warrant it. There
is, however no basis given under which the Commissioner may remit such a
penalty, and it is recommended that the exact bases should be provided for such
remission.
SARS
currently allows employees to set off (against their normal tax), the
employees’ tax that has been deducted by their employer. This is allowed
irrespective of whether their employer has rendered an annual reconciliation to
SARS.
The
change precludes employees from setting off their employees’ tax unless the
employer has rendered its annual reconciliation, and the return has been
found acceptable by the Commissioner. Even though the employee may
have received his/her tax certificate, they will not be able to use the tax
certificate to set-off against their normal tax liability. Revenue is therefore
penalising the employee for the employer’s potential failure to submit the
annual reconciliation. This is in contradiction to paragraph 28(2) which
states that any employee’s tax certificate will be prima facie evidence that
the amount of employees’ tax has been deducted by the employer. What will
then be the point of issuing a tax certificate if it cannot be relied on either
by the employee or SARS? It is also not understood why it is necessary to
penalise the employee when the intention is to impose a penalty on the employer
in terms of paragraph 14.
Section
89quat deals with interest imposed on underpayments and overpayments on
provisional tax. Interest was only levied in respect of provisional tax
payers.
The
change seeks to impose interest on non-provisional tax payers, such as
employees. The provision effectively levies interest if the normal tax on
assessment exceeds the employees’ tax (credit) paid by that employee’s employer
during the year. This means that if the employee has received a travel allowance,
for instance, and has a tax liability on assessment, they will be liable for
interest. In addition to the interest being levied, the interest will be
calculated from 6 months after the last date of the tax year, which will offer
some respite if taxpayers submits their returns timeously.
It
is submitted that it is unwarranted that employees, who have been the target of
reduced deductions in terms of section 23(m) and reduced limits in respect of
travel allowances should now be liable for interest payments in the same manner
that provisional tax payers are.
This
will also have a serious effect on annuitants receiving annuities from
different long-term insurers, as their remuneration would not have been
aggregated across insurers, and they may have a credit due on assessment.
It is therefore recommended that the status quo with employees
remain.
This
proposed insertion into the Income Tax Act (section 75B) grants SARS sweeping
powers to impose ‘administrative penalties’ in respect of ‘non-compliance
with any procedural or administrative action or duty imposed or requested in
terms of this Act’. This effectively allows SARS to impose any
administrative obligation on taxpayers (or employers) and thereafter impose
penalties for non-compliance. There is therefore no balance between
taxpayers’ rights and those of SARS when implementing administrative
obligations.
In
addition section 75B (2) states that the Commissioner must ensure that the
obligations are imposed ‘impartially, consistently and proportionately to the
seriousness of the non-compliance’. This effectively means that there will be
no possibility of review, since SARS determines what is balanced. The fact
that administrative penalties may be imposed by regulation as opposed to
promulgation in the main body of the Act indicates that it will not have the
same level of public scrutiny and debate that amendments require- this is
irrespective of section 75B (6), which only requires submission of the changes
within 30 days to parliament, but does not prescribe the number of days for
public comment.
The
most significant omission is a definition of ‘non-compliance with any
procedural or administrative action or duty’. This effectively means that
SARS has carte blanche to impose any administrative obligation for any
provision of the revenue Acts, which therefore extends the scope of their
powers. It is argued that the current provisions of section 75 and section
76 should be sufficient to impose penalties on administrative non-compliance
such as the failure to submit returns timeously etc.
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Contact:
Ms Anna Rosenberg
Deputy Executive: Legal &
Policy
Life Offices’ Association of SA