Objections and Appeals: The Helpless Taxpayer?
OBJECTIONS AND APPEALS:THE HELPLESS TAXPAYER?
Only assessments and certain prescribed decisions are subject to objection and appeal in terms of section 104 of the Tax Administration Act, No. 28 of 2011 (“the TAA”). There are a multitude of decisions that can be made by SARS and that are not subject to objection and appeal. These include but are not limited to:
- A decision by SARS VDP unit not to accept a VDP application;
- A decision by SARS not to issue a tax clearance certificate;
- A decision by SARS not condone suspension of debt pending the outcome of an objection or appeal;
- A decision by SARS not to issue a reduced assessment in terms of section 98 of the TAA;
In these cases, taxpayers are left with limited, often ineffective and costly options that may leave the taxpayer feeling helpless. These options include:
- approaching SARS’ Complaints Management Office (“CMO”);
- approaching the Tax Ombud (“TO”); or
- instituting proceedings in the High Court under the Promotion of Administrative Justice Act, No. 3 of 2000 (“PAJA”)
An often overlooked remedy, however, is section 9 of the TAA, more specifically section 9(1)(b) which states that:
“A decision made by a SARS official and a notice to a specific person issued by SARS, excluding a decision given effect to in an assessment or a notice of assessment –
(a)…
(b) may in the discretion of a SARS official described in subparagraphs (i) to (iii) or at the request of the relevant person, be withdrawn or amended by—
- the SARS official;
- a SARS official to whom the SARS official reports; or
- a senior SARS official.”
Accordingly taxpayers may request SARS to review a decision despite that decision not being specifically made subject to objection and appeal and without having to approach the CMO or TO or launch a PAJA application. The concern, however, lies in that where SARS refuses to entertain a request for review under section 9, taxpayer’s will find themselves faced with the same, ineffective and costly options listed above.
In the 2017 budget, it is proposed that “all decisions of SARS that are not subject to objection and appeal should be subject to the remedies under section 9 of the TAA.”
While it is not clear exactly what the proposed amendment will seek to achieve, it is a step in the right direction and a welcomed proposal. We can only hope that the proposal will find its way into the legislative amendment process to provide much needed relief for taxpayers who effectively find themselves completely at the mercy of SARS.
SA’s Tax Dilemma: Hiking VAT vs Wealth Taxes
ALL eyes will be on government’s tax proposals in the upcoming national budget, to be tabled in Parliament on February 22.
The minister of finance already indicated in his mini budget that the fiscal authorities will be looking for additional tax revenue of R28bn in the 2017/18 fiscal year, plus a further R15bn in 2018/19, which will require more than routine tax increases. This is almost double the amount envisaged at the time of the tabling of the 2016 national budget, which indicated planned increases in tax revenue of R15bn in both 2017/18 and 2018/19, after an increase of R18bn in the current fiscal year. As unwelcome as these increases are at a time of general weakness in economic activity, they could have been substantially higher if National Treasury had not been as successful in maintaining the expenditure ceiling as has been the case.
Although increases in tax (in particular direct taxes) are generally regarded as anti-growth, one could argue that at this juncture they will contribute indirectly to higher economic growth by helping to maintain South Africa’s credit ratings and in that way prevent an increase in the cost of capital. The choice of taxes through which to raise the required additional revenue will nevertheless have to be exercised carefully to minimise any anti-growth bias.
The tax increases to be announced will in a sense be ad hoc in nature to address the current pressing problem of stabilising the government debt/GDP ratio. However, they will have to be contemplated within the context of the longer-term, fundamental tax reform envisaged at the time of the appointment of the Davis Tax Committee.
The pronouncements in this connection in the 2016 Budget Review should therefore be noted, viz. “Key considerations include the need to maintain the progressive nature of South Africa’s fiscal system and ensure that tax measures do not unduly prejudice economic growth or poor households.” Furthermore, “In future, the balance between taxes on income (direct taxes) and consumption (indirect taxes) will be an important consideration in ensuring a diversified, equitable and sustainable tax system. “The current mix suggests that there may be greater room to increase indirect taxes, such as VAT. Any proposals along these lines would need to be accompanied by measures to improve the pro-poor character of expenditure programmes so that the fiscal system remains progressive.” The comment about a possible increase in the VAT rate contrasts with the recent statement by Judge Davis that an increase in VAT would be inappropriate at this point in time, but then of course the judge does not make policy. It is therefore not surprising that the tax proposals in the 2016/17 budget relied mainly on increases in indirect taxes to raise additional revenue, but they could not avoid limiting the allowance for fiscal drag to less than what full compensation for inflation would have required (although shunning a further increase in marginal rates of personal income tax after the one percentage point increase in 2015).
So what does this tell us about the possible nature of tax increases in the 2017 national budget? Judging by the principles set out in the 2016 Budget Review as quoted above the emphasis should once again be on indirect taxes, viz. increasing rates for a variety of taxes (e.g. excise taxes and the fuel levy) by more than inflation, but also looking at broadening the indirect tax base by the introduction of new taxes such as the proposed sugar tax. The problem is that the amount of additional revenue (R28bn) required at this point in time is probably too large to raise the lion’s share of it from indirect taxes without increasing the VAT rate. The comments from the National Treasury quoted above indicate that they have accepted the eventual inevitability of a higher VAT rate, but one must acknowledge that there will always be political push-back against this because of the alleged regressive nature of an increase in the VAT rate (ignoring the World Bank’s finding that the way South Africa’s VAT regime is structured results in it actually being progressive).
Oddly enough, the regressiveness of increases in other indirect taxes does not get a mention.
A key question is how the expenditure side can be made even more pro-poor as envisaged in order to make an increase in the VAT rate politically more palatable. For this reason any compensating adjustment will have to be visible and its effect demonstrable. One possibility would be an ad hoc increase in social grants coinciding with an increased VAT rate becoming effective, but then one should guard against diluting the revenue gain from an increased VAT rate too much. For example, a one percentage point increase in the VAT rate will result in approximately R22bn in additional tax revenue in the first year. If all social grants were simultaneously increased by 1% (which would amount to overcompensating for the higher VAT rate) it would cause a revenue loss of approximately R1.5bn, resulting in a net increase in tax revenue of approximately R20.5bn. This would be enough to almost close the tax gap, while the remainder could be raised from routine adjustments to other indirect taxes and tweaking the allowance for the effect of fiscal drag.
Without an increase in the VAT rate, increases in income and wealth-related taxes (capital gains tax is to my mind closer in character to a wealth tax than an income tax), including adjustments to marginal rates of personal income tax, will be unavoidable. (An increase in corporate taxes, although politically popular, would be extremely unwise given the imperative of raising South Africa’s growth rate.) If this route is chosen, income taxes should only be raised in so far as they fit into government’s longer-term strategic view of the future tax system. By now government should already have a sense of how it will respond to the work of the Davis Tax Committee, and any tax changes at this stage should not be contradictory to the anticipated response. Tax reform should be aimed at broadening the tax base in order to enhance the possibilities for lower tax rates, rather than politically expedient tax increases aimed at plucking the goose to get the maximum amount of feathers with the least amount of hissing (with due acknowledgement to Jean-Baptiste Colbert).
In view of South Africa’s highly unequal distribution of income and wealth a markedly progressive tax system is not only inevitable but also justifiable as a matter of principle. However, one should bear in mind that directing government expenditure towards pro-poor items is an even more powerful tool for redistribution. As a rule many South Africans are inclined to uncritically revert to “the rich must pay” (to put it in populist terms) whenever the issue of financing public expenditure is raised. The cumulative extent of all redistributionary measures are rarely considered and although the disincentive effect of any single measure may not be that great, together it may well add up to having a significant influence, e.g. on the international mobility of high-skilled labour. Given the amount of extra tax revenue required, an increase of at least 2 percentage points in marginal tax rates would be a reasonable expectation if the bulk of the required additional revenue was to come from increased personal income tax.
The final answer will depend on how much allowance is made for fiscal drag, if any, and whether the lowest marginal rate (18%) will again escape from being increased as in 2015.
Source: m.news24.com
eFiling Profile Hacking
VISIT YOUR NEAREST SARS BRANCH TO VERIFY CHANGES TO YOUR PERSONAL
Some taxpayers recently received messages from SARS about the changing of their personal details. If you received this message (and to ensure that the resultant changes are not fraudulent) you are kindly requested to visit your nearest SARS branch as soon as possible with the following supporting documents:
- Valid original or temporary Identification Document (Green ID book / new ID card / Original Passport/ Driver’s Licence) and a certified copy thereof;
- Original stamped bank statement not more than three months old that confirms the account holder’s legal name, bank name, account number, account type and branch code, where applicable, or where a new bank account was opened in the past 30 days and a bank statement cannot be produced, an original letter from the bank not older than one month on the bank letterhead with the original bank stamp reflecting the date the bank account was opened;
- Copy/original proof of residential address or completed CRA01 in the case of proof of residential address that is in the name of a third party; and
- Power of Attorney in the case where a registered tax practitioner/representative visit the branch to request the stopper to be lifted on behalf of the taxpayer.
For enquiries, please call the SARS Contact Centre on 0800 00 7277.
Sugar Tax Could Include Pure Fruit Juices – National Treasury
South Africa could add pure fruit juices to the list of drinks expected to face a levy under a proposed tax on sugary drinks, the Treasury has said, in a country where more than half of adults are overweight.
In his budget speech in February, Finance Minister Pravin Gordhan proposed the tax on sugary drinks to be implemented in April next year, aimed at fighting growing obesity in the continent’s most lucrative market for Coca-Cola.
Health campaigners have welcomed the tax, citing obesity in South Africa, where 42% of women and 13% of men are categorised as obese.
The proposal initially exempted beverages containing natural or intrinsic sugars found in unsweetened milk and milk products and 100% pure fruit juices from the 20% tax, but officials have recently reconsidered their decision citing similar health risks to drinks with added sugar.
“Many health experts argued that 100% fruit juice should also be subject to the tax, as the natural sugar level it contains has the same or very similar negative health consequences as that of sugar added in soft drinks,” the National Treasury said in an emailed response to Reuters.
Chairman of South African Fruit Juice Association, Johan de Kock, said the big difference between fruit juices and some of the other beverages is that fruit juices contain a lot of nutritional value in vitamins and minerals.
“We believe the health benefits of 100% fruit juice outweighs the fruit sugar that it contains,” De Kock said, adding that his group had not been formally informed about the tax on pure fruit juice.
The Treasury said it will debate the proposed tax, including the inclusion of pure fruit juice, during a meeting in November.
The proposed tax on sugary drinks has been opposed by business lobby groups who argue that the tax will impact the economy by hurting soft drink producers and cutting jobs.
If the proposed law is passed, South Africa will join Mexico, France and Hungary in introducing taxes on sugary drinks to fight obesity. Britain also plans to launch the tax.
Source – www.engineeringnews.co.za
The Status of SARS’ Interpretation Notes
A recent case before the Supreme Court of Appeal (CSARS v Marshall NO and Others (816/2015) [2016] ZASCA 158 (3 October 2016)) involved the question of whether or not actual supplies by a designated entity to the Western Cape Department of Health qualified for the zero rating under section 11(2)(n) read with section 8(5) of the VAT Act. The court, in arriving at its decision that the actual supply does not qualify for the zero rating and that only unrequited or gratuitous payments could qualify, refers to SARS’ Interpretation Note 39 which explains the reasoning behind section 8(5) and section 11(2)(n) of the VAT Act.
After quoting extensively from the Interpretation Note, the following statement is made Dambuza JA in delivering the unanimous decision of the SCA (at 33):
“These Interpretation Notes, though not binding on the courts or a taxpayer, constitute persuasive explanations in relation to the interpretation and application of the statutory provision in question. Interpretation Note 39 has been in circulation for years and has not been brought into contention until now.”
It is unclear what exactly is meant with the words “persuasive explanations” but at the very least, it suggest that SARS’ Interpretation Notes does carry some form of weight in legal proceedings. The exact legal basis for this is, however, not clear from the judgment, despite the footnote reference to “P de Koker and RC Williams Silke on South African Income Tax [Service Issue 57, 2016] at § 18.270”. It may be argued that this statement by the Supreme Court of appeal does to some extent elevate a SARS opinion on the correct application of the law in the form of an Interpretation Note above that of, for example a taxpayer.
There definitely appears to be a trend in our courts to place reliance on SARS’ Interpretation Notes. This year alone, the Tax Court in ABC (Pty) Ltd v C:SARS (13539/ 13673) (dealing with the income tax treatment of grants) and RTCC v C:SARS VAT1345 (dealing with input tax claims on a motor vehicle) placed reliance on SARS’ Interpretation 59 and Interpretation Note 82 respectively in delivering judgment.
While it is accepted that SARS’ Interpretation Notes indeed go out for comment by the public and before they are published, it begs the question as to whether what is in essence a peer review process is sufficient to elevate an opinion to have weight in law.
It is, further, trite that SARS is not bond to their own Interpretation Notes. Taxpayers are accordingly in a very uncertain position as to whether or not , when and to what extent reliance should be placed on SARS’ interpretation notes.
Taxpayers would be well advised to exercise caution when relying on SARS’ Interpretation Notes.
Launch of Special Voluntary Disclosure Programme (SVDP)
National Treasury released the following media statement on the special VDP for offshore assets.
For access to the entire media statement, please click here.
SARS have also updated the guide for special VDP, please click here to access the guide.
Interestingly, the last version of the bill that proposed to include to the special VDP required a 50% inclusion of the highest market value of the offshore assets prior to 2015. Both the SARS guide and the National Treasury Media release refers to a 40% inclusion rate. In addition, the current version of the bill that seeks to introduce the special VDP into law states that the window period for applications will be 1 October 2016 to 31 March 2017, while the SARS guide indicates that the window period will be 1 October 2016 to 31 June 2017.
While the functionality for the special VDP is available on e-filing, the law is not yet in place to back it up. These are uncertain times and taxpayers would be well advised to proceed with caution.
5 Year Period to Claim Input Tax Repealed?
When the Minister of Finance announced in the 2016 budget speech that the ability to claim input tax credits within 5 years will be revisited, taxpayers and tax practitioners alike waited with great anticipation to see if the proposal found its way into the draft bills so as to comment on why this should most definitely not happen.
When the 2016 Draft Tax Administration Laws Amendment Bill was published for public comment, the Draft Memorandum of Objects on that draft bill indicated that:
“It is proposed that an input tax deduction be limited in certain instances to the tax period in which the time of supply occurred.”
However, most stakeholders were left scratching their heads as the actual draft bill proposed no amendments to the proviso to section 16(3) of the VAT Act and which allows the 5 year time period to claim input taxes. The only proposed changes in the actual draft bill was to reinsert section 44 into the VAT Act.
The confusion was however eventually put to rest with the response document from National Treasury and SARS in which the following statement was made:
“The Memorandum of Objects will be amplified to clarify that the proposed amendment does not limit input tax claims to the tax period in which the supply occurred…”
Accordingly, as it stands at the moment the 5 year period to claim input tax is not being changed.
Input Tax Without Valid Tax Invoice
The South Atlantic Jazz festival case (“Jazz festival case”) put into a motion a series of changes to the VAT legislation, more specifically, as to when an input tax claim can be made without a proper tax invoice. In short, the taxpayer in the South Atlantic Jazz festival case was successful in a dispute against SARS to claim an input tax credit without a valid tax invoice.
It came as no surprise when the legislation was subsequently changed in 2015 by section 25 of the 2015 Taxation Laws Amendment Act to effectively delete the provision successfully relied upon by the taxpayer in the Jazz Festival case. Not all was however lost – consolation was left for taxpayers seeking the same relief as was offered to the taxpayer in the Jazz Festival case. The consolation, however, came on SARS’ terms as taxpayers seeking an input tax deduction without a valid tax invoice can continue to seek an input tax deduction, provided:
• Certain circumstances prescribed by SARS exists; and
• The taxpayer is in possession of certain documents prescribed by SARS.
During 2016, SARS published two draft binding general rulings setting out (a) what the circumstances are that must be present and (b) what the prescribed documents are to claim an input tax credit without a proper tax invoice.
The circumstances under which taxpayers could seek this special relief would, based on the draft binding general ruling exist if:
• The taxpayer exhausted all remedies to obtain a valid invoice;
• All taxes and returns must be up to date; and
• The period in which the claim is sought falls on or after 1 April 2016
The documents prescribed per the other draft binding general ruling were essentially documents allowing all elements of a valid tax invoice to be identified.
The 2016 Draft Tax Administration Laws Amendment Bill however proposed to delete the above consolation and replace it with, what is arguably, a more restrictive one.
Per clause 24(1)(b) of the Draft Taxation Laws Amendment Bill, a taxpayer seeking an input tax deduction without a valid tax invoice must apply for a ruling from SARS before the taxpayer can claim an input tax credit and further states that SARS can only issue a ruling if:
• The taxpayer has taken reasonable steps to obtain a valid tax invoice; and
• No other provision in the VAT Act allows a deduction of the input VAT.
If the proposed change makes it into the final Act, which seems likely at this stage, it is evident that taxpayer’s will, with effect from 1 April 2016, need to apply for a ruling to get an input tax deduction if not in possession of a valid tax invoice.
Comments submitted on the proposed section to the effect that rulings are often administratively burdensome and the ruling process takes long were met with reassurance in the SARS and National Treasury Response Document that SARS has capacity to deal with applications in this regard. In addition, it would appear that rulings of this nature will be processed by SARS within 2 months, a somewhat shortened period.
Given our experience with ruling applications, we are skeptical that a ruling process will be practical in this space, however, we understand the policy rationale for the proposed change.
Taxpayers will be well advised to seek professional advice should they wish to rely on the new provision going forward.