- Steven Jones - Moneyweb Tax
If services are rendered that income will be taxed whether it is a tip for waitressing, voluntary bonuses or rewards for information.
Sub-paragraph (c) of the definition of “gross income” as contained in Section 1 of the Income Tax Act stipulates that gross income includes “any amount, including any voluntary award, received or accrued in respect of services rendered”. In simple English, this means that any amount that you receive is potentially subject to tax if it can in any way be linked to a service that you render.
It also makes no difference whether there is a contractual obligation for payment in respect of such services, or whether the payment is voluntary - the fact that an amount is received is sufficient for it to fall within this section. The defining criterion is the rendering of services.
Now on the face of it, this topic may seem obvious and not worthy of further discussion. After all, you render services, you are paid for those services, and therefore you should be taxed on such payment received. End of discussion.
Well ... not quite.
In a 2002 court case, Commissioner: South African Revenue v Kotze [64 SATC 447], the taxpayer provided information to the South African Police Service with information regarding illegal diamond dealings, for which a reward of R200 000 was paid. While the Special Tax Court held that such amount did not relate to services rendered and was therefore not taxable, the Cape High Court decided otherwise and the amount did indeed form part of the taxpayers gross income.
The judgement indicated that while the motivation for the taxpayer making the telephone call to the police may well have been to avoid being implicated in the crime and thereby suffering damage to his reputation, the payment had nothing to do with this motivation. It was paid directly as a result of the service rendered, ie, the information provided. The link is straight-forward: No information, no reward.
Other situations that fall within this paragraph include voluntary bonuses, gratuities received by waiters, and similar payments. The question one needs to ask here is: Would the payment have been received if a service had not been rendered? In the case of tipping waiters, clearly one would not tip a waiter unless they were a restaurant patron, and then only to the person who waited upon them. Clearly the waiter cannot expect a gratuity if they havent actually provided any service.
However, the situation is not always cut and dried, and the following example hits somewhat close to home, considering my current position as a minister in the Methodist Church. This situation concerns payment to clergy, but can also apply to internships whereby the amount paid is intended to cover ones cost of living, rather than a salary in the regular sense of the word.
A long-held argument is that since ministers receive a stipend (living allowance), and not a salary per se, such amounts should not form part of gross income. This argument has long been settled on the basis that such payment would not accrue unless the recipient actually rendered services as clergy. Clearly there is a direct link between the stipend paid and the services rendered, and (unfortunately for me) calling it a stipend instead of a salary does not change its nature as far as tax is concerned.
Fair enough, one may say - “render unto Caesar that which is Caesars”, and all that. However, as many a minister has found, congregations include quite generous folk who want to care for their minister. The question is where that fine line is between payments for services rendered, and acts of generosity? In this case, the link between services rendered and amounts received is less clear-cut.
Let me say at the outset that I dont believe that Sars is too concerned that Aunty Mabel blesses her minister with a chocolate cake every second week. Nor, for that matter, would I imagine that Sars Commissioner Pravin Gordhan would lose any sleep over the fact that a minister may be invited for lunch from time to time by one of their congregants. However, payments for funerals and weddings may be another matter entirely, since the minister has clearly rendered a service by conducting such wedding or funeral. Where these amounts are nominal, there may not be too much hassle, but if they were to become substantial...
The counter-argument, of course, is that people often give gifts as an expression of gratitude. This is not only limited to the ministry, either - I once received a wonderful fruit basket from a client for whom I managed to sort out a long-standing query with Sars. My fee for time spent in sorting out the query was naturally raised in my books and declared, but should I have declared the value of the “thank-you” gift?
Of course, such a situation can be abused, and a situation whereby the service provider arranges to charge, say, R50 for the service plus a cash “gift” of R5 000, would be a clear-cut case of tax evasion. However, when it comes to the normal courtesies extended between people, one cant help wondering how far Sars would want to take it if push came to shove?
Thursday, May 7, 2009
A Tax Risk Management Consultancy To Have on Your Side
- Tax Risk Management Services
The tax consultancy of Daniel Erasmus (who is a senior tax consultant in the USA, South Africa and Europe) has undergone a brand name change, in line with the globalisation of Erasmus’ tax practice. Erasmus’ firm Daniel Erasmus Tax Consulting has been re-launched and introduced into the marketplace as the new “Tax Risk Management Services” (TRM Services) in association with the law firm he founded (16 years ago) EFG Attorneys Inc.
Erasmus and his team are now operating internationally and also known as the tax S.W.A.T team by multi-nationals, assisting in tax audit management and resolution, not only in South Africa and Africa, but in Europe and abroad. They apply a set of well oiled international principles that get results – they have solved client tax problems valued in excess of R10bn in the last few years.
Daniel Erasmus Consulting, now “Tax Risk Management Services” (TRM Services) has a successful track record in Tax Risk Management, Tax Uncertainties, Tax Advice, Tax Alternate Dispute Resolution, Tax Court and Tax planning, and has risen to the top of in its sector of expertise.
Erasmus has a team of Tax Consultants worldwide, available through satellite offices and associations in New York, West Palm Beach, Johannesburg, Cape Town, London and Port Louis in Mauritius.
“Tax Risk Management Services” (TRM Services) will be hosting a series of seminars and workshops on Tax Risk Management in Business in South Africa in June, August, and November 2009. Details of these will be made available on the TRM Services website: www.dnerasmus.com
As part of a their new launch initiative TRM Services is offering new clients an opportunity to discuss their needs at no cost to them (1 hr no obligation consultation). If you would like to take up this opportunity please contact Razaan Mohammed to make an appointment: Razaan@danielerasmus.co.za (011) 782 - 2751
The tax consultancy of Daniel Erasmus (who is a senior tax consultant in the USA, South Africa and Europe) has undergone a brand name change, in line with the globalisation of Erasmus’ tax practice. Erasmus’ firm Daniel Erasmus Tax Consulting has been re-launched and introduced into the marketplace as the new “Tax Risk Management Services” (TRM Services) in association with the law firm he founded (16 years ago) EFG Attorneys Inc.
Erasmus and his team are now operating internationally and also known as the tax S.W.A.T team by multi-nationals, assisting in tax audit management and resolution, not only in South Africa and Africa, but in Europe and abroad. They apply a set of well oiled international principles that get results – they have solved client tax problems valued in excess of R10bn in the last few years.
Daniel Erasmus Consulting, now “Tax Risk Management Services” (TRM Services) has a successful track record in Tax Risk Management, Tax Uncertainties, Tax Advice, Tax Alternate Dispute Resolution, Tax Court and Tax planning, and has risen to the top of in its sector of expertise.
Erasmus has a team of Tax Consultants worldwide, available through satellite offices and associations in New York, West Palm Beach, Johannesburg, Cape Town, London and Port Louis in Mauritius.
“Tax Risk Management Services” (TRM Services) will be hosting a series of seminars and workshops on Tax Risk Management in Business in South Africa in June, August, and November 2009. Details of these will be made available on the TRM Services website: www.dnerasmus.com
As part of a their new launch initiative TRM Services is offering new clients an opportunity to discuss their needs at no cost to them (1 hr no obligation consultation). If you would like to take up this opportunity please contact Razaan Mohammed to make an appointment: Razaan@danielerasmus.co.za (011) 782 - 2751
Monday, April 20, 2009
New tax method to help small firms
- Sanchia Temkin, Professional Services Editor - Business Day
Many businesses have yet to respond to the opportunities offered by the turnover tax system.
The country’s new turnover tax system will be of benefit to many small and medium-sized enterprises .
The tax system, which was recently launched by the South African Revenue Service (SARS), is expected to reduced the time and cost of submitting tax returns.
“Strangely enough, though, for thousands of small firms the penny has yet to drop,” said Muneer Hassan, project director for tax at the South African Institute of Chartered Accountants , who highlighted the significant potential savings in administration costs at the weekend.
SARS spokesman Adrian Lackay said recently the new tax system was intended to cut red tape and reduce the administrative burden on small businesses. The new tax system was announced by Finance Minister Trevor Manuel in last year’s budget. It is incorporated into the Income Tax Act.
Hassan said micro-businesses would be taxed under a table very different to those which applied to other taxpayers and companies.
SA’s small businesses face the heaviest tax burden when it comes to the time and cost of filing tax returns, according to recent independent research carried out at the request of the SARS and the Treasury.
It costs the average small business R1478 to register, one reason why about 60% of them decide to stay informal. Tax professionals identified provisional tax as the “most burdensome” tax for small businesses, although value-added tax (VAT) was the most expensive and time consuming, the research said.
The new legislation would be available to small businesses with a turnover of up to R1m a year and replaces income tax, provisional tax, capital gains tax and VAT. The tax will be levied on turnover and not the taxable income to which we are all accustomed, Hassan said.
He said this would make life a lot easier for small businesses because the determination of taxable income could be a highly complex exercise. Further, secondary tax on companies, where dividends were less than R200000 annually, would not be applied.
Regarding capital gains tax, the turnover tax would include 50% of the amounts received from the disposal of business assets in taxable turnover. Immovable property would only be included to the extent that it was used for business purposes.
Hassan said the turnover tax was levied annually, from the beginning of March to the end of February of the following year. Payments were to be made in two six-monthly interim, or provisional, payments.
He advised that in order to opt for the turnover tax a business needed to apply before the beginning of the year of assessment and remain in the system for at least three years, unless disqualified.
This year SARS extended the registration date to April 30.
Many businesses have yet to respond to the opportunities offered by the turnover tax system.
The country’s new turnover tax system will be of benefit to many small and medium-sized enterprises .
The tax system, which was recently launched by the South African Revenue Service (SARS), is expected to reduced the time and cost of submitting tax returns.
“Strangely enough, though, for thousands of small firms the penny has yet to drop,” said Muneer Hassan, project director for tax at the South African Institute of Chartered Accountants , who highlighted the significant potential savings in administration costs at the weekend.
SARS spokesman Adrian Lackay said recently the new tax system was intended to cut red tape and reduce the administrative burden on small businesses. The new tax system was announced by Finance Minister Trevor Manuel in last year’s budget. It is incorporated into the Income Tax Act.
Hassan said micro-businesses would be taxed under a table very different to those which applied to other taxpayers and companies.
SA’s small businesses face the heaviest tax burden when it comes to the time and cost of filing tax returns, according to recent independent research carried out at the request of the SARS and the Treasury.
It costs the average small business R1478 to register, one reason why about 60% of them decide to stay informal. Tax professionals identified provisional tax as the “most burdensome” tax for small businesses, although value-added tax (VAT) was the most expensive and time consuming, the research said.
The new legislation would be available to small businesses with a turnover of up to R1m a year and replaces income tax, provisional tax, capital gains tax and VAT. The tax will be levied on turnover and not the taxable income to which we are all accustomed, Hassan said.
He said this would make life a lot easier for small businesses because the determination of taxable income could be a highly complex exercise. Further, secondary tax on companies, where dividends were less than R200000 annually, would not be applied.
Regarding capital gains tax, the turnover tax would include 50% of the amounts received from the disposal of business assets in taxable turnover. Immovable property would only be included to the extent that it was used for business purposes.
Hassan said the turnover tax was levied annually, from the beginning of March to the end of February of the following year. Payments were to be made in two six-monthly interim, or provisional, payments.
He advised that in order to opt for the turnover tax a business needed to apply before the beginning of the year of assessment and remain in the system for at least three years, unless disqualified.
This year SARS extended the registration date to April 30.
Thursday, April 2, 2009
Small businesses VAT headache
- Monique Vanek - Moneyweb Tax
Sarss new registration requirements are making it incredibly onerous for small businesses to comply.
If one had to pinpoint the two big tax issues that are getting up South Africans noses it would be provisional tax (see: Provisional tax: a tax nightmare) and VAT registrations.
According to Colin Wolfsohn, a member of the Saica National Tax Committee, the South African Revenue Services (Sars) new VAT registrations are proving to be incredible onerous for small businesses, making it harder for them to comply. The registration process is causing substantial delays and increasing the cost of registering an entity for VAT significantly, adds Wolfsohn.
Sarss decision to change the VAT registration process in November 2008 followed the discovery of significant VAT fraud last year (see: Sarss employees caught out) after it simplified the registrations process in February 2008. Sars at first became incredibly draconian before backing down (see Sars backtracks on harsh VAT registration ) to the current situation, which has its own problems.
Currently:
1. Applications have to be submitted in person by a vendor, or duly authorised and registered practitioner. These practitioners have to be in possession of a valid practice number. A practitioner must submit an original letter of authority or power of attorney together with the application form, in which they are duly authorised to act on behalf of the vendor.
2. The following validation on new applications are then done by Sars:
a. Completeness of the form - incomplete forms are not processed.
b. Each application has to include proof of identity; a copy of the municipal account of the enterprise and copies of the last three months bank statements or the financial information on which the turnover is based for purpose of VAT registration.
c. Confirmation that the applicant is a valid enterprise. This entails a short interview with a Sars auditor. Sars advises practitioners to either empower themselves with all relevant information relating to the vendor upfront, or to ensure that the vendor is available telephonically to answer any questions Sars may have during the interview.
d. This could be followed up by a site visit to the vendor if required.
Sars also increased the threshold for registering for VAT to R1m of turnover from R300 000 with effect from March 1 2009.
Small businesses which operate from home have found it impossible to prove identification through municipal accounts (as these accounts will be in the name of the owner and not that of the VAT entity), reckons Wolfsohn while new businesses find it difficult to work out what their turnover will be. And yet they have no choice but to some how try and comply. Failure to do so will be regarded as “an offence in terms of section 58 of the VAT Act and as such shall be liable to conviction to a fine or to imprisonment for a period not exceeding 24 months“, says Saicas Muneer Hassan “The entity will also be liable for huge penalties and interest,&rldquo; adds Hassan.
To deal with the crisis, Wolfsohn suggests Sars allow tax practitioners to do some of the verification work and if Sars is concerned about fraud then it should do an audit.
Sarss new registration requirements are making it incredibly onerous for small businesses to comply.
If one had to pinpoint the two big tax issues that are getting up South Africans noses it would be provisional tax (see: Provisional tax: a tax nightmare) and VAT registrations.
According to Colin Wolfsohn, a member of the Saica National Tax Committee, the South African Revenue Services (Sars) new VAT registrations are proving to be incredible onerous for small businesses, making it harder for them to comply. The registration process is causing substantial delays and increasing the cost of registering an entity for VAT significantly, adds Wolfsohn.
Sarss decision to change the VAT registration process in November 2008 followed the discovery of significant VAT fraud last year (see: Sarss employees caught out) after it simplified the registrations process in February 2008. Sars at first became incredibly draconian before backing down (see Sars backtracks on harsh VAT registration ) to the current situation, which has its own problems.
Currently:
1. Applications have to be submitted in person by a vendor, or duly authorised and registered practitioner. These practitioners have to be in possession of a valid practice number. A practitioner must submit an original letter of authority or power of attorney together with the application form, in which they are duly authorised to act on behalf of the vendor.
2. The following validation on new applications are then done by Sars:
a. Completeness of the form - incomplete forms are not processed.
b. Each application has to include proof of identity; a copy of the municipal account of the enterprise and copies of the last three months bank statements or the financial information on which the turnover is based for purpose of VAT registration.
c. Confirmation that the applicant is a valid enterprise. This entails a short interview with a Sars auditor. Sars advises practitioners to either empower themselves with all relevant information relating to the vendor upfront, or to ensure that the vendor is available telephonically to answer any questions Sars may have during the interview.
d. This could be followed up by a site visit to the vendor if required.
Sars also increased the threshold for registering for VAT to R1m of turnover from R300 000 with effect from March 1 2009.
Small businesses which operate from home have found it impossible to prove identification through municipal accounts (as these accounts will be in the name of the owner and not that of the VAT entity), reckons Wolfsohn while new businesses find it difficult to work out what their turnover will be. And yet they have no choice but to some how try and comply. Failure to do so will be regarded as “an offence in terms of section 58 of the VAT Act and as such shall be liable to conviction to a fine or to imprisonment for a period not exceeding 24 months“, says Saicas Muneer Hassan “The entity will also be liable for huge penalties and interest,&rldquo; adds Hassan.
To deal with the crisis, Wolfsohn suggests Sars allow tax practitioners to do some of the verification work and if Sars is concerned about fraud then it should do an audit.
Tuesday, March 31, 2009
How business can qualify for new tax incentives
- How business can qualify for new tax incentives 22 March 2010
Tim Desmond* - Moneyweb Tax
Follow the right procedures and you could claim as much as R900m back in tax for a greenfield project or R550m for a brownfield project.
National Treasury recently released draft regulations relating to tax incentives in support of governments industrial policy strategy. These tax incentives were announced in the 2008 Budget. The Revenue Laws Amendment Act, 2008 then inserted a new section 12I into the Income Tax Act.
The tax incentives comprise additional investment and training allowances for approved industrial policy projects. The projects that will qualify are greenfield and brownfield projects in the manufacturing sector (with some specific exclusions), that will spend certain minimum amounts on manufacturing assets (50% within four years of approval) and will upgrade an industry. There are limitations for companies obtaining other benefits and a requirement for a tax clearance certificate.
The minimum amounts to be spent on manufacturing assets are R200m for greenfields projects and at least R30m for brownfields projects. A project will be regarded as upgrading an industry if it provides skills development and utilises new technology resulting in improved energy efficiency.
If a project meets the qualifying criteria, an adjudication committee will consider its application on a points scoring basis. If five out of ten points are scored, a project will qualify for an additional investment allowance of 35% of the cost of manufacturing assets, up to a maximum of R550m for a greenfield project or R350m for a brownfield project. If eight or more points are scored, a project will have ""preferred status"" and its allowance will increase to 55% and the maximum amount claimable to R900m for a greenfield project or R550m for a brownfield project.
The additional investment allowances can be claimed in the year that the manufacturing assets are brought into use and are in addition to other allowances. If they increase recently incurred assessed losses, such increase may be enhanced by a notional interest amount.
The point scoring criteria cover the following: innovative processes, improved energy efficiency, general business linkages, SMME utilisation, direct employment creation and skills development. Greenfield projects can also score for being located in an industrial development zone.
The total additional investment allowances available under the programme will be R20bn. The cut-off date for applications is December 31 2014.
Training costs incurred for the furtherance of an approved project, within six years of approval, will qualify for an additional training allowance. Such allowance may not exceed R36 000 per employee or a total of R30m for projects approved with preferred status or R20m for those without.
*Tim Desmond is a director of tax and commercial departments at Garlicke & Bousfield Inc
Tim Desmond* - Moneyweb Tax
Follow the right procedures and you could claim as much as R900m back in tax for a greenfield project or R550m for a brownfield project.
National Treasury recently released draft regulations relating to tax incentives in support of governments industrial policy strategy. These tax incentives were announced in the 2008 Budget. The Revenue Laws Amendment Act, 2008 then inserted a new section 12I into the Income Tax Act.
The tax incentives comprise additional investment and training allowances for approved industrial policy projects. The projects that will qualify are greenfield and brownfield projects in the manufacturing sector (with some specific exclusions), that will spend certain minimum amounts on manufacturing assets (50% within four years of approval) and will upgrade an industry. There are limitations for companies obtaining other benefits and a requirement for a tax clearance certificate.
The minimum amounts to be spent on manufacturing assets are R200m for greenfields projects and at least R30m for brownfields projects. A project will be regarded as upgrading an industry if it provides skills development and utilises new technology resulting in improved energy efficiency.
If a project meets the qualifying criteria, an adjudication committee will consider its application on a points scoring basis. If five out of ten points are scored, a project will qualify for an additional investment allowance of 35% of the cost of manufacturing assets, up to a maximum of R550m for a greenfield project or R350m for a brownfield project. If eight or more points are scored, a project will have ""preferred status"" and its allowance will increase to 55% and the maximum amount claimable to R900m for a greenfield project or R550m for a brownfield project.
The additional investment allowances can be claimed in the year that the manufacturing assets are brought into use and are in addition to other allowances. If they increase recently incurred assessed losses, such increase may be enhanced by a notional interest amount.
The point scoring criteria cover the following: innovative processes, improved energy efficiency, general business linkages, SMME utilisation, direct employment creation and skills development. Greenfield projects can also score for being located in an industrial development zone.
The total additional investment allowances available under the programme will be R20bn. The cut-off date for applications is December 31 2014.
Training costs incurred for the furtherance of an approved project, within six years of approval, will qualify for an additional training allowance. Such allowance may not exceed R36 000 per employee or a total of R30m for projects approved with preferred status or R20m for those without.
*Tim Desmond is a director of tax and commercial departments at Garlicke & Bousfield Inc
Wednesday, March 18, 2009
For every door that closes, another opens for BEE
- Paul Austin, Head of Corporate Finance - BDO Spencer Steward
Many of the black economic empowerment (BEE) deals struck in recent years after painstaking negotiations may have to be renegotiated – dealing a blow to the Department of Trade and Industry’s goal for an unencumbered 25 percent of the economy to be in black hands by 2017, according to Werksmans Attorneys and auditors BDO Spencer Steward.
Roughly R41 billion worth of potential BEE deals have been wiped out due to unfavourable trading conditions in the past two years, according to statistics sourced from BEE rating agency Empowerdex. Last year alone the total value of BEE deals sealed on the JSE declined fivefold to R13 billion (from R66 billion in 2007). But the real threat is that deals already struck may begin to unwind.
A solution, according to Morné van der Merwe, Werksmans senior director in the corporate and commercial department, with special focus on M&A, would be for government to consider a bail-out package to ensure no BEE deals fail, and the country remains on target to meet DTI objectives.
Van der Merwe says that a number of BEE deals will undoubtedly be under threat during the current economic slowdown, especially those deals struck in the mining sector at the top of the cycle, as many were last year, to meet the Mining Charter deadline.
“However, I’m confident a large portion of the deals should be safe in light of the fact that a significant number of the latest wave of BEE deals were struck on a vendor-finance basis, using less bank finance than was the case under the model that collapsed during the Nineties market correction.
“We will not see anything like that this time round,” adds van der Merwe. “Vendors tend to be a lot more sympathetic and would rather renegotiate the deal to save it than see it collapse.”
However, many deals (especially the large value deals) were structured using bank and private equity funding.
Paul Austin, Head of Corporate Finance at BDO Spencer Steward in the Cape, says that where bank finance is present in a deal, the structure may be under stress, not so much because of the share price collapse, but due to falling company earnings in an economic slowdown.
“A lot of BEE deals are still financed with debt, and bankers the world over are under pressure to find more security and reduce their exposure to risk.
“Although banks have a substantial exposure to BEE finance, we have not yet seen any deals actually collapse, because there is a degree of robustness in many of the older deals. Even if a share price has collapsed from, say, R500 to R300, if the deal was done in 2005 it is likely to still be in the money. For instance, the original share price might have been R100,” says Austin.
“It would only affect deals either done at the peak of the cycle last year, or where the share price collapse has been of spectacular proportion,” he adds. However, there have been some such spectacular collapses in share price of as much as 94 percent in the case of Super Group. Austin says many of these deals still have a long time horizon in which to recover, and BEE partners are therefore no worse off than other shareholders.
In most deals involving bank finance, a certain rigour was introduced by the banks’ process of due diligence. Austin says although banks have been heavily involved in funding BEE deals, “they never gave anything away, and every deal had to be bankable with their loan capital well secured”.
In the few cases where deals have to be renegotiated, both van der Merwe and Austin see a positive aspect to it: only last September were the Codes of Good Practice finally published, and only in February this year was the final piece of the jigsaw put in place when a verification system was authorised.
Therefore, says Austin, only now can broad-based BEE fully get under way. This means all the earlier deals, while in most cases perfectly valid, did not fully comply with the Codes.
Van der Merwe says any renegotiation therefore offers the opportunity to strike new fully-compliant deals which offer maximum scorecard points, and create the opportunity for more broad-based partners to be brought into any deal.
Van der Merwe says this would align with a financial role by government agencies in supporting vulnerable deals.
“Government has charged agencies such as the Industrial Development Corporation and National Empowerment Fund with supporting BEE, and they could play a role – especially if there was now the opportunity to make them more broad-based – to provide finance or guarantees to such deals, and even facilitate the introduction of specific BBBEE groups,” he says.
“Banks aren’t lending, and government has funds for BBBEE as well as the infrastructure to accomplish it through its development finance institutions. Government really needs to step in here to ensure all the good work achieved in BEE is not undone by factors which started beyond our borders, as well as helping preserving the good parts while improving those aspects deserving of criticism,” says Van der Merwe.
Austin says in the absence of a government bailout or renegotiation, there are few alternatives still open to BEE groups: “It’s very difficult to raise new finance in this market to replace debt, and if you can do so it will most likely be expensive.”
Should the worst happen and some deals collapse, companies might even view this as a benefit, as it would give them the opportunity to negotiate a new deal from scratch – one that complies with the DTI Codes and can now be verified as such by one of the accredited BEE verification agencies, says Austin.
Many of the black economic empowerment (BEE) deals struck in recent years after painstaking negotiations may have to be renegotiated – dealing a blow to the Department of Trade and Industry’s goal for an unencumbered 25 percent of the economy to be in black hands by 2017, according to Werksmans Attorneys and auditors BDO Spencer Steward.
Roughly R41 billion worth of potential BEE deals have been wiped out due to unfavourable trading conditions in the past two years, according to statistics sourced from BEE rating agency Empowerdex. Last year alone the total value of BEE deals sealed on the JSE declined fivefold to R13 billion (from R66 billion in 2007). But the real threat is that deals already struck may begin to unwind.
A solution, according to Morné van der Merwe, Werksmans senior director in the corporate and commercial department, with special focus on M&A, would be for government to consider a bail-out package to ensure no BEE deals fail, and the country remains on target to meet DTI objectives.
Van der Merwe says that a number of BEE deals will undoubtedly be under threat during the current economic slowdown, especially those deals struck in the mining sector at the top of the cycle, as many were last year, to meet the Mining Charter deadline.
“However, I’m confident a large portion of the deals should be safe in light of the fact that a significant number of the latest wave of BEE deals were struck on a vendor-finance basis, using less bank finance than was the case under the model that collapsed during the Nineties market correction.
“We will not see anything like that this time round,” adds van der Merwe. “Vendors tend to be a lot more sympathetic and would rather renegotiate the deal to save it than see it collapse.”
However, many deals (especially the large value deals) were structured using bank and private equity funding.
Paul Austin, Head of Corporate Finance at BDO Spencer Steward in the Cape, says that where bank finance is present in a deal, the structure may be under stress, not so much because of the share price collapse, but due to falling company earnings in an economic slowdown.
“A lot of BEE deals are still financed with debt, and bankers the world over are under pressure to find more security and reduce their exposure to risk.
“Although banks have a substantial exposure to BEE finance, we have not yet seen any deals actually collapse, because there is a degree of robustness in many of the older deals. Even if a share price has collapsed from, say, R500 to R300, if the deal was done in 2005 it is likely to still be in the money. For instance, the original share price might have been R100,” says Austin.
“It would only affect deals either done at the peak of the cycle last year, or where the share price collapse has been of spectacular proportion,” he adds. However, there have been some such spectacular collapses in share price of as much as 94 percent in the case of Super Group. Austin says many of these deals still have a long time horizon in which to recover, and BEE partners are therefore no worse off than other shareholders.
In most deals involving bank finance, a certain rigour was introduced by the banks’ process of due diligence. Austin says although banks have been heavily involved in funding BEE deals, “they never gave anything away, and every deal had to be bankable with their loan capital well secured”.
In the few cases where deals have to be renegotiated, both van der Merwe and Austin see a positive aspect to it: only last September were the Codes of Good Practice finally published, and only in February this year was the final piece of the jigsaw put in place when a verification system was authorised.
Therefore, says Austin, only now can broad-based BEE fully get under way. This means all the earlier deals, while in most cases perfectly valid, did not fully comply with the Codes.
Van der Merwe says any renegotiation therefore offers the opportunity to strike new fully-compliant deals which offer maximum scorecard points, and create the opportunity for more broad-based partners to be brought into any deal.
Van der Merwe says this would align with a financial role by government agencies in supporting vulnerable deals.
“Government has charged agencies such as the Industrial Development Corporation and National Empowerment Fund with supporting BEE, and they could play a role – especially if there was now the opportunity to make them more broad-based – to provide finance or guarantees to such deals, and even facilitate the introduction of specific BBBEE groups,” he says.
“Banks aren’t lending, and government has funds for BBBEE as well as the infrastructure to accomplish it through its development finance institutions. Government really needs to step in here to ensure all the good work achieved in BEE is not undone by factors which started beyond our borders, as well as helping preserving the good parts while improving those aspects deserving of criticism,” says Van der Merwe.
Austin says in the absence of a government bailout or renegotiation, there are few alternatives still open to BEE groups: “It’s very difficult to raise new finance in this market to replace debt, and if you can do so it will most likely be expensive.”
Should the worst happen and some deals collapse, companies might even view this as a benefit, as it would give them the opportunity to negotiate a new deal from scratch – one that complies with the DTI Codes and can now be verified as such by one of the accredited BEE verification agencies, says Austin.
Thursday, March 12, 2009
SARS turns screws on rich tax cheats
- Simpiwe Piliso - Sunday Times
The taxman has unleashed his investigators on some of the country’s richest cheats, who could include banking executives, media barons, IT moguls, sports stars, celebrities and empowerment millionaires.
As part of a major crackdown, SARS has launched a review of the files of more than 600 wealthy individuals, including their family trusts.
Wealthy tax dodgers are short-changing the government’s coffers of billions of rands, leaving ordinary South Africans to carry the can.
SARS spokesman Adrian Lackay said: “SARS is owed billions by people who have the capacity to pay their tax, but choose not to.”
Wealthy individuals are those whose annual income is between R5-million and R40-million, or who have net assets exceeding R75-million.
The files under review include 273 associated entities — such as offshore accounts, private companies or close corporations — 103 trusts and 231 individuals.
Measures used by SARS to check assets against declared income include:
* Agreements with 35 tax havens to improve transparency and establish the effective exchange of information in tax matters; and
* A rigorous lifestyle questionnaire that asks about holidays, flights, restaurants, cellphone bills and shopping habits.
“Any taxpayer who receives a lifestyle questionnaire has ample reason to believe they are under serious investigation for possible tax evasion,” said a statement by Grant Thornton, the specialist tax and advisory services firm.
The questionnaire is sent to an individual as part of a preliminary investigation, which could lead to a search-and-seizure warrant being issued.
However, it is not just these taxpayers who will feel the heat. The taxman has uncovered that there are about 400000 unregistered taxpayers by simply cross-checking IRP5 information, which employers are now compelled to submit.
“These people are employees for which an employer issued an IRP5, but who were not on the SARS register. Therefore, they do not necessarily represent individuals who had not paid tax, but rather those who had failed to register as required,” Lackay said.
Grant Thornton points out in its report, The Tax Line, that the number of people being investigated by the tax authorities has increased significantly in recent years.
And while there are legal tax avoidance measures, independent tax consultant Nathan Endersby warned: “Some large companies and rich individuals are exploring forms of avoidance that they may think are legal, but SARS thinks are illegal.”
These include transferring money to tax havens that facilitate tax avoidance schemes.
Tax havens with which SARS has entered into agreements include the Seychelles, Mauritius, the Bahamas, Bermuda, the Isle of Man, the British Virgin Islands and Liberia.
Investigators said that although a lot of the information had been gleaned from lifestyle surveys , other information to catch tax cheats was based on public information on salaries, bonuses, share options, and the sale and purchase of shares by directors of listed companies.
Notices of company takeovers, new appointments or the retirement of top management officials also provided information.
Lackay said data accessed from the Masters Office, the Deeds Office and the Departments of Home Affairs and Transport were also used.
In addition, records of the sale and purchase of assets such as private jets, wine farms and racehorses also came in handy.
One such example is billionaire entrepreneur Dave King, who is fighting a marathon R2.3-billion claim against SARS.
The claim was sparked by a senior SARS investigator who noticed an Irma Stern painting in King’s mansion in Hyde Park, Johannesburg.
King, who stated that he earned R80000 a year in his tax returns, had snapped up the painting for a record R1.76-million at an auction.
Investigators this week said a lot of the information had been drawn up from lifestyle surveys carried out by Sars, while other information was based on public information on salaries, bonuses, share options and the sale and purchase of shares by directors of listed companies.
Notices of company takeovers, new appointments or the retirement of top management also provided information.
Sars has also been probing HNWI making use of resident and offshore trusts as conduts to redirect revenue in order to reduce their taxable income.
Sars has also collected and compiled information on complex structures used such as trusts, close corporations, syndicates and family companies.
Other information tools used for risk identification and detection purposes, said Lackay, include data accessed from other agencies and government departments, such as the Masters Office, the Deeds office, the Home Affairs Department, the Transport Department.
Also monitored by Sars are the sales and purchases of personal assets such as private jets, wine farms, racehorses and luxury homes and cars.
The public pursuit by tax officials of billionaire Dave King, embroiled in one of SA’s biggest tax claims, is one of the examples of this approach, targeting individuals who lead lavish lifestyles that seem to be at odds with their declared earnings.
A senior Sars investigator, reading a business magazine, noticed as an Irma Stern painting hanging in King’s Hyde Park mansion, north of Johannesburg.
King, who reportedly stated that he earned R80 000 a year in his tax returns, had snapped up the painting for record R1.76-million at an auction.
Realising that King had also applied to be deregistered as a taxpayer, investigator Charles Chipps, wrote to King asking him, among other questions, why it was that with only R80 000 a year “declared income”, he had bought the Irma Stern painting and wine farms in the Western Cape.
King, who is facing a tax claim of R2.3-billion (comprising of R913-million in personal tax and R1.4-billion for his trust, Ben Nevis) was arrested in May 2002 and faced 322 criminal charges.
The taxman has unleashed his investigators on some of the country’s richest cheats, who could include banking executives, media barons, IT moguls, sports stars, celebrities and empowerment millionaires.
As part of a major crackdown, SARS has launched a review of the files of more than 600 wealthy individuals, including their family trusts.
Wealthy tax dodgers are short-changing the government’s coffers of billions of rands, leaving ordinary South Africans to carry the can.
SARS spokesman Adrian Lackay said: “SARS is owed billions by people who have the capacity to pay their tax, but choose not to.”
Wealthy individuals are those whose annual income is between R5-million and R40-million, or who have net assets exceeding R75-million.
The files under review include 273 associated entities — such as offshore accounts, private companies or close corporations — 103 trusts and 231 individuals.
Measures used by SARS to check assets against declared income include:
* Agreements with 35 tax havens to improve transparency and establish the effective exchange of information in tax matters; and
* A rigorous lifestyle questionnaire that asks about holidays, flights, restaurants, cellphone bills and shopping habits.
“Any taxpayer who receives a lifestyle questionnaire has ample reason to believe they are under serious investigation for possible tax evasion,” said a statement by Grant Thornton, the specialist tax and advisory services firm.
The questionnaire is sent to an individual as part of a preliminary investigation, which could lead to a search-and-seizure warrant being issued.
However, it is not just these taxpayers who will feel the heat. The taxman has uncovered that there are about 400000 unregistered taxpayers by simply cross-checking IRP5 information, which employers are now compelled to submit.
“These people are employees for which an employer issued an IRP5, but who were not on the SARS register. Therefore, they do not necessarily represent individuals who had not paid tax, but rather those who had failed to register as required,” Lackay said.
Grant Thornton points out in its report, The Tax Line, that the number of people being investigated by the tax authorities has increased significantly in recent years.
And while there are legal tax avoidance measures, independent tax consultant Nathan Endersby warned: “Some large companies and rich individuals are exploring forms of avoidance that they may think are legal, but SARS thinks are illegal.”
These include transferring money to tax havens that facilitate tax avoidance schemes.
Tax havens with which SARS has entered into agreements include the Seychelles, Mauritius, the Bahamas, Bermuda, the Isle of Man, the British Virgin Islands and Liberia.
Investigators said that although a lot of the information had been gleaned from lifestyle surveys , other information to catch tax cheats was based on public information on salaries, bonuses, share options, and the sale and purchase of shares by directors of listed companies.
Notices of company takeovers, new appointments or the retirement of top management officials also provided information.
Lackay said data accessed from the Masters Office, the Deeds Office and the Departments of Home Affairs and Transport were also used.
In addition, records of the sale and purchase of assets such as private jets, wine farms and racehorses also came in handy.
One such example is billionaire entrepreneur Dave King, who is fighting a marathon R2.3-billion claim against SARS.
The claim was sparked by a senior SARS investigator who noticed an Irma Stern painting in King’s mansion in Hyde Park, Johannesburg.
King, who stated that he earned R80000 a year in his tax returns, had snapped up the painting for a record R1.76-million at an auction.
Investigators this week said a lot of the information had been drawn up from lifestyle surveys carried out by Sars, while other information was based on public information on salaries, bonuses, share options and the sale and purchase of shares by directors of listed companies.
Notices of company takeovers, new appointments or the retirement of top management also provided information.
Sars has also been probing HNWI making use of resident and offshore trusts as conduts to redirect revenue in order to reduce their taxable income.
Sars has also collected and compiled information on complex structures used such as trusts, close corporations, syndicates and family companies.
Other information tools used for risk identification and detection purposes, said Lackay, include data accessed from other agencies and government departments, such as the Masters Office, the Deeds office, the Home Affairs Department, the Transport Department.
Also monitored by Sars are the sales and purchases of personal assets such as private jets, wine farms, racehorses and luxury homes and cars.
The public pursuit by tax officials of billionaire Dave King, embroiled in one of SA’s biggest tax claims, is one of the examples of this approach, targeting individuals who lead lavish lifestyles that seem to be at odds with their declared earnings.
A senior Sars investigator, reading a business magazine, noticed as an Irma Stern painting hanging in King’s Hyde Park mansion, north of Johannesburg.
King, who reportedly stated that he earned R80 000 a year in his tax returns, had snapped up the painting for record R1.76-million at an auction.
Realising that King had also applied to be deregistered as a taxpayer, investigator Charles Chipps, wrote to King asking him, among other questions, why it was that with only R80 000 a year “declared income”, he had bought the Irma Stern painting and wine farms in the Western Cape.
King, who is facing a tax claim of R2.3-billion (comprising of R913-million in personal tax and R1.4-billion for his trust, Ben Nevis) was arrested in May 2002 and faced 322 criminal charges.
Wednesday, March 4, 2009
New dividends tax brings both simplicity and complexity
- Ernest Mazansky, Director - Werksmans Attorneys
South Africa has just fallen in line with international tax trends with the introduction of a dividends tax to replace the secondary tax on companies (STC), a move likely to make South Africa a more attractive foreign investment destination.
However, while this may simplify tax from the perspective of foreign investors, and go some way to attracting capital flows, for local companies it introduces a number of complexities, says Ernest Mazansky, head of Werksmans tax practice.
Speaking at a recent Werksmans-hosted tax seminar, he described the major difference as lying in who pays the tax. “Conceptually we have moved away from a company tax to an effective tax on shareholders payable on the distribution of dividends by a company,” he told seminar delegates.Dear Janine Connor,
Of interest to local companies is that the South African Revenue Service (SARS) acceded to pressure to give credit for the many millions in STC credits that are currently on the books of South African companies.
“This was a sensitive issue for companies that had already paid the 10% STC and now their shareholders will have to pay another 10% dividends tax. The tax amendment now allows companies in effect to off set the amount of STC paid, as a credit against dividends tax for a period of 5-years. But they have to notify shareholders of the deduction. Failure to do so effectively results in their having to pay double tax. If you don’t notify all shareholders, you cannot use the STC credit as far as those shareholders are concerned,” said Mazansky.
The new tax further extends the principle of directors’ liability. The new legislation has more teeth in that it deems certain executive directors and shareholders of an unlisted company that fails to withhold the tax, liable for the dividends tax. Directors of private companies need to take special care as they are personally liable where the dividends tax is not withheld and paid by that company.
“This is nothing new, but continues the disturbing trend of eroding the concept of limited liability for companies,” said Mazansky.
The dividends tax rate will remain at 10%, as is currently the case with STC, and not being company tax but a dividends tax payable by the shareholder, the effective South African company tax rate is now simplified and fixed at 28%.
Mazansky said this places our company tax rate on a par with international practice, is familiar to international investors and will assist in the creation of tax certainty for foreigners.
Under the previous STC regime, a company declaring dividends had an effective tax rate of around 35%, when one added the STC to the corporate tax rate.
Under the new system, South African shareholders will pay a slightly higher effective rate of tax than under STC because the dividend is now declared exclusive of any dividends tax. For example, if a dividend of R100,000 is declared, under STC, that R100,000 is deemed to include the STC. The calculation can simply be described as R100,000 x 10/110 which results in STC of R9,090, leaving a net dividend for distribution to the shareholder of R90,909. Under the new system, the R100,000 will attract a dividend tax of 10%, which is R10,000, and will result in a net dividend of R90,000. The shareholder receives R909 less as a dividend.
The treatment for foreign shareholders may be different: many countries have double taxation treaties with South Africa. In terms of about seven of them, their residents who are shareholders will not pay the dividends tax. Mazansky said these agreements were largely already re-negotiated, and only awaited signing and ratification, something that was expected to be completed between late-2009 and early-2010 – hence the delay in implementing the new tax. Government has indicated that it is quite happy with a reduction in the rate to 5% for certain foreign shareholders under South Africa’s treaties with other countries.
The areas of complexity introduced by the amendment include: the introduction of a class of exempt organisations; the simplified definition of ‘dividend’; and the introduction of a concept of ‘contributed tax capital’ (CTC) which now gets introduced into the legislation.
“The dividends tax will be payable on the payment of any dividend declared by a company, subject to certain exemptions. Most importantly, the exemption applies where the dividend is declared to another resident company, thereby eliminating the payment of dividends tax on inter-company dividend distributions. This will assist groups of companies tremendously and will avoid unnecessary administration,” said Mazansky.
Another exemption is made for dividend distributions to exempt entities, such as Public Benefit Organisations (PBOs) and by ‘very small businesses’, provided the dividend declared does not exceed R200,000 a year.
The concept of CTC means that companies will now effectively have to maintain a ‘tax balance sheet’ as well as the usual accounting balance sheet. Mazansky described this as one of the complexities of the amendment, with questions as to whether smaller companies could manage such dual accounting, and whether the SARS had the capacity to police it.
The effective date of the new dividends tax is yet to be determined by the Minister of Finance, Trevor Manuel.
South Africa has just fallen in line with international tax trends with the introduction of a dividends tax to replace the secondary tax on companies (STC), a move likely to make South Africa a more attractive foreign investment destination.
However, while this may simplify tax from the perspective of foreign investors, and go some way to attracting capital flows, for local companies it introduces a number of complexities, says Ernest Mazansky, head of Werksmans tax practice.
Speaking at a recent Werksmans-hosted tax seminar, he described the major difference as lying in who pays the tax. “Conceptually we have moved away from a company tax to an effective tax on shareholders payable on the distribution of dividends by a company,” he told seminar delegates.Dear Janine Connor,
Of interest to local companies is that the South African Revenue Service (SARS) acceded to pressure to give credit for the many millions in STC credits that are currently on the books of South African companies.
“This was a sensitive issue for companies that had already paid the 10% STC and now their shareholders will have to pay another 10% dividends tax. The tax amendment now allows companies in effect to off set the amount of STC paid, as a credit against dividends tax for a period of 5-years. But they have to notify shareholders of the deduction. Failure to do so effectively results in their having to pay double tax. If you don’t notify all shareholders, you cannot use the STC credit as far as those shareholders are concerned,” said Mazansky.
The new tax further extends the principle of directors’ liability. The new legislation has more teeth in that it deems certain executive directors and shareholders of an unlisted company that fails to withhold the tax, liable for the dividends tax. Directors of private companies need to take special care as they are personally liable where the dividends tax is not withheld and paid by that company.
“This is nothing new, but continues the disturbing trend of eroding the concept of limited liability for companies,” said Mazansky.
The dividends tax rate will remain at 10%, as is currently the case with STC, and not being company tax but a dividends tax payable by the shareholder, the effective South African company tax rate is now simplified and fixed at 28%.
Mazansky said this places our company tax rate on a par with international practice, is familiar to international investors and will assist in the creation of tax certainty for foreigners.
Under the previous STC regime, a company declaring dividends had an effective tax rate of around 35%, when one added the STC to the corporate tax rate.
Under the new system, South African shareholders will pay a slightly higher effective rate of tax than under STC because the dividend is now declared exclusive of any dividends tax. For example, if a dividend of R100,000 is declared, under STC, that R100,000 is deemed to include the STC. The calculation can simply be described as R100,000 x 10/110 which results in STC of R9,090, leaving a net dividend for distribution to the shareholder of R90,909. Under the new system, the R100,000 will attract a dividend tax of 10%, which is R10,000, and will result in a net dividend of R90,000. The shareholder receives R909 less as a dividend.
The treatment for foreign shareholders may be different: many countries have double taxation treaties with South Africa. In terms of about seven of them, their residents who are shareholders will not pay the dividends tax. Mazansky said these agreements were largely already re-negotiated, and only awaited signing and ratification, something that was expected to be completed between late-2009 and early-2010 – hence the delay in implementing the new tax. Government has indicated that it is quite happy with a reduction in the rate to 5% for certain foreign shareholders under South Africa’s treaties with other countries.
The areas of complexity introduced by the amendment include: the introduction of a class of exempt organisations; the simplified definition of ‘dividend’; and the introduction of a concept of ‘contributed tax capital’ (CTC) which now gets introduced into the legislation.
“The dividends tax will be payable on the payment of any dividend declared by a company, subject to certain exemptions. Most importantly, the exemption applies where the dividend is declared to another resident company, thereby eliminating the payment of dividends tax on inter-company dividend distributions. This will assist groups of companies tremendously and will avoid unnecessary administration,” said Mazansky.
Another exemption is made for dividend distributions to exempt entities, such as Public Benefit Organisations (PBOs) and by ‘very small businesses’, provided the dividend declared does not exceed R200,000 a year.
The concept of CTC means that companies will now effectively have to maintain a ‘tax balance sheet’ as well as the usual accounting balance sheet. Mazansky described this as one of the complexities of the amendment, with questions as to whether smaller companies could manage such dual accounting, and whether the SARS had the capacity to police it.
The effective date of the new dividends tax is yet to be determined by the Minister of Finance, Trevor Manuel.
Thursday, February 26, 2009
New Income Tax Penalty Regulations
The new s75B ITA authorises a unified fixed-amount penalty regime for all forms of non-compliance, e.g. late filing of returns. The actual penalties are contained in separate Regulations published by SARS.
The new Regulations came into effect on 1 January 2009, and apply to all instances of non-compliance occurring on or after 1 January 2009. In the case of pre-existing non-compliance (e.g. matters that were already overdue before 31 December 2008), the new penalty regulations will apply from 1 April 2009.
The Regulations apply only to the Income Tax Act, and would thus also cover other taxes like Donations Tax and STC (etc.), but not VAT and Estate Duty (etc.), which are taxes governed by other Acts.
The regulations authorise SARS (at its discretion) to impose the following penalties per month, depending on the taxpayer’s previous year’s taxable income:
** see http://www.etaxes.co.za/docs/TaxAlert9Feb.pdf for table
The first incidence of the penalty is triggered on the date of the non-compliance. If the non-compliance is not fixed within 30 days, the penalty is levied again successively every month. In this respect, there is a clear intention to penalise more severely taxpayers who do not inform SARS of address changes, i.e. current address details are not on record with SARS or if SARS is unable to deliver the penalty assessment:
** see http://www.etaxes.co.za/docs/TaxAlert9Feb.pdf for table
These fixed-amount penalties are separate from the percentage-based penalties that might also apply in some cases.
Two categories of companies will never pay less than the Category (vii) penalty (R8,000 per month) even if they have an assessed loss, namely:
* all listed companies (and their “group” companies); and
* any company whose gross receipt/accruals exceeded R500m in the previous year (or any other companies in its “group”).
An exception exists for companies that did not trade for the entire previous tax year
(Note that the “group” definition for tax purposes requires, inter alia, a 70% holding.)
The actual non-compliance being targeted (i.e. triggering the penalties listed above) is as follows :
a. failure to register as required by the ITA (e.g. as a taxpayer, employer etc);
b. failure to notify SARS of a change in address;
c. failure by a company to appoint a public officer, domicilium, etc.;
d. failure to submit a return or other required documents/information;
e. failure to make available required information, etc.;
f. failure to reply to or answer a question when required;
g. failure to attend and give evidence when required;
h. failure by an employer to notify SARS of a change of address or the fact of having ceased to be an employer;
i. failure by an employer to submit a monthly declaration of employees’ tax;
j. failure by an employer to provide details of an employee;
k. failure to deliver an employees’ tax certificate to one or more employees as and when required by the ITA;
l. delivery by an employer of an employees’ tax certificate without first rendering an employees’ tax return;
m. failure by a provisional taxpayer to submit an estimate of taxable income as and when required under the Act;
or
n. any other non-compliance with an obligation imposed under the ITA.
Note that these fixed-amount penalties are separate from the percentage-based penalties that might also apply in some cases (e.g. 10% for late payment of provisional tax).
There are also several other rules in the regulations, dealing with (for example) procedures, possible remittance of penalties, objection, and so forth.
The new Regulations came into effect on 1 January 2009, and apply to all instances of non-compliance occurring on or after 1 January 2009. In the case of pre-existing non-compliance (e.g. matters that were already overdue before 31 December 2008), the new penalty regulations will apply from 1 April 2009.
The Regulations apply only to the Income Tax Act, and would thus also cover other taxes like Donations Tax and STC (etc.), but not VAT and Estate Duty (etc.), which are taxes governed by other Acts.
The regulations authorise SARS (at its discretion) to impose the following penalties per month, depending on the taxpayer’s previous year’s taxable income:
** see http://www.etaxes.co.za/docs/TaxAlert9Feb.pdf for table
The first incidence of the penalty is triggered on the date of the non-compliance. If the non-compliance is not fixed within 30 days, the penalty is levied again successively every month. In this respect, there is a clear intention to penalise more severely taxpayers who do not inform SARS of address changes, i.e. current address details are not on record with SARS or if SARS is unable to deliver the penalty assessment:
** see http://www.etaxes.co.za/docs/TaxAlert9Feb.pdf for table
These fixed-amount penalties are separate from the percentage-based penalties that might also apply in some cases.
Two categories of companies will never pay less than the Category (vii) penalty (R8,000 per month) even if they have an assessed loss, namely:
* all listed companies (and their “group” companies); and
* any company whose gross receipt/accruals exceeded R500m in the previous year (or any other companies in its “group”).
An exception exists for companies that did not trade for the entire previous tax year
(Note that the “group” definition for tax purposes requires, inter alia, a 70% holding.)
The actual non-compliance being targeted (i.e. triggering the penalties listed above) is as follows :
a. failure to register as required by the ITA (e.g. as a taxpayer, employer etc);
b. failure to notify SARS of a change in address;
c. failure by a company to appoint a public officer, domicilium, etc.;
d. failure to submit a return or other required documents/information;
e. failure to make available required information, etc.;
f. failure to reply to or answer a question when required;
g. failure to attend and give evidence when required;
h. failure by an employer to notify SARS of a change of address or the fact of having ceased to be an employer;
i. failure by an employer to submit a monthly declaration of employees’ tax;
j. failure by an employer to provide details of an employee;
k. failure to deliver an employees’ tax certificate to one or more employees as and when required by the ITA;
l. delivery by an employer of an employees’ tax certificate without first rendering an employees’ tax return;
m. failure by a provisional taxpayer to submit an estimate of taxable income as and when required under the Act;
or
n. any other non-compliance with an obligation imposed under the ITA.
Note that these fixed-amount penalties are separate from the percentage-based penalties that might also apply in some cases (e.g. 10% for late payment of provisional tax).
There are also several other rules in the regulations, dealing with (for example) procedures, possible remittance of penalties, objection, and so forth.
Thursday, February 19, 2009
Income Tax Act to be rewritten
- Sanchia Temkin - Professional Services Editor - Business Day
THE government has embarked on a huge project to rewrite the Income Tax Act. This is in line with plans for a new social security dispensation, which is expected next year.
“The Income Tax Act is nearly 50 years old. It has been amended and extended over the years to cover business transactions and developments that were unheard of when it was introduced. It is therefore to be expected that its flow may not be as logical as may be ideal, or that there may be inconsistencies in its language,” South African Revenue Service (SARS) spokesman Adrian Lackay said yesterday.
SARS and the treasury had been in discussions with the International Monetary Fund (IMF) with respect to the rewrite of the act, said Lackay. The IMF had offered technical expertise to assist the rewrite, he said. But there would be a phased approach to rewriting the legislation.
As far back as the 1990s the government had proposed rewriting the Income Tax Act and a leading academic was briefed to lead the process. However, the process was postponed due to various complications. Finance Minister Trevor Manuel said in 2005 that a rewrite of the legislation was on the cards but the government was not in a position to say when it would be done.
Last week, the budget review announced the rewrite of the portion of the Income Tax Act dealing with employment income. Lackay said this part of the act was chosen to assist the largest number of taxpayers, the ordinary people of SA.
Emil Brincker, a tax director at commercial law firm Cliffe Dekker Hofmeyr, said the government should be cautious about rewriting the act in its entirety. “Tax analysts and taxpayers are used to the terminology of the legislation. Further, case law has evolved for decades around the act,” Brincker said. “The government needs to consider whether it is going to be modelling the law on other jurisdictions, such as that of Australia or New Zealand. This is what happened with SA’s Companies Act. The question needs to be asked whether SA wants to aspire to another country’s tax laws.”
Brincker said the tax laws should be rewritten only for administrative purposes.
Charles de Wet, a tax partner at PricewaterhouseCoopers, said it was understandable that the issue of employment income was on the agenda as the definition of “remuneration” ran through three different laws.
Rewriting the law was a complex job. “It needs to be carefully planned and thought through,” De Wet said. “It is also dangerous to get rid of precedent.”
The 2005 budget review announced that a Tax Administration Bill would be released to eradicate duplication of administrative provisions in various tax acts. Lackay said this had proved to be a more ambitious task than initially anticipated but an internal draft of the bill was at an advanced stage.
THE government has embarked on a huge project to rewrite the Income Tax Act. This is in line with plans for a new social security dispensation, which is expected next year.
“The Income Tax Act is nearly 50 years old. It has been amended and extended over the years to cover business transactions and developments that were unheard of when it was introduced. It is therefore to be expected that its flow may not be as logical as may be ideal, or that there may be inconsistencies in its language,” South African Revenue Service (SARS) spokesman Adrian Lackay said yesterday.
SARS and the treasury had been in discussions with the International Monetary Fund (IMF) with respect to the rewrite of the act, said Lackay. The IMF had offered technical expertise to assist the rewrite, he said. But there would be a phased approach to rewriting the legislation.
As far back as the 1990s the government had proposed rewriting the Income Tax Act and a leading academic was briefed to lead the process. However, the process was postponed due to various complications. Finance Minister Trevor Manuel said in 2005 that a rewrite of the legislation was on the cards but the government was not in a position to say when it would be done.
Last week, the budget review announced the rewrite of the portion of the Income Tax Act dealing with employment income. Lackay said this part of the act was chosen to assist the largest number of taxpayers, the ordinary people of SA.
Emil Brincker, a tax director at commercial law firm Cliffe Dekker Hofmeyr, said the government should be cautious about rewriting the act in its entirety. “Tax analysts and taxpayers are used to the terminology of the legislation. Further, case law has evolved for decades around the act,” Brincker said. “The government needs to consider whether it is going to be modelling the law on other jurisdictions, such as that of Australia or New Zealand. This is what happened with SA’s Companies Act. The question needs to be asked whether SA wants to aspire to another country’s tax laws.”
Brincker said the tax laws should be rewritten only for administrative purposes.
Charles de Wet, a tax partner at PricewaterhouseCoopers, said it was understandable that the issue of employment income was on the agenda as the definition of “remuneration” ran through three different laws.
Rewriting the law was a complex job. “It needs to be carefully planned and thought through,” De Wet said. “It is also dangerous to get rid of precedent.”
The 2005 budget review announced that a Tax Administration Bill would be released to eradicate duplication of administrative provisions in various tax acts. Lackay said this had proved to be a more ambitious task than initially anticipated but an internal draft of the bill was at an advanced stage.
Wednesday, February 4, 2009
Critical issues to be addressed
- Paul Gering, CA (SA) - a tax director - PKF Chartered Accountants and Business Advisers
Every rugby spectator is a selector, and every taxpayer a Minister of Finance, which is why Trevor Manuel is inundated with budget advice at this time of year.
At this time of global economic turmoil, there are some critical issues that need to be addressed. Job preservation and creation is one, and encouragement to save another.
Government needs to stimulate the job market while also creating retrenchment disincentives. A penalty for retrenching workers can be created by adding back into an employer’s tax bill 20 percent PAYE reduction caused by the decrease in employees. At the same time, an additional deduction, of 20 percent of PAYE increase during the year of assessment in which jobs are created, could be granted to employers.
Job creation will also be stimulated by encouraging new businesses. To this end, the venture capital incentive announced last year by the minister was a bold step, but unfortunately it is not going to provide businesses with the access to funding they require until the low levels of gross asset value that have been set are raised. It would therefore be helpful if this venture capital incentive was expanded.
Changing people’s behaviour is never easy, but our already weak culture of saving might be encouraged if the minister were to dramatically increase the tax-free portion of interest that can be.
While the stimulation of employment and savings should lead in time to increased tax revenues, this will be of little avail if the present misuse of tax funds by government departments continues. Poor controls, leading to unauthorized spending and overpayment for services, must be improved. The Auditor General ought therefore to be given a larger budget so as to perform expanded control tests – with the active participation of private sector audit firms – and to do this more often.
The poor state of education in the country also needs to be addressed. Generally, private schools achieve much better results than state schools, showing clearly that far more resources need to be mobilised if education is to be improved. Many private schools have the capacity to teach more learners. The minister’s bold move last year to increase the deductions allowed for bursaries should therefore be expanded to allow all taxpayers, including employees (who are currently limited in this regard), to treat 20 percent of all school fees they pay (thus not only their children’s fees) as tax deductible. This would apply up to a limit of R5,000 per learner.
A final suggestion is that a new tax amnesty should be announced. The foreign exchange amnesty initiated a few years ago allowed many people to regularise their tax affairs without paying crippling penalties. A subsequent, more limited amnesty for small businesses that had been guilty of local tax evasion or administrative non-compliance was announced a few years later. Perhaps it is now time for a final all-inclusive amnesty to be announced to finally close the chapter on past irregularities.
This amnesty would have to cover all business structures, complex and simple, listed and unlisted, with different levels of penalties being set based on turnover in the year of assessment: for example, turnover up to R50 million, then R200 million, then anything above that.
The rationale for such an amnesty is four fold:
1. With the economy in decline, companies facing large arrears in tax liabilities could face liquidation.
2. The capacity of SARS to perform regular company audits is constrained, so that past infringements are not easily being detected.
3. There are many companies previously involved in aggressive tax planning that would like to close that chapter should the penalty for doing so not be too severe.
4. With tax revenues likely to drop with the decline in the economy, this is a good time to boost revenues with proceeds from the amnesty.
Mr Manuel’s job of balancing the budget this year is not an enviable one, but judging from past achievements he will surely do a fine job come February 11 when he presents the country’s budget to parliament. Perhaps he’ll even incorporate some of the above well-intended advice.
Every rugby spectator is a selector, and every taxpayer a Minister of Finance, which is why Trevor Manuel is inundated with budget advice at this time of year.
At this time of global economic turmoil, there are some critical issues that need to be addressed. Job preservation and creation is one, and encouragement to save another.
Government needs to stimulate the job market while also creating retrenchment disincentives. A penalty for retrenching workers can be created by adding back into an employer’s tax bill 20 percent PAYE reduction caused by the decrease in employees. At the same time, an additional deduction, of 20 percent of PAYE increase during the year of assessment in which jobs are created, could be granted to employers.
Job creation will also be stimulated by encouraging new businesses. To this end, the venture capital incentive announced last year by the minister was a bold step, but unfortunately it is not going to provide businesses with the access to funding they require until the low levels of gross asset value that have been set are raised. It would therefore be helpful if this venture capital incentive was expanded.
Changing people’s behaviour is never easy, but our already weak culture of saving might be encouraged if the minister were to dramatically increase the tax-free portion of interest that can be.
While the stimulation of employment and savings should lead in time to increased tax revenues, this will be of little avail if the present misuse of tax funds by government departments continues. Poor controls, leading to unauthorized spending and overpayment for services, must be improved. The Auditor General ought therefore to be given a larger budget so as to perform expanded control tests – with the active participation of private sector audit firms – and to do this more often.
The poor state of education in the country also needs to be addressed. Generally, private schools achieve much better results than state schools, showing clearly that far more resources need to be mobilised if education is to be improved. Many private schools have the capacity to teach more learners. The minister’s bold move last year to increase the deductions allowed for bursaries should therefore be expanded to allow all taxpayers, including employees (who are currently limited in this regard), to treat 20 percent of all school fees they pay (thus not only their children’s fees) as tax deductible. This would apply up to a limit of R5,000 per learner.
A final suggestion is that a new tax amnesty should be announced. The foreign exchange amnesty initiated a few years ago allowed many people to regularise their tax affairs without paying crippling penalties. A subsequent, more limited amnesty for small businesses that had been guilty of local tax evasion or administrative non-compliance was announced a few years later. Perhaps it is now time for a final all-inclusive amnesty to be announced to finally close the chapter on past irregularities.
This amnesty would have to cover all business structures, complex and simple, listed and unlisted, with different levels of penalties being set based on turnover in the year of assessment: for example, turnover up to R50 million, then R200 million, then anything above that.
The rationale for such an amnesty is four fold:
1. With the economy in decline, companies facing large arrears in tax liabilities could face liquidation.
2. The capacity of SARS to perform regular company audits is constrained, so that past infringements are not easily being detected.
3. There are many companies previously involved in aggressive tax planning that would like to close that chapter should the penalty for doing so not be too severe.
4. With tax revenues likely to drop with the decline in the economy, this is a good time to boost revenues with proceeds from the amnesty.
Mr Manuel’s job of balancing the budget this year is not an enviable one, but judging from past achievements he will surely do a fine job come February 11 when he presents the country’s budget to parliament. Perhaps he’ll even incorporate some of the above well-intended advice.
Thursday, January 29, 2009
Managing Expats - and getting quality returns on top skills
- Kemp Munnik, Director - BDO Spencer Steward
Skills: The ultimate trading commodity in today’s global economy. As companies across the world redefine operations, systems and processes in order to bridge skills gaps, they are not only looking across borders and continents to source scarce skills.
They are engaging in honest conversations with quality staff in a bid to retain them, even if this means facilitating secondment or relocation. The result? More companies are turning to professionals when it comes to expatriate management – ensuring that critical tax policy selection and support is guaranteed throughout the experience and, consequently, building a relationship that will eventually create a viable source of inbound expatriates…
Relocation, repatriation, secondments and transfers: four words currently revolutionising business in – and the demographics of – South Africa. With companies around the world poaching skilled staff from all industries, and challenges within our borders encouraging the migration of skills, South African businesses have to come to the party and `take the gloves off’ when it comes to attracting and retaining staff.
For many this has meant having open, honest discussions with key employees regarding their future role in the business, and accommodating – like never before – the dreams and desires of staff to see the world, experience other cultures and live in a safer, familyoriented environment.
It has also meant taking a long-term `big picture’ approach to employment and globalisation, creating partner networks and affiliations that allow skilled employees the freedom to move within set parameters and eventually entice them home as inbound expatriates.
Current trends
So companies are under increasing pressure to accommodate travel and other tendencies.
This is something they are doing while remaining cognisant of cost and bottom-line considerations, preferring to facilitate shorter assignments.
Recent research by ORC Worldwide has shown a 20% increase in short-term assignments, with 85% of companies developing a separate policy governing these. With this steady increase in short-term assignments, we’re seeing a corresponding rise in compliance risks as companies commit to secondments or transfers without a full understanding of the tax and legislative implications.
The reality facing companies dealing with expatriates then is that business imperatives alone no longer drive the expat management process. It has become a focus area all on its own, and a complex one at that.
What is involved?
Today’s expatriate management involves everything from initial assignment planning right
through to repatriation and post-assignment services. It therefore includes all aspects of the expatriation process, from assisting with immigration requirements to assignee support and management despite the individual no longer living in one’s country. As such, it makes the employer as organiser and facilitator the critical element in the equation – going a long way in restoring the original employer/employee status quo.
Discussion between business units throughout the expatriation process is critical. HR needs to be kept informed and included in all conversations regarding employees’ movements so as to facilitate and guide the process according to the company’s expatriate policy. Not only is this imperative from a compliance point of view, but it will go a long way in fostering mutual trust and effectively lay a solid foundation to bring all outbound expatriates back home in the future.
Expatriate policy
Having an established expatriate policy will ensure that the process of expatriation is handled efficiently and effectively by one’s company – and that one knows how to deal with expat employees. This policy should cover all necessary human resources issues, including all repatriation processes, as well as include a tax policy.
It needs to set down clear guidelines that could otherwise be misconstrued by employees. It must determine how the company will address everything from payment of school fees to contribution to pension funds. If your company deals with inbound and outbound expatriates, it may be a good idea to develop separate policies for different countries.
A cost of living allowance is another crucial component of expatriate policy. From a company perspective, this needs to be benchmarked for salaries. The company’s expatriate policy must also govern the issue of secondment or transfer. These have different implications for employee and employer. This has become more important with the increase we’re seeing in short-term assignments.
Too often expatriate policy is neglected, with the focus of expatriate management honed on tax implications. Tax policy must form part of this far more comprehensive and far-reaching policy document, as HR issues are a critical part of what can potentially become a very complicated process. This will ensure that there are no grey areas that need to be addressed when employees return home.
By linking the employment contract to this policy document, companies will additionally ensure that expectations are managed appropriately and consistently from the outset.
Best tax policy
When determining the most beneficial tax policy to use while employees are overseas, companies should help employees meet their remuneration objectives. At the same time, they should ensure that the tax policy adopted is in line with the company’s overall business strategy.
A number of policies need to be carefully considered in this regard. Using a laissez-faire policy for example will leave expatriates responsible for their own taxes. A tax protection policy on the other hand will leave the employer responsible for any tax liability higher than that of the home country.
Tax equalisation policy
According to ORC Worldwide, 80% of companies are choosing a tax equalisation policy, where employees receive the same net salary and pay the same amount of tax as if they had continued working in their home country. In this instance, expats pay `hypothetical tax’, with the employer responsible for all tax liabilities in home and host countries – `grossed up tax’.
Tax equalisation ensures that the company keeps the tax benefit of having its employees in lower tax countries, so helping to offset the tax costs of those employees in countries with higher tax rates. But because expats don’t gain the benefit of lower host tax rates themselves, it may discourage the mobility of high-end earners. The company will also have to ensure that expats aren’t already personally liable for tax due to their citizenship in certain countries.
While tax equalisation policies often initially look very attractive, it is important to note they can be exceptionally expensive to implement because of their sophistication. The cost of this type of policy is often additionally increased by virtue of competitor firms providing similar packages with higher net salaries. Allowances often become a standard feature of this type of policy, with employers trying to compensate for exchange rate fluctuations, the cost of renting accommodation and pension provisions among others. This increases the cost to the employer
significantly.
See the opportunity
When it comes to providing expatriate employees with advice and support, companies need to view expatriate management as an opportunity to make themselves an invaluable part of their employees’ lives – and to act as enablers.
In this way, businesses will not only ensure they work with employees to make their professional dreams realities, but that this happens in the context of the company’s network.
This is exactly the platform needed to build employee loyalty for the long-term and to bring outbound expatriates back home.
Skills: The ultimate trading commodity in today’s global economy. As companies across the world redefine operations, systems and processes in order to bridge skills gaps, they are not only looking across borders and continents to source scarce skills.
They are engaging in honest conversations with quality staff in a bid to retain them, even if this means facilitating secondment or relocation. The result? More companies are turning to professionals when it comes to expatriate management – ensuring that critical tax policy selection and support is guaranteed throughout the experience and, consequently, building a relationship that will eventually create a viable source of inbound expatriates…
Relocation, repatriation, secondments and transfers: four words currently revolutionising business in – and the demographics of – South Africa. With companies around the world poaching skilled staff from all industries, and challenges within our borders encouraging the migration of skills, South African businesses have to come to the party and `take the gloves off’ when it comes to attracting and retaining staff.
For many this has meant having open, honest discussions with key employees regarding their future role in the business, and accommodating – like never before – the dreams and desires of staff to see the world, experience other cultures and live in a safer, familyoriented environment.
It has also meant taking a long-term `big picture’ approach to employment and globalisation, creating partner networks and affiliations that allow skilled employees the freedom to move within set parameters and eventually entice them home as inbound expatriates.
Current trends
So companies are under increasing pressure to accommodate travel and other tendencies.
This is something they are doing while remaining cognisant of cost and bottom-line considerations, preferring to facilitate shorter assignments.
Recent research by ORC Worldwide has shown a 20% increase in short-term assignments, with 85% of companies developing a separate policy governing these. With this steady increase in short-term assignments, we’re seeing a corresponding rise in compliance risks as companies commit to secondments or transfers without a full understanding of the tax and legislative implications.
The reality facing companies dealing with expatriates then is that business imperatives alone no longer drive the expat management process. It has become a focus area all on its own, and a complex one at that.
What is involved?
Today’s expatriate management involves everything from initial assignment planning right
through to repatriation and post-assignment services. It therefore includes all aspects of the expatriation process, from assisting with immigration requirements to assignee support and management despite the individual no longer living in one’s country. As such, it makes the employer as organiser and facilitator the critical element in the equation – going a long way in restoring the original employer/employee status quo.
Discussion between business units throughout the expatriation process is critical. HR needs to be kept informed and included in all conversations regarding employees’ movements so as to facilitate and guide the process according to the company’s expatriate policy. Not only is this imperative from a compliance point of view, but it will go a long way in fostering mutual trust and effectively lay a solid foundation to bring all outbound expatriates back home in the future.
Expatriate policy
Having an established expatriate policy will ensure that the process of expatriation is handled efficiently and effectively by one’s company – and that one knows how to deal with expat employees. This policy should cover all necessary human resources issues, including all repatriation processes, as well as include a tax policy.
It needs to set down clear guidelines that could otherwise be misconstrued by employees. It must determine how the company will address everything from payment of school fees to contribution to pension funds. If your company deals with inbound and outbound expatriates, it may be a good idea to develop separate policies for different countries.
A cost of living allowance is another crucial component of expatriate policy. From a company perspective, this needs to be benchmarked for salaries. The company’s expatriate policy must also govern the issue of secondment or transfer. These have different implications for employee and employer. This has become more important with the increase we’re seeing in short-term assignments.
Too often expatriate policy is neglected, with the focus of expatriate management honed on tax implications. Tax policy must form part of this far more comprehensive and far-reaching policy document, as HR issues are a critical part of what can potentially become a very complicated process. This will ensure that there are no grey areas that need to be addressed when employees return home.
By linking the employment contract to this policy document, companies will additionally ensure that expectations are managed appropriately and consistently from the outset.
Best tax policy
When determining the most beneficial tax policy to use while employees are overseas, companies should help employees meet their remuneration objectives. At the same time, they should ensure that the tax policy adopted is in line with the company’s overall business strategy.
A number of policies need to be carefully considered in this regard. Using a laissez-faire policy for example will leave expatriates responsible for their own taxes. A tax protection policy on the other hand will leave the employer responsible for any tax liability higher than that of the home country.
Tax equalisation policy
According to ORC Worldwide, 80% of companies are choosing a tax equalisation policy, where employees receive the same net salary and pay the same amount of tax as if they had continued working in their home country. In this instance, expats pay `hypothetical tax’, with the employer responsible for all tax liabilities in home and host countries – `grossed up tax’.
Tax equalisation ensures that the company keeps the tax benefit of having its employees in lower tax countries, so helping to offset the tax costs of those employees in countries with higher tax rates. But because expats don’t gain the benefit of lower host tax rates themselves, it may discourage the mobility of high-end earners. The company will also have to ensure that expats aren’t already personally liable for tax due to their citizenship in certain countries.
While tax equalisation policies often initially look very attractive, it is important to note they can be exceptionally expensive to implement because of their sophistication. The cost of this type of policy is often additionally increased by virtue of competitor firms providing similar packages with higher net salaries. Allowances often become a standard feature of this type of policy, with employers trying to compensate for exchange rate fluctuations, the cost of renting accommodation and pension provisions among others. This increases the cost to the employer
significantly.
See the opportunity
When it comes to providing expatriate employees with advice and support, companies need to view expatriate management as an opportunity to make themselves an invaluable part of their employees’ lives – and to act as enablers.
In this way, businesses will not only ensure they work with employees to make their professional dreams realities, but that this happens in the context of the company’s network.
This is exactly the platform needed to build employee loyalty for the long-term and to bring outbound expatriates back home.
Thursday, January 22, 2009
How small business taxes will work
- SARS - Moneyweb Tax
Sars reveals all, including how the exemption from STC will work and special measures available to assist businesses that de-register for VAT and register for the simplified tax system.
The Revenue Laws Amendment Act, 2008, which was promulgated on January 8 2009, introduces a simplified tax system for many businesses with an annual turnover of up to R1m. This system will substantially reduce tax compliance costs for qualifying businesses.
The simplified tax system essentially consists of a single turnover tax as a substitute for income tax, capital gains tax, secondary tax on companies (STC) and value-added tax (VAT). It will come into operation on March 1 2009. Qualifying businesses will have the option of choosing between the simplified tax system and the existing tax system.
The turnover tax is a stand alone tax and does not form part of the usual calculations for determining income tax. Unlike the income tax system, which makes use of comprehensive inclusion rules and a reduction process that requires proof of expenses to be maintained, the turnover tax is basically calculated by applying a low set of tax rates to the turnover of the business.
The turnover tax will be payable annually on assessment with two six-monthly interim payments.
Capital gains will be taxed by simply including 50% of the amounts received from the disposal of business assets in the turnover to be taxed. Close corporations and other corporate entities that choose the simplified tax system will be exempt from STC to the extent that their dividend distributions do not exceed R200 000 a year.
Special measures are available to assist businesses that de-register for VAT and register for the simplified tax system. They will be able to make use of a deduction of up to R100 000 of the value of the assets used to calculate the VAT charge due to de-registration. This amounts to a reduction of up to R12,281 in the VAT charge. They will also be able to re-pay any remaining VAT charge due to de-registration over a period of six months.
Sars has prepared a Tax Guide for Micro Businesses to assist them with understanding the simplified tax system better and to empower them to make an informed decision on registering for it.
The Guide is now released in draft form for public comment. Kindly send your comments by email, with the subject line ""Tax Guide for Micro Businesses"", to policycomments@sars.gov.za or by facsimile to 012-422-5195 by 19 January 2009. Although individual responses will not be possible, all comments will be acknowledged and taken into account in finalising the Guide.
Sars reveals all, including how the exemption from STC will work and special measures available to assist businesses that de-register for VAT and register for the simplified tax system.
The Revenue Laws Amendment Act, 2008, which was promulgated on January 8 2009, introduces a simplified tax system for many businesses with an annual turnover of up to R1m. This system will substantially reduce tax compliance costs for qualifying businesses.
The simplified tax system essentially consists of a single turnover tax as a substitute for income tax, capital gains tax, secondary tax on companies (STC) and value-added tax (VAT). It will come into operation on March 1 2009. Qualifying businesses will have the option of choosing between the simplified tax system and the existing tax system.
The turnover tax is a stand alone tax and does not form part of the usual calculations for determining income tax. Unlike the income tax system, which makes use of comprehensive inclusion rules and a reduction process that requires proof of expenses to be maintained, the turnover tax is basically calculated by applying a low set of tax rates to the turnover of the business.
The turnover tax will be payable annually on assessment with two six-monthly interim payments.
Capital gains will be taxed by simply including 50% of the amounts received from the disposal of business assets in the turnover to be taxed. Close corporations and other corporate entities that choose the simplified tax system will be exempt from STC to the extent that their dividend distributions do not exceed R200 000 a year.
Special measures are available to assist businesses that de-register for VAT and register for the simplified tax system. They will be able to make use of a deduction of up to R100 000 of the value of the assets used to calculate the VAT charge due to de-registration. This amounts to a reduction of up to R12,281 in the VAT charge. They will also be able to re-pay any remaining VAT charge due to de-registration over a period of six months.
Sars has prepared a Tax Guide for Micro Businesses to assist them with understanding the simplified tax system better and to empower them to make an informed decision on registering for it.
The Guide is now released in draft form for public comment. Kindly send your comments by email, with the subject line ""Tax Guide for Micro Businesses"", to policycomments@sars.gov.za or by facsimile to 012-422-5195 by 19 January 2009. Although individual responses will not be possible, all comments will be acknowledged and taken into account in finalising the Guide.
Monday, January 19, 2009
Dotting the i’s and crossing the t’s on 2009 budget
- Matthew Lester - Net Assets
In October last year, finance minister Trevor Manuel told us all that we were still in reasonable shape to weather the global credit crunch storm.
Tax collections for 2008/09 were about on target, with an anticipated overrun in individuals’ tax collections making up for what would be lost as the economy cooled off.
Government expenditure would overshoot a bit, as it does every year.
Manuel predicted that the net result for 2008/09 would be a small national deficit. But South Africa was strong enough to take it, he said. Worse things have happened at sea!
But that was based on six months of tax collections to September 30 and markets as at October 21 2008. Now we have to throw in a few other curve balls:
1. Joe Consumer did cut back on his Christmas spend. But by how much? And what will the effect be on VAT and customs and excise collections? Christmas 2007 was imported luxuries and excess all the way, whereas Christmas 2008 was a bring and braai.
2. Commodity prices plunged post- September 2008, except for dear old gold. What will this do to the big corporate tax payments due at the end of March 2009?
3. This year, the national budget has been brought forward to February 11. That’s a full six weeks before the fiscal financial year end. So, regardless of what Manuel tells us on budget day, we may all be April fools this year.
But what about 2009/10? For the last few years, state expenditure has been increasing by about 11% a year.
So, with higher inflation, let’s say that state expenditure must increase by 15% to keep momentum going. That increases the target from R642-billion for 2008/09 to a staggering R738-billion for 2009/10. And Manuel must find another R96-billion from the taxpayer.
Even after a moderate tax cut to individuals to keep fiscal drag at bay, individual tax collections will increase by about R25-billion — if employment levels stay constant, that is.
And I reckon he will struggle to get another R15-billion from companies and R20-billion from VAT, unless there are tax increases. And I am not predicting that in an election year.
Manuel will probably add 25c a litre to fuel as prices are so low — that’s another R5-billion. And he will definitely hit smokers and drinkers with a record increase in sin tax, collecting another R5-billion. So, at best, he can find about R70-billion of the R96-billion.
In real terms, a national deficit of R35-billion to R50-billion is sustainable. But if the political game plan is accelerated delivery by increasing state expenditure, then I just don’t know.
Lester is professor of taxation studies at Rhodes University, Grahamstown
In October last year, finance minister Trevor Manuel told us all that we were still in reasonable shape to weather the global credit crunch storm.
Tax collections for 2008/09 were about on target, with an anticipated overrun in individuals’ tax collections making up for what would be lost as the economy cooled off.
Government expenditure would overshoot a bit, as it does every year.
Manuel predicted that the net result for 2008/09 would be a small national deficit. But South Africa was strong enough to take it, he said. Worse things have happened at sea!
But that was based on six months of tax collections to September 30 and markets as at October 21 2008. Now we have to throw in a few other curve balls:
1. Joe Consumer did cut back on his Christmas spend. But by how much? And what will the effect be on VAT and customs and excise collections? Christmas 2007 was imported luxuries and excess all the way, whereas Christmas 2008 was a bring and braai.
2. Commodity prices plunged post- September 2008, except for dear old gold. What will this do to the big corporate tax payments due at the end of March 2009?
3. This year, the national budget has been brought forward to February 11. That’s a full six weeks before the fiscal financial year end. So, regardless of what Manuel tells us on budget day, we may all be April fools this year.
But what about 2009/10? For the last few years, state expenditure has been increasing by about 11% a year.
So, with higher inflation, let’s say that state expenditure must increase by 15% to keep momentum going. That increases the target from R642-billion for 2008/09 to a staggering R738-billion for 2009/10. And Manuel must find another R96-billion from the taxpayer.
Even after a moderate tax cut to individuals to keep fiscal drag at bay, individual tax collections will increase by about R25-billion — if employment levels stay constant, that is.
And I reckon he will struggle to get another R15-billion from companies and R20-billion from VAT, unless there are tax increases. And I am not predicting that in an election year.
Manuel will probably add 25c a litre to fuel as prices are so low — that’s another R5-billion. And he will definitely hit smokers and drinkers with a record increase in sin tax, collecting another R5-billion. So, at best, he can find about R70-billion of the R96-billion.
In real terms, a national deficit of R35-billion to R50-billion is sustainable. But if the political game plan is accelerated delivery by increasing state expenditure, then I just don’t know.
Lester is professor of taxation studies at Rhodes University, Grahamstown
Subscribe to:
Posts (Atom)
